ML20206E902
| ML20206E902 | |
| Person / Time | |
|---|---|
| Site: | Crystal River  |
| Issue date: | 12/31/1998 |
| From: | Korpan R FLORIDA POWER CORP. |
| To: | |
| Shared Package | |
| ML20206E890 | List:
|
| References | |
| NUDOCS 9905050278 | |
| Download: ML20206E902 (50) | |
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l COUNT ON US , hat's our pledge to shareholders, customers and employees as our Tprincipal subsidiary, Florida Power Corporation, ente U of sefvice. This 1998 Florida Progress Annual Report honors our past by Y declaring our commitmentsfor the future. Our commitments are based on thefact that our investors,
, y /
employees, customers and n* communities have been 9 able to count on us to deliver on our promises. And as we look ahead to 1999 and the new millen-nium, you can continue to " Count On Us." I On a typical day in a Rorida Power neighborhood, our customers go about their business knowing we're tcking core of ours. p. P
.. SeitC1\on : , %> ' v, &d?Ed:G. 4*SJ T... .
a mm m e.untOn Md awm e Seele Fu.isajW/ QJ %m, p. Oleassalort 4;Analys,is92% n s ' u a
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f __ t: ei.e 4 wno,s a :n ' nm$st.nas; ants l1septees%d Ff ,Mg Directors and Omcers; " o " y' .
, ; 48
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. .a toIrida.Progiess Corporation .(NYSE: pPC) is-a Fortune 500 diversi . ~* '
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, fied electric utility holding company based in St. Petenrburg, Florida.
In 1998, Florida Progress reported annual revenues of $3.6 billion . gg .
. and assets in excess of $6 billion. The company's pri -
~
cipal holdings are Florida P6wer Corporation, .
~
l an; electric utility. located in onecof the . . [ country's fastest-growing areas,3nd. .
'-"o ("" ,
Electric Fuits Corporation, a diversi- . f C r ystal Riwr . fied energy.and tr:ansportation company. 1 . .
. p Florida Power'. Corporation. . - . .
In 1999, Florida Power enters its 100th year of service. . For a ceritury, the St. Petersburg-based company has pro-vided Floridians.with reliable, competitively priced elec . - tric service. Today, . Florida Power is-the state's second- - : +- largest electric utility, serving 1.3 million customers in
.. Centrgand North Floridag Its service territory covers " '
. About 20,000 square miles in 32 counties, including the . -
major Gulf Coast cities of St. Petersburij and Clearwater, ' * .. ,
. as well as the re.pidly growing Central Florida area around. '.
' - Orlando. Florida Power has about 4,760' employees, and' . " ~
.g its 1998 revenues were $2.6 billioA ' .. Electric . Fuels Corpora.ti'on. _ ~ ~ c .- .
t ' ... 1 Bectric Fuels is 'a rajiidly growing energy and transporta. J
. .' tion company with operations in 22 states, Can'ada and '.
.~ ' Mexico. ~ihe comhany has three main busin$ssesf1. tail j ,
ServicesJInland Marine Transportation, and Energy and.. l.. g .. Related 5ervices2 Thrputih thesemnits,JtectricTuelg . g , .] op,erates"ont.of the largest integrated providers'cf . L. J.. rail] . - l D services in the . United States; owns anidfficient river D . t I g i \y '
.. . b c and!- M;fl .aM has- coal-minipg. .,
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3 L ETT E R TO OUR S H A R E.H O L D E R S improve our reliability, service and employees within our organization O urnies Florida Progress achieved excellent per- compa-competitive position. These invest- accomplished throughout the year. formances in 1998, making signifi- ments position us well to deliver Our 1998 results were founded on cant advances toward our long-term solid customer benefits that will solid improvements at both Florida objectives. Our 1998 accomplish- enhance our future potential. The Power and Electric Fuels - improve-
- ments are solid proof that across the years exceptional results contributed ments that enabled us to reap the full range of our businesses, Florida to the increase in the company's benefits of increased demand and Progress shareholders can indeed share price, which closed 1998 at customer growth. That attention
* "Ccunt On Us." $44.81. Florida Progress' total annu- to the details of our operations was al return of 20.2 percent in 1998 criticalin meeting the challenges That message - the Count On Us outperformed the Standard & Poofs and taking advantage of the opportu-theme for our 1998 Annual Report to ,
nities that 1998 presented. Shareholders - reflects more than a .
.. y g y single years work. Co'unt On Us & '
,. A n Maintaining a commemorates a proud history of ' n^'
StratGgiC f0CUS performance by each Florida Progress C Y company, beginning with the birth of wow Even as we recount the successes of Florida Power Corporation a century the present, and celebrate our past, ago. Count On Us celebrates 100 years of business growth,100 years (v k our vision remains focused on our future. At Florida Progress, we 1 of reliable service,100 years of employee excellence, and 100 years (- intend to grow our businesses by concentrating on three strategic of partnership with our communities. f' objectives: In that time, we're proud to have
- Maximize the advantages the rewarded our shareholders with 46 Florida marketplace offers our consecutive years of dividend growth. -
core utility business.
- Build a national retail energy Earnings per share ru3 ora xorroo, rioria, e,ogr,s, a, lemon, services business in the utitities eresident & alef becutive Offker.
}
It is gratifying to conclude our first Electrics Index. Contributing to this
- Continue to support the growth
,100 years on such a high note of impressive performance was renewed of Electric Fuels.
success. In 1998, Florida Progress' investor confidence, brought on by Our strategic focus recognizes the revenues reached a record $3.6 bil- the return to service of the Crystal current realities of the utility indus-
. lion, while our earnings per share River nuclear plant and the strong try. While increasing competition grew to $2.90. This is a 10.7 per- results reported by Florida Progress and eventual deregulation remain cent increase over 1997, before non- throughout 1998. Florida Powers issues for the future, the experience recurring charges. Our 1998 results revenues, which totaled $2.6 billion, of the last year has shown that were driven by the outstanding per- benefited from a strong demand for across the nation, the road toward formance of Florida Powe/s utility electricity over the hot summer cepetition and industry consolida-business and by the substantial months. At Electric Fuels, revenues tion is anything but straight and growth at Electric Fuels Corporation, again exceeded $1 billion, makin9 smooth.
which experienced improved results 1998 another significant year for our from all three of its primary business Energy and Transportation Group. I continue to believe that the next units. The strength of our results But citing mere numbers and decade will see the formation of permitted us to make investments in increased demand doesn't do justice major generation and retail distribu-strategic initiatives designed to to the underlying achievements that tion companies operating on a 3
~
~
national basis. But the pace of con- nology and other costs : ' solidation, which had appeared to be over a broader base.
. gi j ,% o * '
moving forward briskly, has slowed Our two joint ventures ' '
$% f l somewhat recently. Untillaws and with Cinergy Corporation .
7 3y j regulatory policies governing expan- and New Century 3 l sion activities of utilities are repealed Energies are examples , ' /. - or modified, it will be difficult to achieve the kind of industry consoli-of that approach, as is Florida Power's power e 4 j l
~
dation that could produce substantial marketing alliance with benefits for utility shareholders and Dynegy. . , . customers. Florida Power and - Positioning for the future was among Electric Fuels are mov- .. the reasons we considered a merger ing aggressively forward ,W with Scottish Power in the spring of with their respective At the New York Stock Exchange, Richard Korpan rings the 1998. That transaction with a non- plans, detailed later in closing belt August 20,1998, commemorating his first board of directors meeting as Florida Progress Chairman. He is joined U.S. company would have avoided this report, to support by other Florida Progress board members, his wife, Pat, and market concentration concerns, while our corporate growth Richard A. Grosso, Chairman & CEO of the NYSE. providing increased scale and scope objectives by focusing on for pursuing further operating effi- a range of specific commitments -
)
At the corporate level, Florida ciencies and access to additional commitments to the shareholders of Progress is making solid commit-resources for growth. At the same Florida Progress, to their customers ments as well. Chief among them is time, the combination would have and to their employees. These com-our commitment to an aggressive preserved the benefits of our Florida mitments stand as long-range objec- five-year objective - to deliver to market and established a leading tives, guiding the strategic planning our shareholders consistent annual position in the consolidation of the processes of the respective business earnings per share growth of 5 per-U.S. market. But ultimately, it was units, and are supported by annual cent or better. That's a minimum determined that moving forward with performance targets. target we are striving to achieve in the transaction, as it was contem-order to remain an attractive invest-plated, would not have sufficiently recognized the shareholder value gg[jygpjHQ 0D OUT ment for our shareholders, that has been built at Florida Commitments As we begin to celebrate the 100th Progress. Meeting these annual targets and the Anniversary of Florida Power, we can i long-range customer and employee turn to our record of past success to Committed to growing commitments will drive the business demonstrate that the Florida Progress g ggggg results that ultimately deliver earn-ings growth for our shareholders. companies indeed deliver on the ,l commitments we make - to show i Florida Progress remains committed Florida Power's customer commit- that all our constituencies can Count l to growing our business for the ben- ments focus on price, reliability and On Us to deliver on our promises , efit of our shareholders, and we will service - precisely the kinds of now and in the future. continue to explore varied opportuni- commitments that will ensure Florida ties for achieving growth, including Power is positioned as the provider gggg gj[ggggggg mergers and acquisitions. of choice in a competitive market-place, and well-prepared to advance Throughout 1998, we demonstrated Given the current regulatory environ- into the national retail energy ser. our adherence to that principle again ment, we have concentrated our vices market. Investments that sup. and again. immediate preparations for a more port these ccmmitments by returning
- As the year began, we returned competitive marketplace on joint real benefits to customers are among our Crystal River nuclear plant to ventures and alliances that can pro- the strategic uses for which Florida ful'. service, thanks to the dedica-ceed swiftly and still enable us to Power's 1998 revenues have been tion and hard work of our employ-spread marketing, information tech- deployed. ees at Florida Power. Restoring 4
i
the nuclear unit to our generation This new subsidiary was created fleet was a commitment we made to our customers, to our share-to take advantage of market opportunities in Florida's fast-Stra egic
?
holders and to industry regulators. E
- growth fiber-optic telecommuni- r%
This accomplishment remains one of our primary achievements of cations business. It plans to sell wholesale fiber-optic-based Lilfe' Ct100 . 1998, capacity service in Florida to long-distance carriers, Internet At Florida Progress, we intend
- During a summer of extreme heat service providers and other to grow our businesses by and unprecedented demand for .
- electricity, Florida Power kept its ." *E'"*'
as well as large industrial, com-concentrating on three clearly system operating at high efficiency. defined strategic objectives: nie c n g e nmen en es. Thanks to the efforts of our employees, we were able to meet A significant change at our helm Maximize the advantages all of our firm commitments t took place in 1998 - Dr. Jack the Florida marketplace deliver the energy our customers Critchfield retired as Chairman of needed* offers our come utility Florida Progress. I want to thank
- Electric Fuels exceeded its plans Jack personally for his many contri-b usi m for growth, both through internal butions to our company, and for giv-Build a national retail efforts to improve its businesses ing me the great opportunities I've and through an impressive stnng energy services business enjoyed over the past 10 years. .
in the utilities sector. of acquisitions. Particularly at Progress Rail, recent purchases As we ended 1998, we had occasion increased the um,t s reach and Continue to support the to pause to mark the passing of a scope of its operations, and its good friend and member of our com- growth of Electric Fuels. ability to serve a growing cus- pany's Board of Directors, Frank , tomer base. Electric Fuels' growth Logan. Frank provided valuable years strategy sets the stage for contin- of service and guidance to Florida . ued strong contributions to Progress, and his contributions will Florida Progress' earnings per be missed. share, without significantly Shareholder Commitment:' changing the risk profile of the In signing my first letter to you parent company. as Chairman of Florida Progress,
- Florida Power pressed forward I take personal pnde in our record 2- .-
with the construction of Florida's of meeting commitments, and in gw . g.y newest and most efficient power extending that record out into the ;
- plant - Unit 1 at the Hines future. It is a future that is bright 'l :
Energy Complex. As companies with promise, in part because it is g ,. y ;p , within and outside Florida illuminated by the bright record of l increasingly focus on the opportu- our past. And it is a future in which For the Investment Return 1 nities presented by Florida's grow- you will be able to continue to Shareholders Expect. - 5 ing demand for energy, Florida Count On Us. I Power is committed to actively building new generation to meet that growing need. 1 ~ -- - . - In line with our commitment t Richard Korpan shareholders to explore new rev- . Chairman, President & enue opportunities in related fields, we announced in November Chief Executive Officer hb.f-g the launch of Progress Tele- February 5,1999 h communications Corp. _'.;on. ~
$ (
COUNT ON FLORIDA POWER Day in, day out, more than 1.3 million N Florida customers Count On Us - count on Florida Power and its 4,700 employ-ees - to keep their lights on, their homes comfortable and their businesses humming. We're proud of the performance record
~-
that we've established over our first
, 100 years. We're proud that our cus- , 4 tomers and our communities could f . .v ;
Count On Us as Florida grew, as it 4 weathered storms, as it thrived in a ~~- climate that can be extreme, yet has proven so attractive to so many. Our solid performance is detailed OST -
- r success - with high customer sat-ON Mow, (/, W ' jiiq sg; y isfaction ratings and systemwide
% ,- l reliability that was an impressive J 99.9 percent in 1998.
lee G/4 / 74 Ocad l$ m & Jgp / As we build on our strong past, ht8 di Og , { Florida continues to be a great g Q g " 8?S " N Jidwad, 6uTW fx
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But we also know that our industry . f is in a state of evolution, and that
#' b ddMaag the measure of excellence is con. . .
stantly advancing. As consumers Offeri:1g Competitive l seek more choice and greater options, electricity priCOS and as competition increases, Florida Power needs to continuously demonstrate In a competitive environment, price is one j .
- today, tomorrow and into the next cen- of the main drivers for customer choice, p ; tury - that the people we serve can con. Many customers will pay a premium for tinue to Count On Cs. superior value and quality in products and y j service. But they still measure that value i { h1 To meet the challt nges of the future, we against the yardstick of a competitofs I
- intend to draw or the experiences and price. .
y traditions of our pd 100 years. To fulfill g gi h our key role in achieving Florida Progress
- Looking back through the years, affordable
! ip. Ei strategic growth objective 3, we'll need to power is what made Florida livable - at ,
h r I ' consistently exceed our customers' expec. first, power for the basics of lighting and hi I tations. refrigeration. Later, affordable power made
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" luxuries" like air conditioning possible, one-time luxuries that have become gi i bold series of business commitments - today's necessities.
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. commitments to our customers, to our employees and to the shareholders of Florida Powe/s commercial and industrial !
I Florida Progress - commitments that electric rates are among the lowest in the ; stand as our objectives for the next five state, and have been for many years. years. These pages explore the progress i we have made in 1998, and how we are As we look forward to an era of increasing moving forward in our anniversary year to customer bite, we are committed to low-continue our progress toward achieving ering residential electric prices and ensur-these commitments. ing that they are truly competitive. Our l
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l Florida Power President & CEO Joe Richardson at the company's newest power plant, Hines Unit 1 in Polk County, Fla. I florida Power's Scott Quin (foreground), Adam Swanson, and J.R. McLelland
, (for left) track energy markets at the
-A- company's Energy Trading Center in St. Petersburg, Fla.
five-year target is to deliver compelling Houston-based Dynegy. This alliance lever-customer value while providing adequate ages Florida Power's generating assets with resources for excellent reliability and ser- Dynegy's position in the energy markets to vice, and to offer residential prices that are form a potent trading and sales combina-within 5 percent of our lowest-priced peers tion. Through Power Marketing's in Florida. We believe that tnis combina- energy purchases and sales, Florida tion is a value that customers will readily Power saved $20 million in fuel costs Customer CO choose in a competitive environment. during 1998 - savings that were passed along to our customers. ,
, Florida Power is already taking steps to be price-competitive in an open market. One step is power marketing. That means par-
{ggg79((jpga ggggg ticipating in the wholesale energy market. Florida Power also is advancing -
' place, utilizing sophisticated skills and on other fronts to control costs technology to buy and sell electricity and and prices. The first unit at our l energy fuels like natural gas. Being a new Hines Energy Complex will power marketer requires substantialinvest- deliver up to 500 megawatts of ment and expertise. Though only four additional generating capacity.
years old, Florida Power's Power Marketing And as the most efficient power operation has already established a suc- plant in Florida, we will be able cessful track record in the wholesale power to bring the unit into service market. without any increase in cus-tomer rates. In 1998, we moved aggressively to maxi-mize the benefits of Power Marketing by Other cost management efforts forming an alliance with one of the include converting power plants nation's leading power marketers - like our Anclote power plant to
r POSTCAllDS i.nn the PAS 3T
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m burn et ther a,tt or natural gas. Thts sure steam drum on Unit Ys heat recovery gN$N da Wbdc l ,jj " dual fueling" allows us to use the steam generator at the Hines Energy Complex.
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/*ple ra= u qmf g /f'r* ;sg A e7 Raising reliability fg a8% Even as we implement these steps, ruf d / g "g g"'/ '* d4 *ay at a hl which should produce savingsto 5 forHOW levels l customers in 1999 and beyond, Florida Power has come a long way since
! Er wande g f 4 4 Florida Power also is considering commissioning its first power plant, which other regulatory mttiatives that produced a mere 50 kilowatts of power, would benefit residential customers- Florida Powefs newest power plant - the 500,000-kilowatt Hines Unit 1 - dwarfs rowt h alw een # Together, these immediate and long-term that original unit. The Hines unit is an Florida die . And - approaches should ensure that now and in advanced combined-cycle power plant, across eca Florida's the future, customers can Count On Us for fueled by natural gas and capable of pro-poputa o we dits competitively priced power. ducing enough power for 100,000 homes, indus ed for Hines Unit 1 represents a total investment retia ep ra creased. Meeting Our CUSt0rnerS' of about $270 million in Florida's future , Flori r has the a and a continuation of Florida Powers com-dema du p rom oil, energy neeus mitment to meet the growing energy needs gas, to lectri iand Florida has a growing need for power - of customers. nucle r energy. a 5 why ' as its population and its economy expand, we're' proud to have ilt lijnes and as the energy requirements of existing That commitment to reliability was certainly Unit 1 in Polk County. households and businesses increase. That tested in 1998. The year's long hot summer growing demand makes Florida one of the was truly exceptional- with record high Once upon a time, we m asured m st attractive states in which to operate temperatures that endured for days, and energy in horsepower. w we a utility. But it also presents the challenge pushed demand for electricity to operate air to keep pace with demand by ensuring conditiomng and refrigeration well beyond asure it in kilowatts d cus-adequate energy capacity. Meanwhile, the any histoncal benchmark. At the same satisfaction. Tec otogy extremes of Florida's often stormy environ- time, the extent of the heat wave across the es but our commit ont ment place additional pressure on main. nation meant that other usual sources of ns the same: When Florida taining a reliable delivery network. The purchased power were not available. the power... Florida Power customers of Florida Power know they can ll rovide it. Coimt On Us. Count On Us to meet those challenges, as With our generation resources fully engaged I we have for 100 years. - thanks to the efforts of Florida Power's B
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I i fl From a Florida Power dispatch office in (left) Florida Power's Bryan Williams operates Central Florida, Dispatcher Chuck Wood routes a new software system that willfacilitate line crews to problem areas and work loca- outage restoration efforts at the company. tions. These dispatch offices - long the nerve The system, based on a public safety 911 dis-center of the company's operations - will be patch pcgram, will provide outage informa-revolutionized in 1999 as part of Florida tion in a visual, geographicformat. From the Power's Delivery 2000 project. company's vehicles, field personnel are lirled to the dispatcher via a laptop computer. employees - we were able to meet our service agreements to deliver power. An example of this effort was the return of our nuclear plant at Crystal River to ser- , vice, an accomplishment that led the I , Nuclear Regulatory Commission to remove return for cllowing Florida Power to the plant from its " Watch List" of nuclear cycle off certain appliances during ~ units in July. Since the plant's restart in periods of peak demand. The program February 1998, it has produced more than helped Florida Power successfully i
- 100 percent of its rated capacity. meet the challenges of the excep-tionally hot summer of 1998.
Using innovative Continuously high customer demand enernu MJ mananement U last summer, however, required Energy Another aspect of maintaining adequate Management to be used more fre-capacity is ensuring sufhcient power quently than in past years. This reserves to meet peak customer demand, resulted in a number of complaints Florida Power maintains its reserve margins from customers on the program. l
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through active demand-side management We are exploring alternatives to ]_ ) programs for all types of customers. One add new generation that will y such program, called Energy Management, provide greater flexibil;ty offers participating residential customers in meeting the growing ; credits on their monthly electric bills in demand for electricity. I 1
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Bob ~, lorida Power has long been s lightih'g~ip the night for4ur eustomers - and more tiian ~ ' s, . just the night. The " Electric - Pier." built by our company J founder F. A. Davis, proved to ' ' be a major tourist attraction
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.. and drew thousands to the aba. ' The electric tdey~ service hdtped spur critical develop-g , ment between the bay and the beach. Excellent customer ser- [ '
. vise has always required a com- '
bination of vision, technolog'y ' and timing. In 1911, that combination increased St.
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Petersburg's electric service to . 24 hours anday. Today, it'has s. . . i brought about 24-hour cus-temer. service at our new call e center in Lake Mary. Whatever it takes for even better cus- ' At Horida Power's new Customer Solutions Center in Lake Mary, Ra., Manager Brian Burek and tomer service - Count On Us to ^ Customer Service Associate Cynthia Woshington are among about 160 employees who work at provide it. . the 45,000-square foct facility. The 24-hour call center, which opened in October, was designed L by andfor employees. 10
- While reliability starts with adequate ener- We'll measure our delivery on this service avenue for delivering additional services, gy resources, a key second step is making commitment against the benchmark of cus- Centras' first offering is a highly competi-sure our power is delivered when and tomer satisfaction surveys. And we'll only tive long-distance service, which is being where customers want it. Florida Power's be satisfied with performance that ranks us piloted among employees and customers I customers consistently give us high marks "best in class" among our competitors. of Florida Power.
for providing reliable service - 90 percent Of course, customer service doesn't end of customers rank our reliability " Good" or with a pleasant voice on the telephone or Excellent customer service isn't rectricted
" Excellent." While loca! circumstances and a friendly face behind a service counter - to residential accounts. Florida Power geography may affect an individual neigh- customers judge us on the results we deliv- offers tailored services for commercial borhood's reliability statistics, our commit- er. That's why we try to carefully coordi- customers as well. These include special ment for the future is to consistently nate our varied customer activities, such "1-800" telephone service lines for small . deliver the high level of service our cus- as the dispatch of service crews to handle business customers. Customized surge tomers expect. requests phoned into our call centers, protection products, infrared scanning of customer power equipment to detect .As we prepare for the future, Florida Power Another lesson we've learned is that cus- potential trouble spots, and other power also is utilizing ever more advanced means tomer service isn't merely a matter of quality options are available to business to ensure ongoing system reliability. One being responsive, or just fixing things and industrial customers.
new approach is Energy Delivery 2000, when they go amiss. Excellence in cus-which places computerized information and tomer service, as it is practiced at Florida Such innovations in service are also at the communications links in Florida Power Power, involves anticipating customer heart of our Cadence joint venture, which vehicles to speed dispatch, identify needs and developing products and ser- meets tne unique needs of national chain resources, and even provide field crews vices to meet them. commercial customers - businesses with with detailed technical data about the multiple locations, such as restaurants and work to be performed on the network. Among the practical services we offer supermarkets. Cadence provides them with Florida Power is deploying such high-tech customers are home and business energy a range of energy-related services that cen-tools of the future to deliver on the same audits, which can help customers use ter on using information to reduce their commitment to reliability that it has con- power more efficiently. Florida Power utility costs. These services include an sistently demonstrated in its first 100 doesn't simply help identify solutions. Internet-based cost-reduction and reporting years. And to ensure that customers can We help impleinent them - with programs system that consolidates data from multiple continue to Count On Us. that assist customers in replacing ineffi. sites of a national chain. Cadence is build-cient air conditioning or heating equip- ing a growing base of major national cus-ment, rep iring te ky duct systems or tomers like Service Merchandise, Winn-Dixie The customer rules adding insulation. Stores and Storage USA, among others. In a truly competitive environment, excel-lence in customer service is what distin-guishes the successful businesses from New and innovative payment options are another application or our cre-g . Mi E those that get left behind. As we Embark ativity. Flexible electronic funds ___ on our next century of service, Florida transfers allow customers to pay bills p- ~~, Power is committed to deliver customer automatically from their bank accounts fq}~pmmyn ' s ,J M;[. service that is second to none - to consis. on a date they choose. > ' tently exceed our customers' expectations. gMM~jC5h
*0ne tangible proof of that commitment is Inn 0VatiVe Offerings ;
our investment of $6 million in a new Another customer convenience is ; 45,000-square-foot Customer Solutions " Bill" - an ATM-style machine that
' Center in Lake Mary, Fla. This state-of-the- accepts payments for electric bills. j art facility contains the latest in call-rout- Currently, it is being tested at loca- 2) ing and information processing hardware tions in St. Petersburg and the and software, and is open around-the-clock Orlando area.
- ready to respond to customer inquiries and calls 24 hours a day, seven days a Anticipating a more competitive er week. It's all part of our "24 x 7" future, Florida Power also is explor- ~i approach to delivering service on the cus- ing the potential to offer related tomer's schedule, not ours. In 1998, our utility services that can help call centers handled 3.7 million calls, while enhance customer loyalty
,y our business offices processed 4.5 million and retention. The customer transactions - solid demonstra- Centrus alliance tions of how our customers Count On Us for announced in -g[
service. October is one s m l I
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In 1998, Florida Powerjoined with WFTV TV Channel 9 in Central Florida to sponsor a year. round series offamily-themed events and TV specials, called 9 family Connection. The Marine Corps' annual Toys For Tots campaign is one of the events in this community outreach program. Joined by Marine Sergeants Sean Cribben and Jose Luis Rodriguez, WFTV-TV's Greg Warmoth interviews lynda Regan, Supervisor at Florida Power's Winter Park office, about the utility's successful campaign in Central Florida. Giving back to . charitable gifts we make; from the individ-ual volunteer efforts of Florida Power i Our C0mmunitleS employees to our company support for l Another aspect of Florida Power's 100-year i cal sports teams; all are examples of the - history of service is our commitment to the leadership role Florida Power plays in the Florida communities in which our employ- c mmunities we serve, giving back to our ees and customers live. It is a record of c mmunities some measure of the success partnership that has seen us, together they have enabled us to achieve. with our communities, grow our business from a largely rural service area to a region Among the community activities of which today made up of fast-growing cities and we are most proud are Florida Power's par-more than 1.3 million customers. Florida ticipation in the 9 Family Connection, a Power continues to honor its community Central Florida family services outreach commitment today - and will continue to program conducted with WFTV-TV Channel do so throughout its next 100 years. From 9 in Orlando; our active role in the rede-the service-related functions of storm velopment of downtown St. Petersburg; clean-up and power restoration, to the our corporate support for the arts, Take I
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Florida Progress Chairman & CEO l Stock in Children, The United Way, the Richard Korpan and Joe Richardson, Florida Power President & CEO, (@p{QyQQ (QM l Orlando Science Center and our Energy answer questions from employees Neighbor Fund; and the range of sponsor. at a company Town Hall meeting in -- ship activities we conduct in conjunction Orlando. , with the Tampa Bay Devil Rays Major League Baseball organization - including ggg, the Sunsation Walkway - a unique i - outdoor entertainment experience in , St. Petersburg. Employee power .; The successes of Florida Power's (,1 , As 1998 drew to a close and the new year first century of service all stem . began, Florida Power was honored to take from the efforts of one remarkable group: our employees. Our loyal d]e y i a lead role in holiday festivities through. out our service area, notably in our head. and dedicated work force has quarters city, St. Petersburg, and at the brought us to where we are today, , Citrus Bowlin Central Florida. These and has provided us with a solid l events marked the official beginning of foundation for our future. our 100th Anniversary celebrations, and the start of our next 100 years of service In the evolving utility industry, to our communities - another century in our employees are our most vital which our communities and our customers resource. They are our primary can Count On Us. contact with our customers, and
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President Albert Higgins set his , j q% 7 sights on power lines. "To Hell .,f.m 7'm 1 . with Recession!" he told employ-ees. His secret? Florida - a .4 unique market whose growth , ' ' offered enormous potential. -
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Q*- ' While the country stili strug- 'l 7' ' gled to recover from the Great
. Depression, Florida Power sold -
5,000 major appliances, making . 1937 the biggest merchandising year in,the history of the com- , pany. In more recent decades, Florida's growth has made a tra-dition of shareholder sltisfac-tion. In the 1960s, many knew Piorida as "Where the Boys Are." j Company investors have always / known florida Power 'at "Where . the Returns Are." / . .
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their dedication and enthusiasm distin- employees' own desires to be informed
- Progress Telecommunications - a new guish us from our competitors. and involved in helping the company get separate business established to lever-where it needs to go is an important part age the capabilities of the company's Florida Progress understands the impor- of delivering on our employee commit- existing fiber-optic network by selling tance of the relationship between a com- ments. We have taken steps to enhance high-speed communications capacity pany and its employees. We are working communications and professionalinterac- services within Florida's fast-growing to establish an Employee Partnership - tion throughout the company. telecommunications market.
a set of shared commitments between .
- inspection, Maintenance and Proj.ect employees and the company. We have Together, these programs demonstrate the promised our employees a safe work envi- very real value Florida Power places on its 9. nee ng - c ad,ng m,g mate-9 " "
ronment that: emp yees and why employees can truly , e i e o
- Respects individuals and encourages specialized services using Florida diversity. Power's skills in power generation and maintenance.
- Enables personal growth. gg g g
- en al kge Rodon - prom-Values teamwork and personalinitiative. C0mmitmelltS ing home appliances from lightning and
- Establishes and ensures accountability. ther power surges.
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- Recognizes and rewards achievement. has been the engine driving the perfor-
- Commercial Power Quality and Power mance of our entire corporation. Today, Conditioning - satisfying the needs of These principles are brought to life the superior growth prospects offered by major commercial and industrial cus-through a range of employee-focused pro- our state form the basis for Florida tomers that require exacting technical grams. The new Chairman's Award and Progress' corporate objective of " Maximizing specifications for electric service. Our President's Award Programs honor out- the opportunities of the Florida market." offerings of utility-related services, standing performance by individuals among Meeting the customer and employee com- though primarily designed to add value the work force. An employee development mitments outlined earlier will be a key to to our customer relationships, also hold program also is being instituted to estab- successfully delivering on the Florida mar- real potential as supplemental revenue lish clear paths for employee continuity ket's potential, and on this shareholder streams for the future.
and professional growth throughout the commitment. organization. Coupling these creative approaches to rev-Simply put, Florida remains one of the best enue enhancement with the strength of Florida Power recognizes the important role areas in the country in which to operate our core utility business, shareholders can the workplace itself plays in enhancing an electric utility. With in-state economic be certain to Count On Us to drive earn-employee satisfaction. We have devoted growth of approximately 2 percent, and ings growth, special attention to new work environ- growing energy demand from existing . . . ments, like our new Lake Mary Customer Solutions Center and the modern office customers, Florida Power can antici-pate revenue growth in the range of h;
. holder Co "Ni 1a facilities in downtown St. Petersburg to 2 to 3 percent per year.
6 ~-CM . g? # m
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has recently relocated. But delivering our earnings per 2-- -- er """" share contribution will take more # N,,, . ~ .,It's all part of creating an environment than simply sitting back and wait-where employees can find respect, where they can be assured that illegal discrimina-ing for calls for new service con-nections. In addition to basic [f , tion and harassment simply will not be tol- business improvement, Flurida erated, and where concern for employees' Progress is looking for ways to safety and enthusiasm goes hand in hand expand the range of products f' with ensuring opportunities for them to and services beyond our current grow, professionally and personally, offerings as a means to growth. Among these current and con-Finally, we believe that supporting our templated programs are: --- 1 (left) Florida Power's Nancy Peterpaul, a Senior Engineering Representative, and Lineman Darryl Gonzalez inspect switchgear W located near the Orange County Convention q Center along International Drive in Orlando. Qp Providing enhanced service reliability to com- ) mercial customers is a top priority at Florida :m , Power. ,,
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COUNT ON Expanding the fleet ELECTRIC FUELS Over the past six years,800 new barges have been added to the MEMC0 fleet, Electric Fuels Corporation, a subsidiary 200 in 1998 alone. The average age of of Florida Progress, operates three main MEMCO's 1,100 barges is under seven businesses: Rail Services, Inland years, making it the newest fleet on the 7s Marine Transportation, and Energy and Ohio / Mississippi waterway. Moving gm . Related Services. Despite that range of those barge are 27 MEMCO-owned and Q activity, these businesses all adhere to operated towboats, including some of
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,. their customers, as well as to the share- system. The two newest additioris to the'
" * ; l' g holders of Florida Progress. These com- MEMC0 fleet are the Patricia Gail, named mitments are built on excellent service, for Florida Progress Chairman and CEO on solid customer relationships and on Richard Korpan's wife, Pat, and the
- superior value. Formed in 1976, Electric j[a Fuels embodies a sense of commitment Christopher M. Parsonage, named for MEMC0's President. These 180-foot pow-similar to that displayed by its sister erhouses can maneuver 1,000-foot-long company, Florida Power. " tows" through the unique twists and bends of the Mississippi River. Each ves-In some businesses, timing is every- set has 8,000 horsepower and is capable thing. And missing a delivery schedule of handling 35 loaded barges on the can drastically impact a customer's eco- lower Mississippi. These vessels, and a nomic fortunes. Grain shipments travel- third one to be added in 1999, help ing down the Mississippi River lose sub- maximize the efficient use of MEMC0's stantial value if they miss con- barge capacity and contribute to its con-nections to freighters bound for tinued record of on-time delivery.
T)OST -- .. . _ {ygg _ foreign ports. Electric Fuels' A
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of paramount concern. MEMC0 For other customers, quality is the key. S#4 d al f4 Touttati e ,,',j * #""5 can commit to on-time deliveries Superior quality drives customer choice I#"S 4 dv4 lulf Wagp// O ; thanks to Electric Fuels' invest. among suppliers, even for a product like "I [ ments in new large-capacity barges coal that might seem a perfectly indistin-4 guishable commodity. But today, coalisn't
, and the towboats to push them.
l 1 E I l Electric fuels' President & CEO Rich Keller and Fred Verordi, President of Kanawha River Terminals, at KRT's raft-to-bargefacility in West Virginia.
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it .'o.pi Near Vichsburg, Miss., the Patricia Ga1\ ~ one of two MEMC0 towboats christened in 1998 - heads south to New Orleans with a full complement of barges. l just coal anymore. Coat's variable and complex chemistry make it suitable for use Pr0Viding depend- EFC Commitment: ' as a raw material in industrial processes, able Service at such as metallurgy and the production of plastics. Meeting customer specifications gggpggjgjyg T- , for these types of coals, with uniquely pnCOS
- blended chemical and physical properties, Different though their needs " * ~ ~' '"' 7 #4 "" ~
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- meet the needs of electric utilities, too, ness, a c ncern r cost. But l To meet stringent quality control require- For Competitively Priced, ments, Electric Fuels has enhanced its rela- that concern is both a chal- h', < On Time, High Quality tionship with two major customers - U.S. lenge and an opportunity.
Steel and the A.T. Massey Coal Company - Progress Rail Services .. .. by building a custom blending facility at a Corporation, for examp'.e, is ! terminal on the Ohio River. This comput. successfully growing its er-assisted blending operation analyzes operations because of a hard-and mixes different shipments of coal earned reputation for efficient together as they are transferred from rail- operations and for delivering car to barges matching each customer's superior service at specifications for a particular application. competitive prices.
pm The U.S. rail services industry has historically been fragmented, as small privately owned compa-nies and captive operations of l individual railroads each served relatively small geographic ter-ritories. As in other industries today, the major railroads in the United States are them-selves consolidating and stan-dardizing their operations. They are the primary cus-tomers for the trackwork and mechanical services that Progress Rail offers, and they are demanding similar efficiencies from the com-panies that serve them. Progress Rail has approached the efficiency chat-7308T 7% lenge from two direc-Oea, ju, GIUi %/ tions. First, it has e increased its size and
/lygg g scope across an expand-Th /aug Q "
- Way G /r g , ed geographic reach, 74 b b ad5eegg through the acquisition I !'!!##!Z and c ns lidation of hd O da. AIM localized operations.
j in 1998, Progress Rail At the Kanawha River Terminals'Ceredo Dockfacil-announced an 1mpress1ve ity, key components of the coal-blending process series of purchases - are the plant's rotary dumps and weigh feeders, approximately $200 million Raficars are turned upside down to unload the coal in acquisitions, growing all into hoppers and the coalis then blended to meet segments of its operations, customer specifications. The businesses joining the Progress Rail family are located in the Southeast U.S. and in Texas, Nebraska, Illinois and Wyoming. Today, Progress Rail operates in 20 states stretching , from the East to the West coasts of North America, as well as Canada and Mexico. A second strategic approach nas j been to partner with customers e to develop highly specialized j facilities and operations that j can most efficiently serve their special needs. Progress Rail's Decoursey Trackworks facility in Kentucky is an example of an from a " sky box" observation tower at Ceredo : investment originally suggested Dock, Electric fuels' Matt Gaston can oversee the by CSX Transportation, a Class 1 coal blending process using the latest in computer ) railroad. CSXT was interested in technology. t working with Progress Rail to
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At this P,vgress Rail plant in Chicago, Ill., locomotive truck frames and other . related components are thoroughly cleaned before being reconditioned to exact EFC Comm1tment: customer standards. This plant, located in Chicago's historic Pullman District, . ~ ,: ,,,,g_ gy e y, was part of an acquisition Progress Rail completed in 1998 of Viking ~'~. ' Engineering Company.
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expand an existing relationship for refur- 1998. This should further boost bishing trackwork by creating a plant to results as the impact of these . supply new trackwork to fill CSXTs investments is felt in 1999 and d needs. beyond. Electric Fuels reported strong results Electric Fuels and its 4,400 employ- f in 1998, with annual revenues of $1.2 ees are committed to meeting each billion, including sales to Florida Power. customer's requirements, and con-Earnings per share in 1998 were up 33 tributing to overall earnings per j percent over the prior year. share growth for the benefit of j Florida Progress shareholders. Looking to the future, operations growth sf. is expected to continue to fuel the con-tributions made by Electric Fuels. [/ Progress Rail and MEMC0 willlead the way thanks to the investments made in N O),.
M A N A'G E M E N T ' S DISCUSSION & AN ALYSIS
' OPERATING #ESOLTSi' 4 - ~ 55?t5- dditi "8l 5P'"di"9 f '
- i"t*" "ce "d 'eli bilitY projects, and the deferral of revenues as allowed by state Florida Progress'1998 consolidated earnings from continu- regulators.
ing operations were $281.7 million. This compared with $54.3 Electric Fuels' earnings per share were up 33 percent over million in 1997 and $250.7 million in 1996. 1997. This increase was driven by improved results from all Florida Progress' 1998 earnings per share of $2.90 increased three of its business units, including an expanded barge fleet, 10.7 percent over 1997's earnings of $2.62 per share, before increased coal deliveries and an increase in demand for railcar nonrecurring charges. The increase reflected the customer and track parts and services. ' growth in the utility's service territory and the growth of its Florida Powe/s Crystal River nuclear plant was out of service diversified operations. during 1997 to address design issues related to the plant's Operating results for 1997 were negatively impacted by the safety systems. As a result of the outage, Florida Powe/s 1997 . extended outage of Florida Powers Crystal River nuclear plant earnings were reduced by $1.10 per share. This resulted from and the provision for loss on the company's investment in Mid- $100 million in additional nuclear operations and maintenance Continent Life Insurance Company. These two events reduced expenses and $73 million of nonrecoverable replacement power Florida Progress' 1997 earnings by $200 million, or $2.06 per costs. (See Extended Nuclear Outage Costs on page 23.) share. In 1997, Florida Progress recorded a provision for the loss In 1996, Florida Progress reported an after-tax charge of on its investment in Mid-Continent as well as an accrual for
$25.2 million for a provision for loss on unprofitable coal prop- legal fees for pending litigation. This resulted in a $.96 per erties owned by Electric Fuels, and an after-tax gain of $23.5 share after-tax charge to 1997 earnings. (See Mid-Continent million for the sale of Advanced Separation Technologies. Life Insurance Company on page 24.)
Excluding the nonrecurring items, Florida Progress' 1997 and In 1996, Florida Progress divested Echelon International 1996 consolidated earnings from continuing operations were Corporation, formerly Progress Credit Corporation, through a
$254.3 million and $252.4 million, respectively. tax-free stock dividend. This resulted in a $.27 per share Florida Power earned $248.6 million in 1998, compared with charge to earnings for the write-down of certain assets of $240.9 million, before nuclear outage costs in 1997 and Echelon and other costs. Also in 1996, Florida Progress sold $232.6 million in 1996. Earnings from recurring diversified its 80-percent interest in Advanced Separation Technologies, operations were $33.1 million in 1998, compared with $13.4 Inc. for $56 million and realized an after-tax gain of $.24 per million in 1997 and $19.8 million in 1996. share.
n , Electric Fuels recorded a $.26 per share after-tax EhRNINGS PER Sh RE charge to earnings to establish a provision for loss on its 1998'- '1997 1996 unprofitable coal properties. The provision was necessary
- Florida Power Corporation ' $2.56 ~ $2.48 - $2.40 because management did not consider the unfavorable market
; Electric fuels Corporation - .44 .33 f .28: conditions for low-sulfur coal to be temporary.
L Mid-Continent Life Ins. Co. - -- .02 - Florida Progress' 1998 results reflected the strong fundamen-
; Other - (.10) (.19)1 ' (.09) - tals inherent in Florida Powers growing customer base and the Diversified '.34 .14 .21 l expanding operations of Electric Fuels. This growth should help ; C:ntinuing operations before . Florida Progress achieve its aggressive five-year objective of con-nonrecurring items : 2.90 2.62 . - 2.61' sistent annual earnings per share growth of 5 percent or better.
I Nuclear outage costs - (1.10) . The financial return on Florida Powefs common equity was i Loss related t 13.7 percent in 1998, compared with 13 percent in 1997, Mid-Continent Life Ins. Co. ' - -
. (.96) ;-
+
before considering nonrecurring items, and 12.9 percent in p - 1996. Florida Power expects its average annual customer : (.26) 7 ~
< Gain on sale of business - - e .24 growth rate of 2 percent to continue in the near future. When i Total continuing operations - 2.90 .56 2.59 ] combined with good cost control, Florida Power should be 3ble
[ Discontinued operations - - (.27) l to maintain an earnings growth rate of about 3 percent. 1 C'nsolidated - , $2.90 : ' $ .56 $2.32 Return on equity for Electric Fuels was 19.6 percent in 1998, 17.3 percent in 1997 and 14 percent in 1996, before its provi-Florida Powe/s 1998 earnings per share were up 3.2 percent over 1997, before nuclear outage costs, primarily due to strong customer growth and usage growth Demand for electricity TNDUSTRY RESTRUCTURING during 1998 reached record levels as hotter-than-normal The electric utility industry is undergoing changes designed weather during much of the year resulted in record annual to increase competition in the wholesale and retail electricity usage by residential and commercial customers. The benefit markets. The wholesale power market includes sales of elec- - of the hotter-than-normal weather was offset by severalitems tricity to utilities from other utilities and nonutility generators. l including the accelerated amortization of certain regulatory The wholesale market is regulated by the Federal Energy 20
4 Regulatory Commission (FERC). The retail electricity market with various municipalities. - Although no franchise agreements includes sales of electricity to end-use customers, i.e., residen- are due to expire in 1999, five are due to expire in 2000 (rep-l tial, commercial and industrial customers, and is regulated by resenting about 1 percent of total 1998 utility revenues),23 ! state public utility commissioas. are due to expire in 2001 (about 6.9 percent of total utility As a result of the Public Utilities Regulatory Policies Act of revenues),14 are due to expire in 2002 (about 4.7 percent of 1978 (PURPA) and the Energy Policy Act of 1992 (EPA of total utility revenues), one is due to expire in 2003 (about .4 1992), competition in the wholesale electricity market has percent of total utility revenues) and four are due to expire in greatly increased, especially from nonutility generators of elec- 2004 (about 1.9 percent of total utility revenues). All of the ! tricity. In 1996, FERC issued new rules on transmission service franchise agreements that expire by 2004 contain a clause that i to facilitate competition in the wholesale market on a nation- gives the municipality the right to purchase Florida Power's l wida basis. The rules give greater flexibility and more choices distribution system within the municipality at the expiration ) to wholesale power customers, of the franchise. Although the exercise of that right would The effect of these changes on the wholesale market has require complex financial arrangements and otherwise might be l been significant. From 1990 through 1997, nonutility genera- difficult, Florida Power believes that quality service and com-p tion capacity grew in the U.S. at a rate of 54 percent, com- petitive rates will continue to be important factors as fran-pared with utility generation capacity, which grew at a rate of chise agreements come up for renewal. 2 percent. The development of merchant plants, which is a The issue of industry restructuring has caused many compa-nonutility generating plant without the benefit of a long-term nies to develop new corporate strategies. Some of these contract for the sale of most of the plant's generating capacity, strategies include alliances, mergers with or acquisitions of has contributed to the growth of capacity in this market, other electric or gas utilities, or other types of service In a move the company believes is contrary to existing providers, that can offer not only the commodity but ce state law, Duke Energy filed a petition with the Florida Public unregulated products and services. Service Commission (FPSC) in August 1998 to build Florida's Many electric utility analysts expect that, once existing reg-first merchant power plant. The FPSC is expected to rule on ulatory barriers are removed, a significant amount of consoli-this issue by March 1999, dation will occur among the nearly 100 investor-owned electric To date, several states have adopted legislation that would utilities that exist today. During the last five years, approxi-give retail customers the right to choose their electricity mately 40 electric utilities have announced either mergers with provider (retail choice) and essentially every other state has, or acquisitions of other electric or gas utilities. About half of in some form, considered the issue, these transactions have been completed; the others are either In 1998, Rhode Island, California and Massachusetts imple- pending regulatory approval or have been withdrawn. mented retail competition while in a number of other states, either the legislature or the state commission developed a plan Industry Restructudng - for retail competition. Florida Progress' Strategic Initiatives In states where electricity rates are more competitive, such While it may be several years before retail choice exists in as in Florida, there has been less incentive to push forward Florida, Florida Progress believes that retail choice will eventu-legislative proposals concerning retail choice. During Florida's ally exist in every state. Anticipating this change, Florida 1998 legislative session, a bill to restructure the industry was Progress has developed a corporate strategy to position itself sponsored by one senator but was never considered by the leg- for a more competitive marketplace. islative body. The FPSC monitors, through a staff committee, Long term, Florida Progress is focused on establishing a the restructuring activities in other states. national retail energy services business - which includes In addition to restructuring activity in various states, there transportation of the commodity to the customer as well as have been several industry restructuring bills introduced in offering nonregulated products and services. Congress. Several of the federal bills being considered would To be successfulin this market, a retail services company require states to implement retail choice sometime between willlikely need a sizable number of customers in order to real-2000 and 2003. ize the economies of scale necessary to keep its costs competi-In March 1998, the Department of Energy announced the tive. As such, part of Florida Progress' corporate strategy Administration's " Comprehensive Electricity Competition Plan," includes the possibility of mergers or acquisitions that would which would require retail competition by 2003 but permit expand its customer base. states to opt out under certain conditions. In addition to considering mergers and acquisitions, Florida Another issue encompassed by industry restructuring con- Progress has entered into two joint ventures with two other cerns franchise agreements. Most investor-owned utilities pay utilities, Cinergy Corp. and New Century Energies. The first franchise fees to governments, including municipalities, for the joint venture, formed in September 1997 and named Cadence, right to install equipment to deliver electricity to retail cus- is a marketing alliance aimed at providing national chain tomers. Industry restructuring (and other factors, such as reli- account customers with energy management and energy infor-ability) could encourage municipalities to consider not renew- mation systems. The other joint venture, Centrus, began oper-ing existing franchise agreements, and thus provide an oppor- ating in July 1998 and was established to develop products tunity for others to provide electric service to retail customers. and services for residential and small commercial customers. A major portion of Florida Power's retail business, repre- In May 1998, Florida Power formed a power marketing senting approximately 40 percent of total 1998 utility rev- alliance with Dynegy to capitalize on developing wholesale enues, is covered under the terms of 111 franchise agreements energy markets in Florida and in the Southeast U.S. 21
I forming joint ventures and alliances can be a quicker way increased approximately 9 percent over 1997. Kilowatt-hour , to achieve many of the benefits sought through mergers and sales in 1997 were essentially level with 1996. Mild weather acquisitions including econornies of scale, scope and new mar- in 1997, compared with 1996, offset the increase in kilowatt- I het presence and skills. hour sales that would have been realized from normal customer An important issue encompassed by industry restructuring growth, which is around 2 percent or more than 20,000 new is the recovery of " stranded costs." Stranded costs include the customers each year. generation assets of utilities whose value in a competitive Florida Powers wholesale kilowatt-hour sales were up 57.2 marketplace would be less than their current book value as percent in 1998, compared with 1997. The primary reason for { l well as above-market purchased power commitments to qualify- the increase was, unlike 1997, that the company's nuclear j ing facilities (QFs). Thus far, all states that have passed power plant was in service for most of 1998. This enabled i restructuring legislation have provided for the opportunity to Florida Power to sell excess generating capacity in the short-recover a substantial portion of stranded costs. term wholesale energy market, after meeting the needs of its *
)
Assessing the amount of stranded costs for a utility requires customers. However, the impact on earnings of these short-various assumptions about future market conditions including term bulk sales was minimal because essentially all revenues ; the future price of electricity. For Florida Power, the single and costs associated with this activity are passed through to . l largest stranded cost exposure is its commitments to QFs. retail customers whose rates are adjusted accordingly. l Florida Power has taken a proactive approach to this indus- The increase in revenues resulting from the higher demand { try issue. Since 1996 Florida Power has been seeking ways to for electricity was offset by several actions taken in 1998, i address the impact of escalating payments from contracts it including steps taken to improve the utility's overall quality of was obligated to sign under provisions of PURPA. service to its customers. (See Other Utility Expenses on page These efforts have resulted in Florida Power successfully 23.) In addition to these costs, Florida Power deferred $10 i mitigating, through buy-outs and buy-downs of these million of nonfuel revenues for either future accelerated amor-contracts, more than 20 percent of its purchased power tization of the Tiger Bay regulatory asset or other regulatory
)i commitments to 0Fs. (See Note 9 on page 42 and Note 11 on initiatives, as approved by the FPSC.
page 45.) As indicated above, the impact of extreme weather on Florida Powers sales can be significant. However, the impact
' FLORIDA POWER CORPORATION.- of weather on nonfuel revenues for 1997 and 1996 was mini-mized because of a ratemaking concept called residential rev-Florida Powers ope'a iag results and capital requirements ,
enue decoupling. are largely influenced by its customers' den.and for electricity. , , This concept was designed to eliminate the direct link That annual demand for electricity is based on the number of customers and their annual usage; usage is largely influenced between kilowatt-hour sales and nonfuel revenues. Under rev-by weather. During 1998, Florida Power, as well as other elec- enue decoupling, abnormal weather does not impact earnings from residential sales. tnc utilities in Florida and in the Southeast, experienced peri-Over the three-year period, which ended December 31,1997, ods of extreme demand for electricity due to hotter-than-nor-mal summer temperatures. the earnings impact of residential revenue decoupling was not I.1 planning for its future generation needs, Florida Power material. The termination of residential revenue decoupling will likely result in Florida Powers earnings being subject to greater develops a forecast of annual demand for electricity, including fluctuation due to changes in weather. (See Utility Revenues, a forecast of the level and duration of peak demands during fuel and Purcilased Power Expenses on page 35.) l the year. ' Florida Power relies, in part, upon the use of its Energy Fuel and Purchased Power Management program during peak demands. This program Fuel and purchased power costs are recovered primarily enables Florida Power to reduce the amount of demand for through a fuel cost recovery clause established by state and fed- - electricity by remotely reducing energy usage of residential eral regulators. Fluctuations in these costs have little impact customers who agree to participate in the progrrn. Florida year to year on net income, but might impact net income in a Power utilized Energy Management last summer to a much more competitive environment. (See Extended Nuclear Outage . greater degree than in the past, which resulted in a number of Costs on page 23 for discussion of replacement power costs not complaints from customers on the program. Florida Power is recovered through the fuel cost recovery clause.) { exploring several alternatives to add new generation that will Factors influencing fuel and purchased power costs include provide greater flexibility in meeting the electricity needs of demand for electricity, fuel prices, the availability of generat-its customers. ing plants and the amount and price of electricity purchased from QFs and other utilities. Utility Revenues and Sales
. . Total fuel and purchased power expenses were $1.03 billion Florida Powe/s operating revenues were $2.6 billion in 1998, and $2.4 billion in 1997 and in 1996. in 1998, less than 1 percent higher than 1997's fuel and pur-
. chased power costs. The slight increase, despite an 11.9-per-The utility's kilowatt-hour sales were up 11.9 percent in cent increase in total kilowatt-hours sold, was due largely to 1998 over 1997. The increase in sales was largely due to the the availability of Florida Powefs Crystal River nuclear plant.
f hotter-than-normal weather experienced from May through The lack of nuclear generation throughout 1997 fo ced Florida October. As a result of the unusually hot weather, usage by Power to replace this generation with other, higher-cost residential customers - the single-largest customer class - replacement power. 22
As previously discussed, a hey factor influencing Florida ExtGnded Nuclear Outage Costs Powe/s purchased power costs are the prices paid to 0Fs for In September 1996, Florida Powe/s Crystal River nuclet electricity. Currently, Florida Power receives 831 megawatts of plant was taken out of service to fix an oil pressure prot na in total capacity from QFs. the main turbine. When the repairs were completed in October In 1998, Florida Power spent $204.6 million for purchased 1996, Florida Power decided to keep the plant shut down to power capacity payments under all 0F contracts. This repre- address certain backup safety system design issues. sented approximately 20 percent of system fuel and purchased The Nuclear Regulatory Commission (NRC) had been critical power expenses for the year. Costs associated with these con- of the plant's overall performance in 1996, and in January tracts oised Florida Powe/s system average cost for generation 1997 placed the nuclear plant on its " Watch List" as a plant in 1998 and 1997, and this trend is expected to continue whose operations would be monitored closely until Florida based on the contracts currently in place and the escalating Power demonstrated a period of improved performance. payment schedules associated with each contract. The nuclear plant was returned to service in February 1998 Florida Power will continue its effort to mitigate the impact after being out of service about 16 months. In July 1998, the of escalating payments from its QF contracts. NRC removed the plant from its " Watch List," citing the unit's improved physical condition, more effective management over-Other Utility Expenses sight and improved operator training. The increase in revenues in 1998, as previously discussed, Florida Powers operating results for 1997 were significantly enabled Rorida Power to take several actions to better position impacted by the costs associated with the extended outage. itself for the future. The following items largely offset the These costs included $100 million in additional operations and increase in revenues attributable to the hotter-than-normal maintenance expenses and approximately $173 million in weather ($ in millions): replacement power costs. Capital expenditures related to the Accelerated amortization of regulatory assets outage were $42 million in 1997. (See Note 9 on page 42.) and write-off of related taxes $21 Accelerated 1999 expenditures to enhance reliability $17 Impact of Tiger Bay Buy-Out Accelerated 1999 lump-sum pay increase $7 In July 1997, Horida Power bought out the purchased power contracts related to a 220-megawatt cogeneration facili-Utility operations and maintenance expenses increased by ty (Tiger Bay). In addition to buying out the purchased power
$49 million during 1998, compared with 1997. The increase contracts, Florida Pow?r acquired the facility. Costs associated was due to the acceleration of certain expenses noted above with the termination of the purchased power contracts and the and additional operations and maintenance costs related to the acquisition of the facility totaled $445 million.
Tiger Bay plant acquired in July 1997. In addition, Florida The FPSC-approved purchase allowed Florida Power to record Power wrote off $7 million of inventory deemed obsolete. a regulatory asset of approximately $350 million for contract In 1997, operations and maintenance expenses, before termination costs and add $75 million to its electric plant. nuclear outage costs, increased by $8.9 million over 1996. Florida Power continues to collect from customers an The increase was due primarily to costs associated with amount equa! to what it would have been allowed to recover planned fossil plant outages and expenditures designed to for capacity and energy payments made in accordance with the improve reliability and customer service. original Tiger Bay purchased power contract. Based on these Changes from year to year in the amount of energy conser- payments, Florida Power is projected to recover enough rev-vation costs have no significant impact on earnings because enues by the year 2008 to fully amortize the replatory asset Florida Power recovers substantially all of these costs through and related interest charges. a clause in electric rates similar to the fuel recovery clause. The regulatory asset balance as of December 31,1998, was Florida Power does not expect the level of energy conservation $321 million and reflected normal amortization of $13.2 mil-costs to vary materially in the future. lion and $4.4 million in 1998 and 1997, respectively, and Depreciation of $347.1 million for 1998 included $19 mil-accelerated amortization of $14 million in 1998. (See Note 9 lion of accelerated amortization of regulatory assets, $14 mil- on page 42.) lion of which was related to contract termination cocts for the Tiger Bay buy-out. (See Impact of Tiger Bay Buy-Out.) In , DIVERSIFIED OPERATIONS 1997, Florida Power wrote off approximately $20 milbon related to these costs. In 1996, Florida Power amortized Overview approximately $31 million related to two oil-fired power plants In 1998, Electric Fuels Corporation earned $42.3 million, or and a canceled transmission line. Excluding these and other $.44 per share, compared with $32.1 million, or $.33 per write-offs, Florida Power's annual depreciation for 1998,1997 share, in 1997 and $27.1 million, or $.28 per share, in 1996, and 1996 would have been $328.6 million, $305.9 million and Electric Fuels' operations include Rail Services, Inland Marine
$293.2 million, respectively. Transportation and Energy and Related Services.
Florida Power's interest expense in 1998 increased over In 1997, Florida Progress established a provision for loss on 1997 primarily due to higher debt balances resulting from the its $87 million investment in Mid-Conti.ient Life Insurance July 1997 Tiger Bay transaction. The higher debt balances Company and accrued for litigation costs. (See Mid-Continent from the Tiger Bay transaction, as well as additional costs Life Insurance Company on page 24.) In 1996, Florida associated with the 1997 extended nuclear outage, also result. Progress made two restructuring decisions that had a signifi-ed in increased 1997 interest expense, compared with 1996. cant impact on earnings from diversified operations. The spi 3-23
off of Echelon resulted in a $U.3 million after-tax chawe to Further expansion of the barge fleet after 1999 depends earnings while the sale of Advanced Separation Technologies largely on the future demand for barge capacity and MEMC0's 1 contributed an after-tax gain of $23.5 million. Another item ability to secure additionallong-term contracts. MEMCO's that affected 1996 diversified earnings was the provision for objective is to achieve and maintain approximately 70 percent loss on unprofitable coal properties owned by Electric Fuels, of its barge capacity under long-term contracts typically rang-This resulted in an after-tax charge of $25.2 million. ing from three to five years. The remaining capacity is used to Yhe diversified operations of Electric Fuels can be more take advantage of new market opportunities as they arise. volatile when compared to the operations of an electric Earnings from the Inland Marine Transportation unit were utility. Factors that can influence its operating results include $10.3 million in 1998, compared with $5.9 million in 1997. weather conditions that affect barge transportation along the The increase was due to the expanded fleet and the negative Mississippi and Ohio rivers, and economic conditions that impact high-water conditions in March 1997 had on 1997's affect the supply and demand for the various products and results. The March floods temporarily disrupted barge traffic . services offered by the three business units. and terminal services and kept 1997 earnings below 1996 earnings of $7.1 million. Electric Fuels Corporation Electric Fuels' Energy and Related Services business unit . The expansion of Electric Fuels is one of Florida Progress' key includes coal mining, river terminal services and off-shore , strategic objectives. Double-digit earnings growth of Electric marine transportation. Annual sales of coal average about Fuels would enable Florida Progress to achieve its five-year 12 million tons, of which 5 to 6 million tons are sold to objective of consistent annual earnings per share growth of Florida Power and the rest is sold to unaffiliated customers. 5 percent or better. Earnings from this unit were $20.4 million in 1998, com-Over the last five years, Electric fuels has grown pared with $16.8 million in 1997. The increase was due to significantly: improved productivity, higher coal deliveries and an increase 1998 1997 1996 1995 1994 Gr wth Rate in river terminal services. In September 1997, Electric Fuels (In millions) bought out its 50-percent partner in a coal mining joint ven-Revenues $1,234 $1,037 $881 $844 $784 16.3 % ture and now recognizes 100 percent of the sales and earnings from that property. In the first half of 1998, Electric Fuels Earnings $42.3 $32.1 $27.1* $24.0 $22.6 23.2 % completed the expansion of its Ceredo river terminalin West
- Before provision for loss on coal properties Virginia, increasing its capacity by 33 percent.
The growth of Electric Fuels has come from growth in its In 1996, the earnings from this unit were $12.7 million, Rail Services business unit, expansion of its Inland Marine before a provision for loss on unprofitable coal properties. In Transportation fleet and improved operations in its Energy and December 1996, Electric Fuels established a provision for loss Related Services group. n certain coal properties after it determined that depressed During 1998, Progress Rail Services Corporation completed market conditions for low sulfur coal were not temporary. The approximately $200 million in acquisitions across its various impact of the wnte-down was a one-time after-tax charge to business segments. This level of activity was substantially earnings of $25.2 m%,on. higher than previous years. During 1997 and 1996, Progress Rail's acquisitions totaled $71 million. Mid-Continent Life Insurance Company Today, Progress Railis one of the largest integrated suppli- In 1997, Florida Progress recorded a provision for a loss on ers of rail services in the United States, with locations in 20 its investment in Mid-Continent and accrued for estimated states, Mexico and Canada. Earnings from the Rail Services legal expenses, reducing 1997 earnings by $.96 per share, unit were $15.9 million, $13.3 million and $9.7 million in This action was prompted by Mid-Continent being placed in 1998,1997 and 1996, respectively. The growth in earnings receivership in the spring of 1997 and subsequent events in , has come mostly from acquisitions and internal expansion. 1997. The receivership was based on Oklahoma Insurance In 1998, this group was negatively impacted by substantial Commissioner John Crawford's contention that Mid-Continent's declines in scrap steel prices during the second half of the policy reserves were understated and that it could not raise year. However, the earnings improvement from increased premiums to address the issue. Although the Oklahoma demand for its railcar and track parts and services, sales of District Court granted the Commissioner's request to place Mid-railcars from its lease portfolio and increases resulting from Continent in receivership, the court ruled that premiums could its 1997 acquisitions more than offset the effects of the lower be raised. Mid-Continent had planned to raise premiums and scrap steel prices, eliminate policyholder dividends in order to avoid a projected Expansion of MEMCO, Electric Fuels' Inland Marine reserve shortfallin 2020. After placing the company in Transportation unit, has been achieved primarily through the receivership, Commissioner Crawford's principal action towards purchase of river barges. Since 1992, MEMC0's fleet of barges, rehabilitation was to file a lawsuit seeking to use the assets of which haul coal, agricultural products and other dry bulk prod- Florida Progress for the benefit of policyholder and creditor ucts along the Ohio and lower Mississippi rivers, has nearly claims. Commissioner Crawford was defeated in his bid for re-tripled. During 1998, MEMC0 acquired approximately 200 new election in November 1998 and new Commissioner, Carroll barges and two new towboats, raising its fleet to 1,100 barges Fisher, has stated his intention to work with Florida Progress and 27 towboats. During 1999, MEMC0 plans to acquire and others to develop a plan to rehabilitate Mid-Continent i approximately 100 more barges and one new towboat. rather than pursue litigation against Florida Progress. 24
l Although Florida Progress hasn't had access to recent Mid- 4.) R:midiatirn and verificati:n - Correcting or upgrad-Continent data, its estimate of the present value of the pro- ing systems and components, and where possible, end-jected deficiency, after applying Mid-Continent's statutory sur- to-end integration testing. plus, is in the range of $100 million, rather than the $348 mil- 5.) Contingency planning - Establishing contingency lion alleged by former Commissioner Crawford. Florida Progress plans for all key operating functions. is working with Commissioner Fisher to develop a viable plan to rehabilitate Mid-Continent, which would include the sale of The following chart represents an estimate of the current status of Florida Progress'Y2K progress and planned comple-that company. (See Mid-Continent Life Insurance Company on tion dates for each phase as of December 31,1998: page G.) Florida Power Electric Fuels Year 2000 Readiness Disdosure c"o%5e"te co75$n c"oEU"t, coIS$n
. Florida Progress is in the process of addressing Year 2000 (12/31/98) Date (12/31/98) Date (Y2K) issues and establishing procedures to mitigate its risks. , , , ,
Y2K issues exist because, histoncally, many computer systems
, have used two digits to represent a year. With the change of Inventory - 98% Jan.1999 70% Mar.1999 the century, a two-digit year may present calculation or Assessment and sequencing errors in computer software and embedded prioritization - 75% Mar.1999 50% Jun.1999 technology.
Remediation and The Florida Progress Y2K effort is overseen by the Vice verification - 40% Sep.1999 30% Sep.1999 President, Information Technology of Florida Power, who pro-vides status reports to Florida Progress' board of directors and Contingency outside regulatory agencies and other entities such as the Pl anning - 20% Sep.1999 10% Dec.1999 FPSC, the NRC and the North American Electric Reliability To continue through duration ofproject Council (NERC). Florida Progress has given the highest priority to addressing Florida Progress has taken a ccmprehensive approach in mission critical processes for Y2K readiness. At Florida Power, developing its Y2K plans. Resources have been dedicated to these include systems and processes that support the monitor-reviewing systems throughout all areas of the company, with ing and control of the electric grid, maintain generating facili-an emphasis on testing of systems, to the extent possible. ty control, output and safety, facilitate security and telecom-Florida Progress expects that preparations for Y2K issues, munications capabilities, and provide critical customer service including contingency plans, will be completed by the end of functions. the third quarter of 1999 for Florida Power and during the While the diversified operations of Electric Fuels have some fourth quarter of 1999 for Electric Fuels. of the same technology-related issues as Florida Power, the risk All areas of Florida Progress are involved in identifying and is substantially less due to the fact that its operations are less addressing software, infrastructure and embedded technology reliant upon integrated technology-driven processes. Issues. Florida Progress is in the process of developing corporate-The Information Technology (IT) focus is on application and wide contingency plans. The objective of contingency plan-operating software, data storage capabilities and technology ning is to minimize the duration and extent of any material infrastructure (workstations, servers, voice and data networks, impacts resulting from a Y2K-induced problem. and communications equipment). Due to the speculative nature of contingency planning, Embedded systems are internal components used to control, Florida Progress cannot ensure the extent to which such plans monitor or assist the operation of equipment, machinery and willin fact mitigate the risk of materialimpacts on Florida plants including process controls used for energy production Progress' operations due to Y2K issues. and delivery. They are integral parts of systems, and in many Florida Progress is in the process of identifying and assess-cases their presence is not obvious. ing third-party vulnerabilities. Highest vulnerabilities from Florida Progress' methodology for identification and remedi- third-party vendors for Florida Power exist in the fuel supply
- ation of Y2K issues is a five-step process, which includes: and telecommunications industries. Florida Power has begun 1.) Awareness - The communication of Y2K issues and a program of working with these vendors to try to determine their importance throughout Florida Power and Electric potential risks and Y2K readiness. Also, Florida Power is work-Fuels. ing with industry groups such as the Florida Reliability 2.) Inventory - The itemized tabulation of all Y2K-suspect Coordinating Council, Nuclear Energy Institute / Nuclear Utility software, infrastructure and embedded systems. Software Management Group, and Electric Power Research 3.) Assessment and prioritization - Performing an evalu. Institute to ensure the safety and reliability of power genera-ation of all technology components, obtaining compli- tion and the integrity of the transmission grid. In addition, ante information through analysis and certifications Florida Power has initiated and participated in utility sharing from suppliers, product vendors, and other third parties, strategy sessions to identify issues with third parties. Florida to the extent possible, with which Florida Progress con. Power has also begun to request status information from sig-iucts business, reviewing interfaces and categorizing nificant vendors to determine potential third-party Y2K risks.
whether identified issues are mission critical. Florida Progress' current estimate of the total costs of addressing Y2K issues, including expenses to remedy both 25 L
embedded systems and computer information systems, is 7 between $15 milb,on and $25 milbon. No Florida Progress sys-LIQUIDITYMND CAPITAL RESOURCES tems have been replaced on an accelerated basis due to the Cash from operations has been the primary source of capital Y2K issue. As of December 31,1998, Florida Progress has for Florida Progress. Cash from operations in 1998 increased incurred a total of approximately $6 million of internal and $435.3 million over 1997. The significant increase was due external costs related to Y2K. Currently, the company does largely to the absence of costs associated with the 1997 not separately track internal costs related to this issue. extended nuclear outage and tax benefits received in 1998 Florida Progress has expensed all Y2K costs as incurred. related to the 1997 Tiger Bay transaction. In the electric utility industry, there are many computers Other sources of capitai over the last three years include and software programs that are susceptible to Y2K issues, as debt financing, proceeds from the sale and leaseback of equip-well as a multitude of individual computer chips within equip- ment, proceeds from the sale of properties and businesses, and ment that may have Y2K implications. Computers and comput- the issuance of common stock. , er chips are used in power plants that generate electricity, in Florida Progress' capital requirements are primarily influ-systems that handle billing and customer information, and in enced by Florida Power's construction program and the expan-many other common devices such as telephones, security sys- sion activities of Electric Fuels. Florida Power's construction , tems and building elevators. While the potential effects could program is not expected to require any significant increase in be widespread and the exact nature of those effects is unknown, equity or debt over the next several years. Florida Progress does not expect the potential effect to be The expansion activities of Electric Fuels will be financed severe. Florida Progress is making every effort to remediate with internally generated funds, debt and equity contributions. issues and provide contingency plans for the possibility of any In November 1998, the Progress Plus Stock Plan and disruption that could occur. Employee Savings Plan (the Plans) began issuing new shares Nevertheless, achieving Y2K readiness is subject to various of common stock instead of purchasing shares in the open risks and uncertainties, many of which are described above. market. Florida Progress expects to receive about $50 million 1 It is difficult to provide a detailed, meaningful description of of new equity annually through the Plans. the most reasonably likely worst case Y2K scenarios. Florida Florida Progress also is considering issuing other equity Progress is not able to predict all of the factors that could alternatives during 1999. The funds from these sources will be cause actual results to differ materially from its current expec. used primarily to reduce debt at Progress Capital Holdings, Inc. tations as to its Y2K readiness. (Progress Capital), the holding company for the diversified If Florida Progress, or third parties with whom it has signif- operations. icant business relationships, fail to achieve Y2K readiness with Florida Progress' capital structure as of December 31,1998, respect to critical systems, there could be a material adverse was 41.1 percent common equity,58.1 percent debt and .8 impact on Florida Progress' financial position, results of opera- percent preferred stock. Total debt at Florida Power was tions and cash flows. However, based on the milestones that reduced by $233 million in 1998. This decrease was offset by have been achieved to date and the planned completion of the an increase of $257 million at Progress Capital. Listed below Y2K project, Flurida Progress is confident that it is taking the are the credit ratings for Florida Power and Progress Capital as necessary steps to minimize the impact of Y2K. of December 31,1998: CREDIT RATINGS ' Other STANDARD - . DUFF & Florida Progress adopted several new accounting standards ; & POOR'S MOODY'S ' : PHELPS - during 1998. (See New Accounting Standards on page 36.) Florida Power Corporation Florida Power and a former subsidiary of Florida Progress . First mortgage bonds AA- . AA-Aa3: have been notified by the U.S. Environmental Protection Medium term notes - A+ - :Al' A+ Agency that each is or may be a potentially responsible party Commercial paper ' , A-1+ -- - P-1 D-1+ for the cleanup costs of several contaminated sites. (See Progress Capital Holdings, Inc. . Contaminated Site Cleanup on page 44.) Medium-term notes -A- A2- l Florida Progress has off-balance sheet risk related to debt Commercial paper ~A-1 P-1 - of unconsolidated partnerships. (See Off-Balance Sheet Risk on page 43.) Florida Power Corporation Florida Progress is involved in other litigation. (See Legal Florida Powe/s construction expenditures in 1998 totaled Matters on page 44.) about $310 million. This was primarily for distribution lines , Even though the inflation rate has been relatively low dur- related to the utility's growing customer base and the con-mg the last three years, mflation continues to affect Florida Progress by reducing the purchasing power of the dollar and struction of a new 500-megawatt power plant that is planned for commercial operation in the first quarter of 1999. Florida increasing the cost of replacing assets used in the business. Powers three-year construction program totals approximately This has a negative eifect on Florida Power because regulators
$1 billion for the 1999-2001 forecast period. It includes generally do not consider this economic loss when setting util-planned expenditures of $323 million, $342 million and $300 ity rates. However, such losses are partly offset by the eco-million for 1999 through 2001. Florida Power expects these nomic gains that result from the repayment of long-term debt with inflated dollars. construction expenditures will be financed primarily with inter-nally generated funds.
26
In 1998, Florida Power redeemed $250 million of first mort- $126 million of secured notes and $74 million in equipment gage bonds. The redemption of these bonds was principally trust certificates by a special purpose Delaware trust. The funded through the issuance of $150 million of 30-year medi- notes and certificates bear a weighted average interest rate of um-term notes bearing an interest rate of 6 3/4 percent and 6.8 percent with a final maturity in 2014. MEMC0's payment commercial paper. obligations under the operating lease are guaranteed by In July 1997, Florida Power issued $450 million of medium- Progress Capital. (See Leases on page 43.) term notes primarily to finance the buy-out of purchased Progress Capital has two revolving bank credit facilities: a power contracts associated with the 220-megawatt Tiger Bay 364-day, $100-million facility and a five-year, $300-million cogeneration facility. (See Impact of Tiger Bay Buy-Out on facility. These facilities are used to back up commercial paper. page 23.) (See Note 6 on page 38.) Progress Capital also has uncommit-Amendments to the Clean Air Act in 1990 require electric ted bank bid facilities that authorize it to borrow and re-bor-
. utilities to reduce sulfur dioxide emissions. Florida Power is row, and have outstanding at any time, up to $300 million, meeting these requirements with minimal capital expenditures. As of December 31,1998, $150 million was outstanding. The In addition to funding its construction commitments with facilities were established to temporarily supplement commer- . cash from operations, Florida Power accesses the capital mar- cial paper borrowings.
hets through the issuance of commercial paper and medium- In 1998, total diversified capital expenditures were $217 term notes. million, including approximately $92 million for the purchase Florida Powefs interim financing needs are funded primarily of barges and towboats and $125 million for property additions through its commercial paper program. The utility has a $200- at Electric Fuels' diversified operations. million, 364-day revolving bank credit facility and a $200-mil- In 1997, diversified capital expenditures were about $120 lion, five-year facility, which are used to back up commercial million, primarily for the purchase of barges. paper. (See Note 6 on page 38.) In 1999, diversified capital expenditures are expected to be Florida Powers medium-term note program provides for the approximately $155 million, most of which is for Electric Fuels, issuance of either fixed or floating interest rate notes, with The Inland Marine Transportation unit plans to add approxi-maturities that may range from nine months to 30 years, mately 100 new barges and one towboat in 1999 as it contin-Florida Power has available for issuance $250 million of medi- ues to take advantage of market opportunities to expand its um-term notes, business. In 1998, debt levels decreased at Florida Power largely due Electric Fuels' Rail Services unit is expected to continue to the improved operating results stemming from hotter-than- to grow by expanding geographically. These expenditures normal weather, which increased funds from operations. are expected to be funded through cash generated internally, In 1997, debt levels increased over 1996 at Florida Power through Progress Capital from outside financing sources, largely due to the costs associated with the extended nuclear and through equity contributions from Florida Progress. outage and the buy-out of purchased power contracts with the Tiger Bay plant Florida Powers embedded cost of long-term debt was 6.8 Dividend Policy arid Earnings Outlook percent as of December 31,1998, and 7 percent as of Florida Progres; evaluates its dividend policy on an annual December 31,1997. basis to ensure that the dividend payout and dividend rate are appropriate given the business plan, projected earnings growth
. and outlook for the ebetric utility industry. Florida Progress' Diversified Operations business plan forecasts sustained earnings per share growth, a Progress Capital provides short- and long-term financing key factor in determining dividend policy.
facilities for Florida Progress' diversified operations and, with the benefit of a guaranty and support agreement with Florida Progress, helps to lower the cost of capital of the diversified Forward-Looking Statements businesses. Progress Capital funds diversified operations pri- In this report, Florida Progress has stated an aggressive marily through the issuance of commercial paper and medium- five-year objective of consistent annual earnings per share term notes. (See Note 6 on page 38.) growth of 5 percent or better, and established goals to build a Progress Capital has a medium-term note program for the national retail energy services business in the utilities sector, issuance of either fixed or floating interest rate notes, with offer residential prices that are within 5 percent of Florida maturities that may range from nine months to 30 years. Powefs lowest-priced peers in Florida, and continue to support In 1998 and 1997, Progress Capitalissued $115 million and the growth at Electric Fuels. Florida Progress has made various
$35 million of medium-term notes, respectively, with maturi- estimates regarding its Y2K preparedness, projected that retail ties ranging from two to 10 years, leaving $185 million of choice eventually will exist in every state, and indicated its medium-term notes available for issuance. The proceeds were assessment that the lawsuits related to Mid-Continent are primarily used to repay maturing medium-term notes and for without merit.
other corporate purposes. These statements, and any other statements contained in In 1998, MEMCO entered into a $200-million synthetic lease this report that are not historical facts, are forward-looking financing for approximately $175 million in barges and $25 statements that are based on a series of projections and esti-million in towboats. The lease financing was accomplished mates regarding the economy, the electric utility industry and through a sale and leaseback, and involved the issuance of the company's other businesses in general, actions of regulato-27
ry bodies and courts, and on key factors which impact the Market Risks company directly. The projections and estimates relate to the Interest rate risk pricing of services, the actions of courts and regulatory bodies, Florida Progress is exposed to changes in interest rates pri-the success of new products and services, and the effects of marily as a result of its borrowing activities. competition. A hypothetical 54 basis point increase in interest rates (10 Key factors that have a direct bearing on the company's percent of Florida Progress' weighted average interest rate) ability to attain these projections include continued annual affecting its variable rate debt ($739.7 million as of December growth in customers; economic and weather conditions affect- 31,1998) would have an immaterial eff ct on Florida Progress' ing the demand for and supply of not only electricity but also pre-tax earnings over the next fiscal year. A hypothetical 10-Electric Fuels' barge, rail and other services; successful cost percent decrease in interest rates would also have an immater-containment efforts; and the efficient operation and/or con- ial effect on the estimated fair value of Florida Progress'long-struction of Florida Powers existing and planned generating term debt as of December 31,1998. - units. Also, in developing its forward-looking statements, the company has made certain assumptions relating to productivity Commodity ptko risk improvements and the favorable outcome of various commer- Currently at Flond,: Power, commodity price risk due to . cial, legal and regulatory proceedings, and the lack of disrup- changes in market conditions for fuel and purchased power are tion to its markets. recovered through the fuel cost recovery clause, with no effect If the company's projections and estimates regarding the on earnings. economy, the electric utility industry and key factors differ Electric Fuels is exposed to commodity price risk through materially from what actually occurs, or if various proceedings coal sales, the scrap steel market and fuel for its marine trans-have unfavorable oncomes, the company's actual results could portation business. A 10-percent change in the market price vary significantly from the performance projected. of those commodities would have an immaterial effect on the earnings of Florida Progress. s , QUARTERLY FINANCIAL DATA (Unaudited). Three Months Ended
^ (in mluions, except per share amounts) March 31 c June 30 September 30 December 31
^
' 1998. , y OPERATING RESULTS Revenues'- $787.5 ' $903.1 l $1,031.5 ; $898.2
' Income from operations . - 118.2 167.7 228.1! - 86.3 '
> Net income L 50.5 77.8 :117.3 - 36.11 ' , DATA PER SHARE J Earnings per common share '.5 2 .80 "1.21 .37 ; Dividends per common share .535 .535 .535: .535f Common stock price per share: High 42%. g 42% ! 43'% - 47% Low- 41' 375% 39 . 38% - 1997 OPERATING RESULTS RevenuesS ' $ 747.5 $ 797.3 $ 922.5 - $ 849.1 Income (loss) from operations - 95.0 37.9 166.0 (25.2) : * , Net income (loss) ' . 42.0 ' -. 6.3 81.6 i - (75.6)
' DATA PER SHARE
. . (
' . Earnings (loss) per common share .4 3 - .07 .84 ' (.78) . , Dividends per common share .525 .525: .525 .525-Common stock price per share: < . High 32%- 31%. 33%' L39%- I Low ' 29 % 27% 30% - 31%' j The business of Florida Power is seasonalin nature and comparisons of earnings for the quarters do not give a true indication of overall trends and changes in the Company's operations. In June 1998, Florida Power restated its financial results for the second, l third and fourth quarters of 1997 to reflect recognition of the extended nuclear outage as incurred. The change affected the I financial results for the interim reporting periods but did not have any effect on results for the fiscal year ended 1997. Effective December 31,1997, the Company deconsolidated the financial statements of Mid-Continent Life Insurance Company and estab-lished a provision for loss for the full amount of its investment. The deconsolidation has not been reflected in the consolidated financial statements of prior periods. 28
CO N S0 LID ATE D FIN A N CI A L ST AT E M'E N TS Consolidated Statements of Income . Morida Progress Corporation FOR THE YEARS ENDED DECEMBER 31,1998.1997 AND 1996 (Dollars in millions. except per share amounts) 1998 1997 1996 REVENUES: Electric utility $2,648.2 $ 2,448.4 $2,393.6 Diversified 972.1 868.0 764.3 3,620.3 3,316.4 3,157.9 EXPENSES: Electric utility:
- Fuel 595.7 458.1 409.7 Purchased power 433.8 490.6 531.6 Energy conservation cost 79.6 67.0 62.6 Operation and maintenance 471.6 422.3 413.4 Extended nuclear outage -
0&M and replacement power costs 5.1 173.3 - Depreciation 347.1 325.9 324.2 Taxes other than income taxes 203.6 193.6 183.6 2,136.5 2,130.8 1,925.1 Diversified: Cost of sales 827.2 753.9 642.9 Provision for loss on coal properties - - 40.9 Loss related to life insurance subsidiary - 97.6 - Other 56.3 60.4 66.6 883.5 911.9 750.4 INCOME FROM OPERATIONS 600.3 273.7 482.4 INTEREST EXPENSE AND OTHER: Interest expense 187.1 158.7 135.9 Allowance for funds used during construction (16.9) (9.7) (7.5) (Gain) on sale of business -- - (44.2) Other expense (income), net (.2) 4.0 1.6 170.0 153.0 85.8 INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 430.3 120.7 396.6 Income taxes 148.6 66.4 145.9 INCOME FROM CONTINUING OPERATIONS 281.7 54.3 250.7 DISCONTINUED OPERATIONS, NET OF INCOME TAXES - - (26.3) NET INCOME -- $ 281.7 $ 54.3 $ 224.4 AVERAGE SHARES OF COMMON STOCK OUTSTANDING 97.1 97.1 96.8 EARNINGS PER AVERAGE COMMON SHARE (BASIC AND DILUTED): . Continuing operations $ = 2.90 $ .56 $ 2.59 Discontinued operations - (.27)
$ 2.N. $ .56 $ 2.32 The accompanying notes are on integral part of these consolidatedfinancial statements.
1 Consolidated Balance Sheets DECEMBER 31,1998 AND 1997 (Dollars in millions) 1998' ; 1997 ASSETS PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and held for future use $6,307.8 $6,166.8 Less: Accumulated depreciation #
. 2,716.0 ; 2,511.0 Accumulated decommissioning for nuclear plant 254.8- 223.7 .
Accumulated dismantlement for fossil plants '130.7 128.5 L ' 3,206.3 3,303.6 Construction work in progress -378.3 279.4 , Nuclear fuel, net of amortization of $377.2 in 1998 and $356.7 in 1997 I 45.9- 66.5 Net electric utility plant 3,630.5 3,649.5 Other property, at cost, net of depreciation of $234.6 in 1998 and $219.3 in 1997 :560.1 437.7 4,190.6 4,087.2 j CURRENT ASSETS: ,' Cash and equivalents 2.5 3.1 Accounts receivable, net 3 413.4 373.7 Inventories, primarily at average cost: Fuel 69.8 77.6 Utility materials and supplies . 83.3 91.9 Diversified operations 137.0 126.8 Underrecovered utility fuel costs . 34.5 Income taxes receivable e 23.4 16.8 Deferred income taxes 55.9 L- 5.8 Prepayments and other 68.81 45.1 854.1-- 775.3 DEFERRED CHARGES AND OTHER ASSETS: Costs deferred pursuant to regulation: Deferred purchase power contract termination costs 321.0' 348.2 Other 113.6 ~ 126.4 Investments in nuclear decommissioning fund 332.1 266.7 Goodwill . 139.8 55.2 Joint venturee 'V ?rships - 71.5 ' 54.6 Other 138.1 46.4 1.,116.1 897.5
$6,160.8 $5,760.0 The accompanying notes are on integral part of these consolidatedfinancial statements.
l l 30 l
l i (Oollars in millions) 1998 1997 CAPlTAL AND LIABILITIES COMMON STOCK EQUITY: Commen stock without par value, 250,000,000 shares authorized, . 97,336,826 shares outstanding in 1998 and 97,062,954 in 1997 $1,221.1 $1,209.0
. Retaiaed earnings - 640.9 567.0 1,862.0 1,776.0 CUMULATIVE PREFERRED STOCK OF FLORIDA POWER: , Without sinking funds '33.5 33.5 LONG-TERM DEBT 2,250.4 2,377.8 TOTAL CAPITAL 4,145.9- 4,187.3 CURRENT LIABILITIES:
Accounts payable .297.9 " 253.2 Customers' deposits 104.1 97.1 Taxes payable 10.1 12.0 Accrued interest 70.4 56.8 Overrecovered utility fuel costs 22.2' - Other 85.8 74.8 590.5 493.9 Notes payable 236.2 214.8 , Current portion of long-term debt 145.9 15.2
-972.6 723.9 DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes 595.4 471.2 Unamortized investment tax credits 77.8 85.7 Other postretirement benefit costs 116.1 107.4 Other 253.0 184.5 1,042.3 848.8 COMMITMENTS AND CONTINGENCIES (NOTE 11)
$6,160.8 $5,760.0 The accompanying notes are on integral part of these consolidated financial statements.
l 31 l
~
i i Consolidated Statements of Cash Flow Florida Progress Corporation FOR THE YEARS ENDED DECEMBER 31,1998,1997 AND 1996 (Dollars in millions) g'
~
1998i 1997 1996 OPERATING ACTIVITIES: Income from continuing operations t . $281.7 ' $ 54.3 $250.7 Adjustments for noncash items: Depreciation and amortization -424.6 ' 364.2 366.7 Extended nuclear outage - replacement power cost D - 73.3 - Provision for loss on investment in life insurance subsidiary 86.9 - (Gain) on sale of business F c-- - (44.2) Provision for loss on coal properties -: - 40.9 Deferred income taxes and investment tax credits, net i 44.8' (30.7) (56.6) Increase in accrued post-employment benefit costs G l 8.7 , 8.6 15.5 . Changes in working capital, net of effects from acquisition or sale of businesses: Accounts receivable v (2.5)) (108.3) 35.4 Inventories , 51.1- ' 2.2 (10.9) Overrecovered (underrecovered) utility fuel costs . 51.7 ; (33.1) (82.3) Accounts payable .17.8 . 58.3 21.6 Taxes payable , ~(8.2)) (47.1) 21.0 Other .
< . 3.1 ' l 1.2 (13.5)
Other operating activities ~ 5.11 ' 12.8 26.6 Cash provided by continuing operations t :877.9 442.6 570.9 Cash used by discontinued operations ' -- - (8.9) 877.9 442.6 562.0 INVESTING ACTIVITIES: , Property additions (including allowance for borrowed funds y 7 . used during construction) (543.3) } (513.6) (264.0) Acquisition of businesses
' (206.6) ~ ~
(32.7) (53.8) Cogeneration facility acquisition and contract termination costs -- (445.0) - Proceeds from sales of properties and businesses 1 40.6 24.3 61.1 Proceeds from sale and leaseback ; 153.0i4 - - Investing activities of discontinued operations -- - 56.5 Other investing activities (129.3)I (63.7) (107.4) (685.6) (1.030.7) (307.6) FINANCING ACTIVITIES: Issuance of long-term debt 482.8 178.0 259.1\ Repayment of long-term debt ! (275.1) ; (34.9) (190.4) Increase (decrease) in commercial paper with long-term support v.- 130.6 (15.3) Redemption of preferred stock ' (106.4) . 4 Sale of common stock " 12.71 - 18.5 Dividends paid on common stock (203.8)
' (207.8) l (199.5)
Increase in short-term debt J 21.4 210.8 4.1 . Financing activities of discontinued operations .-- - 61.5 Other financing activities 1(3.2)J .5 (4.0)
- (192.9) - 586.0 (253.5)
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS - (.6) - (2.1) .9 Beginning cash and equivalents 3.1 5.2 4.3 ENDING CASH AND EQUIVALENTS $ 2.5 $ 3.1 $ 5.2 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: ; Cash paid during the period for: Interest (net of amount capitalized) , $159.7 , $ 142.7 $128.7 Income taxes (net of refunds) $110.4 $ 141.7 $189.3 The accompanying notes are on integral part of these consolidatedfinancial statements. l l l 32
1 l l Consolidated Statements of Common Equity and Comprehensive Income . RdHda Progress Corporation - FOR THE YEARS ENDED DECEMBER 31,1998,1997 AND 1996 (Dollars in millions, except per share amounts) l l Accumulated Other Common Retained Comprehensive Total Stock Earnings Income Balance, December 31,1995 $ 2,078.1 $ 1,187.6 $ 888.4 $ 2.1 l Net income 224.4 224.4 - Common stock issued - 586,555 shares 20.7 20.7 Echelon International stock dividend (194.5) (194.5) l Cash dividends on common stock ($2.06 per share) (199.5) (199.5) l
. Unrealized loss on marketable securities (2.7) (2.7)
Preferred stock redeemed - 1,050,000 shares (2.3) (2.3) Balance, December 31,1996 1,924.2 1,208.3 716.5 (.6) l l Net income 54.3 54.3 Common stock issued - 55,772 shares .7 .7 Cash dividends on common stock ($2.10 per share) (203.8) (203.8) Reversal of unrealized loss on marketable securities due to deconsolidation .6 .6 Balance, December 31,1997 1,776.0 1,209.0 567.0 - Net income 281.7 281.7 Common stock issued - 273,872 shares 12.1 12.1 Cash dividends on common stock ($2.14 per share) (207.8) (207.8) Balance, December 31,1998 $1,862.0 $ 1,221.1 $640.9 $- The accompanying notes are on integral part of these consolidated financial statements. e i 33
N OTES TO C O N SO LID ATE D FIN A N CI A L STATEMENTS NOTE 1:
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES Florida Power has total regulatory assets (liabilities) at December 31,1998 and 1997 as detailed below: 1998 1997 GIneral- Florida Progress Corporation (the Company) is an (In minions) exempt holding company under the Public Utility Holding Deferred purchased power Company Act of 1935. Its two primary subsidiaries are Florida contract termination costs $321.0 $348.2 Power Corporation (Florida Power) and Electric Fuels Replacement fuel (extended nuclear outage) 39.3 55.0 Corporation (Electric Fuels). Florida Power is a public utility Underrecovered/(overrecovered) utility fuel costs (22.2) 34.5 ~ engaged in the generation, purchase, transmission, distribution Revenue decoupling - 21.8 and sale of electricity primarily within Florida. Electric Fuels' Unamortized loss on reacquired debt 25.2 16.8 operations include the mining, processing and procurement of Other regulatory assets, net 27.7 25.2 coal, marine and rail transportation, transfer and storage of Net regulatory assets $391.0 5501.5 coal and other bulk commodities, railcar leasing and railcar maintenance and repair. The utility expects to fully recover these assets and refund Electric Fuels reports the results of its Rail Services, Inland * ".a s ugh cusbner raks unk curent egulaby practice. Marine Transportation, and the non-Florida Power portion of its Energy and Related Services operations one month in arrears. If Fl rida Power no longer applied FAS No. 71 due to compe-n, egulatory changes or other reasons, the utility would The consolidated financial statements include the financial results of the Company and its majority-owned operations. All *'.ke certain adjustments. These adjustments could include the significant intercompany balances and transactions have been wn e- # an or a portion of its regulatory assets and liabib-S' """ , f utility plant, contracts and commitments eliminated. Investments in 20W to 50%-owned joint ventures and be mcognh. n, " nuessay,
- d. of any bsses M dect nian are accounted for using the equity method, ,
ket conditions. Effective December 31,1997, the Company deconsolidated the financial statements of Mid-Continent, and the investment PROPERTY, PLANT AND EQUIPMENT in Mid-Continent is accounted for under the cost method. The Electric Utility Plant - Utility plant is stated at the origi-tieconsolidation has not been reflected in the financial state. nal cost of construction, which includes payroll and related ments of prior periods. costs such as taxes, pensions and other fdnge benefits, general Certain reclassifications have been made to prior-year and administrative costs, and an allowance for funds used dur-amounts to conform to the current year's presentation. ing construction. Substantially all of the utility plant is Use of Estimates - The preparation of financial statements *9 'S # # # * * * '" 9"9' " in conformity with generally accepted accounting principles The allowance for funds used during construction represents requires management to make estimates and assumptions. This the estimated cost of equity and debt for utility plant under could affect the reported amounts of assets and liabilities, dis- construction. Florida Power is permitted to earn a return on closure of contingent assets and liabilities at the date of the these costs and recover them in the rates charged for utility financial statements, and the reported amounts of revenues services while the plant is in service. The average rate used in and expenses during the reported period. These estimates computing the allowance for funds was 7.8%. involve judgments with respect to various items including The cost of nuclear fuelis amortized to expense based on future economic factors that are difficult to predict and are the quantity of heat produced for the generation of electric beyond the control of the Company. Therefore actual results energy in relation to the quantity of heat expected to be pro. - could differ from these estimates. duced over the life of the nuclear fuel core. Regulation - Florida Power is regulated by the Florida Florida Power's annual provision for depreciation, including Public Service Commission (FPSC) and the Federal Energy a provision for nuclear plant decommissioning costs and fossil - Regulatory Commission (FERC). The utility follows the account. plant dismantlement costs, expressed as a percentage of the ing practices set forth in Financial Accounting Standard (FAS) average balances of depreciable utility plant, was 4.7% for No. 71, " Accounting for the Effects of Certain Types of 1998,4.8% for 1997 and 4.9% for 1996. Regulation." This standard allows utilities to capitalize or defer The fossil plant dismantlement accrual has been suspended certain costs or revenues based on regulatory approval and for a period of four years, effective July 1,1997. (See Note 9 management's ongoing assessment that it is probable these on page 42.) items will be recovered through the ratemaking process. Florida Power charges maintenance expense with the cost of repairs and minor renewals of property. The plant accounts are charged with the cost of renewals and replacements of property units. Accumulated depreciation is charged with the cost, less f the net salvage, of property units retired. 34
Florida Power accrues a reserve for maintenance and refuel- The Company held only securities classified as available for ng expenses anticipated to be incurred during scheduled sale at both December 31,1998 and 1997. A decline in the luclear plant outages, market value of any security available for sale dw cost Other Property - Other property consists primarily of rail. results in a reduction in carrying amount to fair vaOe if the
- ar and recycling equipment, barges, towboats, land, mineral decline is not considered temporary. The impairmer.t is charged ights and telecommunications equipment, to earnings and a new cost basis for the security is Utab-Depreciation on other property is calculated principally on lished. (See Note 2 on page 36.) Dividend and h tere.: . income he straight-line method over the estimated usefullives of are recogmzed when earned.
hssets. Depletion is provided on the units-of-production Accounting for Long-Lived Assets - Long-lived assets and hethod based upon the estimates of recoverable tons of clean certain identifiable intangibles subject to the provisions of FAS
- oal. No.121, " Accounting for the Impairment of Long-Lived Assets litility Revenues, Fuel and Purchased Power Expenses - and for L.ong-Lived Assets to Be Disposed Of," are reviewed for evenues include amounts resulting from fuel, purchased power impairment whenever events or changes in circumstances indi-
.nd energy conservation cost recovery clauses, which generally cate that the carrying amount of an asset may not be recover-
.re designed to permit full recovery of these costs. The adjust- able. FAS No.121 also amends FAS No. 71, " Accounting for the nent factors are based on projected costs for a 12-month peri- Effects of Certain Types of Regulation," to require that regula-Dd. The cumulative difference between actual and billed costs tory assets, which include certain deferred charges, be charged s included on the balance sheet as a current regulatory asset to earnings if such assets are no longer considered probable of pr liability. Any difference is billed or refunded to customers rec very. Recoverability of assets to be held and used is mea-luring the subsequent period. sured by a comparison of the carrying amount of an asset to
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In December 1997, Florida Power ended the three-year test by the asset. If such assets are considered to be impaired, the
>eriod for residential revenue decoupling, which was ordered impairment to be recognized is measured by the amount by >y the FPSC and began in January 1995. Revenue decoupling kliminated the effect of abnormal weather from revenues and w e ca ng am un f ane exc s @e fan vabe f the assets. Assets to be disposed of are reported at the iarnings. The difference between target revenues and actual wer e ca ng amount or fan, value leu casu b sel evenues is included as a current asset on the balance sheet 'or the period ended December 31,1997. The regulatory asset Acquisitions - During 1998 and 1997, subsidiaries of If $21.8 million at December 31,1997, is currently being Electric Fuels acquired 13 and three businesses, respectively, ecovered from customers over a two-year period, ending in in separate transactions. The cash paid for the 1998 and 1997
- he year 2000, through the energy conservation cost recovery acquisitions was $206.6 million and $32.7 million, respective-
- lause as directed by the FPSC decoupling order, ly. The excess of the aggregate purchase price over the fair Florida Power accrues the nonfuel portion of base revenues va ue n asseb acquired was approximately $87.8 million
'or services rendered but unbilled.
and $M n@,on in M8 and N, mspec% Me acque tions were accounted for under the purchase method of Diversified Revenues - Revenues are recognized at the accounting and, accordingly, the operating results of the [ime products are shipped or as services are rendered. Leasing acquired businesses have been included in the Company's con-activities are accounted for in accordance with FAS No.13, solidated financial statements since the date of acquisition.
' Accounting for leases."
Each of the acquired companies conducted operations similar Income Vaxes - Deferred income taxes are provided on all to those of the subsidiaries and has been integrated into their gignificant temporary differences between the financial and tax operations. The pro forma results of consolidated operations for aasis of assets and liabilities using presently enacted tax rates. 1998 and 1997, assuming the 1998 acquisitions were made at Deferred investment tax credits, subject to regulatory the beginning of each year, would not differ significantly from pccounting practices, are amortized to income over the lives of the historical results. the related properties. Goodwill- Goodwillis being amortized on a straight-line Accounting for Certain Investments - The Company con- basis over the expected periods to be benefited, generally 40 Jiders all highly liquid debt instruments purchased with a years. The Company assesses the recoverability of this intang-haturity of three months or less to be cash equivalents. ible asset by determining whether the amortization of the The Company's investments in debt and equity securities are goodwill balance over its remaining life can be recovered lassified and accounted for as follows: through undiscounted future operating cash flows of the hype of Security Accounting Treatment acquired operation. The amount of goodwillimpairment, if any, pebt securities held to maturity Amortized cost is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's aver-krading securities Fair value with unrealized age cost of funds. The assessment of the recoverability of "d losses mcluded fn"arning goodwill will be impacted if estimated future operating cash ecurities available for sale Fair value with unrealized gains and losses net of taxes, Stock-Based Compensation - The Company's Long-Term reported separately in Incentive Plan (LTIP) authorizes the granting of up to comprehensive income 2,250,000 shares of common stock to certain executives in various forms, including stock options, stock appreciation 35
l l l rights, restricted stoch and performance shares. Currently, the In June 1998, the FASB issued FAS No.133, " Accounting for l Company has only granted performance shares, which upon Derivative Instruments and Hedging Activities," which estab-achievement of performance criteria for a three-year perfor- lishes accounting and reporting standards for derivative instru-mance cycle, can result in the award of shares of common ments and far hedging activities. It requires that an entity j stock of Florida Progress or cash if certain stock ownership recognize all derivatives as either assets or liabilities on the j requirements are met. The Company accounts for its LTIP in balance sheet and measure those instruments at fair values, j accordance with the provisions of Accounting Principles Board Florida Proqress will be required to adopt this standard for (APB) Opinion No. 25, " Accounting for Stock Issued to financial statements issued beginning the first quarter of fiscal Employees," as allowed unc5r FAS No.123, " Accounting for year 2000. Florida Progress is currently evaluating the effect ' Stock Based Compensation." Compensation costs for perfor- the standard will have on its financial statements. mance shares have been recognized at the fair market value of the Company's stock and are recognized over the performance " cycle. NOTE 2: FINANCIAL INSTRUMENTS Environmental - The Company accrues environmental Estimated fair value amounts have been determined by the remediation liabilities when the criteria of FAS No. 5, " Account- Company using available market information and discounted - ing for Contingencies," have been met. Environmental expendi- cash-flow analysis. Judgment is required in interpreting market tures are expensed as incurred or capitalized depending on data to develop the estimates of fair value. Accordingly, the their future economic benefit. Expenditures that relate to an estimates may be different than the amounts that the Company existing condition caused by past operations and that have no could realize in a current market exchange. future economic benefits are expensed. The Company's exposure to market risk for changes in inter-Liabilities for expenditures of a noncapital nature are record- est rates relates primarily to the Company's marketable securi-ed when environmental assessment and/or remediation is prob- ties and long-term debt obligations. able, and the costs can be reasonably estimated. At December 31,1998 and 1997, the Company had the fol-New Accounting Standards - The Company adopted FAS lowing financialinstruments with estimated fair values and No.130, " Reporting Comprehensive Income " on January 1, carrying amounts: 1998. The standard defines comprehensive income as all 1998 1997 changes in equity of an enterprise during a period except FA R CAR ING FAIR g gg (AR$NG those resulting from shareholder transactions. As the standard addresses reporting and presentation issues only, there was ASSETS: no impact on earnings from the adoption of this standard. Investments for nonqualified Comprehensive income is included for Florida Progress in the retirement plans S 80.4 $ 80.4 $ 5.0 $ 5.0 accompanying Consolidated Statements of Common Equity and Nuclear decommissioning Comprehensive Income. Prior-year financial statements have fund 332.1 332.1 266.7 266.7 been reclassified to conform to the requirements of FAS No. CAPITAL AND LIABILITIES: j 130. Long term debt: ) The Company adopted FAS No.131, " Disclosures about Florida Power Corporation $1,646.7 $1,740.4 $1,746.9 $1,801.1 Segments of an Enterprise and Related Information" for the Progress Capital Holdings 749.6 763.9 646.1 656.5 year ended December 31,1998. The standard requires financial , and descriptive information be disclosed for segments meeting l certain materiality criteria whose operating results are reviewed for decisions on resource allocation and for which discrete financialinformation is available. It also establishes standards . for related disclosures about products and services, geographic areas and major customers. As the standard addresses reporting and disclcsure issues only, there was no impact on earnings. . , (See Note 8 on page 41.) l The Company adopted FAS No.132, " Employers' Disclosures about Pensions and Other Postretirement Benefits" for the year ended December 31,1998. As the standard addresses reporting and disclosure issues only, there was no impact on earnings. (See Note 7 on page 39.) I
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f l l NOTE 3: INCOME TAKE5 operations will be closely monitored until the plant demon-strates a period of improved performance. In January 1998, the M NRC granted Florida Power permission to restart the plant. On 1998 M97 19 % February 15,1998, the plant returned to service. On July 29, Components of income tax expense: 1998, the NRC removed CR3 from the " Watch List." Earlier in . Federal $ 85.8 July 1998, the NRC gave CR3 an overall report of good perfor-
$86.6 $179.7 ,
State 15.3 10.5 23.0 mance and improvements in all areas assessed for the agency's 101.1 97.1 202.7 Systematic Assessment of Licensee Performance (SALP) ratings. Deferred, net: CR3 has produced more than 100% of its rated capacity since I Federal 47.2 (22.4) (41.9) its restart in February 1998. (See Note 9 on page 42.) State 8.2 (.5) (6.9) Jointly Owned Plant - The following information relates to j 55.4 (22.9) (48.8) Florida Powers 90.4% proportionate share of the nuclear plant Amortization of investment at December 31,1998 and 1997: tax credits, net (7.9) (7.8) (8.0) (In millions) 1998 1997
$ 148.6 $66.4 $145.9 Utility plant in service $708.9 $673.8 Construction work in progress 44.2 49.3 The primary differences between the statutory rates and the Unamortized nuclear fuel 45.9 66.5 effective income tax rates are detailed below: Accumulated depreciation 368.7 341.0 1998 1997 1996 Accumulated decommissioning 254.8 223.7 Federal statutory income tax rate 35.0% 35.0% 35.0%
State income tax, net of federal Net capital additions for Florida Power were $30.0 million in 1 Am rt at on of inve t ent tax credits Other income tax credits () () () .998 and $64.7 million in 1997. Depreciation expense, exclu-s1ve of nuclear decommissioning, was $32.8 million in 1998-(1.9) (2.7) - Provision for loss on investment and $29 million in 1997. Each co-owner provides for its own in life insurance subsidiary - 24.9 - financing of their investment. Florida Powers share of the l Preferred dividends .1 - - asset balances and operating costs is included in the appropri-Other (.4) (1.8) .6 ate consolidated financial statements. Amounts exclude any Effective income tax rates 34.5% 54.4% 36.2 % allocation of costs related to common facilities. Decommissioning Costs - Florida Powers nuclear plant The following summarizes the components of deferred tax lia-depreciation expenses include a provision for future decommis-bilities and assets at December 31,1998 and 1997: sioning costs, which are recoverable through rates charged to (In millions) 1998 1997 customers. Florida Power is placing amounts collected in an Deferred tax liabilities: externally managed trust fund. The recovery from customers, Difference m tax basis of plus income earned on the trust fund, is intended to be suffi-P " $ $ cient to cover Florida Powefs share of the future dismantle-Investmer t in partners s ment, removal and land restoration costs. Florida Power has a Deferred book expenses 23.4 34.1 Other 47.2 29.7 license to operate the nuclear unit through December 3, 2016, Total deferred tax liabilities $714.3 $622.5 and contemplates decommissioning beginning at that time. Deferred tax assets: In November 1995, the FPSC approved the current site-spe-Loss reserves not currently deductible $ 18.0 $ 17.0 cific study that estimates total future decommissioning costs Accrued book expenses 108.7 110.8 at approximately $2 billion, which corresponds to $464.8 mil-Unbilled revenues 17.6 17.6 lion in 1998 dollars. Florida Powers share of the total annual
= 30.5 11.7 Other decommissioning expense is $21.7 million.
Total deferred tax assets $174.8 $157.1 Florida Power is required to file a new site-specific study with the FP5C at least every five years, which willincorporate
. At December 31,1998 and 1997, Florida Progress had net non- current cost factort technology and radiological criteria.
current deferred tax liabilities of $595.4 milbon and $471.2 mil-Fuel Disposal Costs - Fbrida Power has entered into a tion and net current deferred tax assets of $55.9 million and c ntract with the U.S. Departmect of Energy (DOE) for the
$5.8 million, respectively. The Company believes it is more like-transportation and disposal of spere nuclear fuel. Disposal ly than not that the results of future operations will generate costs for nuclear fuel consumed are t,mng collected from cus-sufficient taxable income to allow for the utilization of deferred tomers through the fuel adjustment cla1se at a rate of $.001 tax assets' per net nuclear kilowatt-hour sold and a e paid to the DOE quarterly. Florida Power currently is storing spent nuclear fuel NOTE 4: NUCLEAR OPERATIONS on-site and has sufficient storage capacity in place for fuel
""# "9 florida Powers Crystal River nuclear plant (CR3) began an extended outage in September 1996, which caused Florida Power to incur $100 million in additional operation and main-tenance expenses in 1997. The plant was placed on the Nuclear Regulatory Commission's (NRC) " Watch List," as a plant whose 37
1 Preferred Stock, without par value; and 1 million shares of NOTE 5: PREFERRED AND PREFERENCE STOCK Preference Stock, $100 par value. No shares of Florida Power's
' AND SHAREHOLDER RIGHT5 Cumulative Preferred Stock, without par value, or Preference l The authorized capital stock of the Company includes 10 Stock are issued and outstanding. A total of 334,967 shares i million shares of preferred stock, without pr value, including of Cumulative Preferred Stock, $100 par value, were issued and 2 million shares designated as Series A Junior Participating outstanding at December 31,1998 and 1997.
Preferred Stock. No shares of the Company's preferred stock are Florida Power redeemed 1,050,000 shares of its Cumulative > issued and outstanding. However, under the Company's Share. Preferred Stock in 1996 for $106.4 million. holder Rights Agreement, each share of common stock has Cumulative Preferred Stock for Florida Power is detailed associated with it approximately two-thirds of one right to pur- below: chase one one-hundredth of a share of Series A Junior Paitici- Current Outstanding at pating Preferred Stock, subject to adjustment, which is exercis- R'd'*Pt" 5 hares December 31, ,
, , Qd'"d, ,g , g, able in the event of certain attempted business combinations.
If exercised, the rights would cause substantial dilution of g g,,,,, 4.00 % $104.25 39,980 $ 4.0 ownership, thus adversely affecting any attempt to acquire the 4.40% $102.00 75,000 7.5
- Company on terms not approved by the Company's Board of 4.58 % $101.00 99,990 10.0 Directors. The rights have no voting or dividend rights and 4.60 % $103.25 39,997 4.0 4.75% $102.00 80,000 8.0 expire in December 2001, unless redeemed earlier by the Company. 334 367 $ 33.5 The authorized capital stock of Florida Power includes three All Cumulative Preferred Stock series are without sinking classes of preferred stock: 4 million shares of Cumulative funds and are not subject to mandatory redemption.
Preferred Stock, $100 par value; 5 million shares of Cumulative w .. A .m , The Company's long-term debt at December 35,1998 and 1997 is scheduled to mature as follows: Interest Rate (a) 1998 1997 FLORIDA POWER CORPORATION: (In millions) First mortgage bonds, maturing 1599-2023 6.88 % $ 585.0 $ 835.0 Pollution control revenue bonds, rraturing 2014-2027 6.59 % 240.9 240.9 Medium-term no'es, maturing 1999-2028 6.63% 624.5 476.0 Commercial papt r, supported by revolver maturing November 30,2003 5.25% 200.0 200.0 Diwunt, net of premium, being amortized over term of bonds (3.7) (5.0) 1,646.7 1,746.9 PROGRESS CAPITAL HOLDINGS: Medium-term notes, maturing 1999-2008 6.63% 444 0 339.0 Commeraal paper, supported by revolver maturing November 30,2003 5.33% 300.0 300.0 Other debt, maturing 1999-2006 6.13 % 5.6 7.1 2,396.3 2,393.0 Less: Current portion of long-term debt 145.9 15.2 ,
$ 2,250.4 $2,377.8 (a) Weighted average intere** rate at December 31,1998.
I l l 1 38
he Company's consolidated subsidiaries have lines of credit notes. These notes have maturities ranging from nine months to , ating $800 million, which are used to support commercial 30 years. A balance of $250 million is available for issuance. ter. The lines of credit were not drawn on as of December 31, In March 1998, Florida Power redeemed all of its $150 million
'8. Interest rate options under the lines of crec'it arrange- principal amount of first mortgage bonds,8 5/8% series due .
7ts vary from subprime or money market rates to the prime November 2021 at a redemption price of 105.17% of the princi-
- t. Banks providing lines of credit are compensated through pal amount thereof. Substantially all of this redemption was
- s. Commitment fees on lines of credit vary between .06 and funded from the net proceeds of $150 million of medium-term of 1% notes issued in February 1998, which bear an interest rate of he lines of credit consist of four revolving bank credit facili- 6 3/4% and mature in February 2028. Florida Power also
, two each for Florida Power and Progress Capital Holdings, redeemed in November 1998, an additional $100 million of first . The Florida Power facilities consist of $200 million with a mortgage bonds. The entire $50 million principal of the 7 3/8% ,-day term and $200 million with a five-year term. The series was redeemed at a price of 100.93%, and the entire $50 gress Capital facilities consist of $100 million with a 364-day million principal of the 71/4% series was redeemed at a price of n and $300 million with a five-year term. In 1998, both 364- 100.86% Both issues were due in 2002. The redemption was ' facilities were extended to November 1999. In addition, funded from internally generated funds and commercial paper, h five-year facilities were extended to November 2003.
Floridt Power has registered $370 million of first mortgage
.ed on the duration of the underlying backup credit facilities, bonds, which are unissued and available for issuance.
10 million of outstanding commercial paper at December 31, Progress Capital has a private medium-term note program 18, and December 31,1997, are classified as long-term debt. providing for the issuanc? of either fixed or floating interest rate litionally, as of December 31,1998, Florida Power and notes, with maturities ranging from nine months to 30 years. gress Capital Holdings had an additional $47.3 million and A balance of $185 million is available for issuance under this I.9 million, respectively, of outstanding commercial paper program. isified as short-term debt. The combined aggregate maturities of long-term debt for 1999
'rogress Capital Holdings has uncommitted bank bid facilities through 2003 are $145.9 million, $147.6 million, $183 million, -
horizing it to borrow and re-borrow, and have outstanding at
$32.2 million and $775.4 million, respectively. ' time, up to $300 million. As of December 31,1998, $150 Florida Progress and Progress Capital entered into an amended lion was outstanding under these bid facilities.
guaranty and support agreement in 1996, pursuant to which torida Power has a public medium-term note program provid. Florida Progress has unconditionally guaranteed the payment of for the issuance of either fixed or floating interest rate Progress Capital's debt.
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HT PLANS ITE h RETIRD Q[ , ,
'ension Benefits - The Company and some of its subsidiaries have a noncontributory defined benefit pension plan (Retirement n) covering most employees. The Company also has two supplementary defined benefit pension plans that provide benefits to her-level employees. Effective January 1,1998, the Retirement Plan was split into two separate plans, one covering eligible bar-ning unit employees and the other covering all other eligible employees. Plan assets were allocated to each plan in accordance h applicable law. -
lther Postretirement Benefits - The Company and some of its subsidiaries also provide certain health care and life insurance refits for retired employees when they reach retirement age while working for the Company. hown below are the components of the net pension expense and net postretirement benefit expense calculations for 1998,1997 l 1996: Pension Benefits Other Postretirement Benefits ,. millions) 1998 1997 1996 1998 1997 1996 rice cost $ 22.3 $ 18.7 $18.3 $ 3.5 $ 3.2 55.3 trest cost 37.7 34.9 32.3 10.5 10.4 12.4 pcted return on plan assets (68.5) (58.4) (52.0) (.3) (.4) (.3) lamortization and deferral (12.5) (6.5) (6.5) 3.2 3.4 6.1 ' cost /(benefit) recognized $(21.0) $(11.3) $(7.9) $ 16.9 $16.6 $23.5 he following weighted average actuarial assumptions at December 31 were used in the calculation of the year-end funded status: Pension Benefits Other Postretirement Benefits 1998 1997 1996 1998 1997 1996 ount rate 7.00 % 7.25% 7.50 % 7.00% 7.25% 7.50 % cted long-term rate of return 9.00 % 9.00% 9.00% 5.00 % 5.00% 5.00% of compensation increase: Bargaining unit employees 3.50% 4.50% 4.50 % 3.50 % 4.50% 4.50 % Nonbargaining unit employees 4.50 % 4.50 % 4.50% 4.50 % 4.50% 4.50 % Nonqualified plans 4.00 % 4.00% 4.00% N/A N/A N/A 39
The following summarizes the change in the benefit obligation and plan assets for both the pension plan and postretirement benefit plan for 1998 and 1997: Pension Benefits Other Benefits (In millions) 1998 1997 1998 1997 Change in benefit obligation Benefit obligation at beginning of year $523.9 $472.0 $ 153.2 $ 182.6 Service cost 22.3 18.7 35 3.2 Interest cost 37.7 34.9 10.5 10.4 Plan amendment - 9.5 - (36.1) Actuarial (gain)/ loss 16.1 12.6 1.2 (.3) Benefits paid (25.8) (23.8) (6.9) (6.6) Benefit obligation at end of year 574.2 523.9 161.5 153.2 Change in plan assets , Fair value of plan assets at beginning of year 769.0 655.0 6.4 4.7 Return on plan assets (net of e:penses) 140.2 136.6 .4 .4 Employer contributions - - 1.3 1.3 , Benefits paid (24.2) (22.6) - - Fair value of plan assets at end of year 885.0 769.0 8.1 6.4 Funded status 310.8 245.1 (153.4) (146.8) Unrecognized transition (asset) obligation (20.5) (25.4) 51.4 55.0 Unrecognized prior service cost 13.3 14.5 - - Unrecognized net actuarial (gain)/ loss (283.5) (236.6) (14.1) (15.6) Prepaid (accrued) benefit cost $ 20.1 $ (2.4) $(116.1) $(107.4) Between 1996 and 1998, the Company set assets aside in a rabbi trust for the purpose of providing benefits to the participants in the supplementary retirement plans. The assets of the rabbi trust are not reflected as plan assets because the assets could be subject to creditors' claims. The assets and liabilities of the supplementary defined benefit retirement plans are included in Other Assets and Other liabilities on the accompanying Consolidated Balance Sheets. A one-percentage point increase or decrease in the assumed health care cost trend rate would change the total service and interest cost by approximately $1 million and the postretirement benefit obligation by approximately $10 million. Due to different retail and wholesale regulatory rate requirements, Florida Power began making quarterly contributions for the postretirement benefit plan in 1995 to an irrevocable external trust fund for wholesale ratemaking, while continuing to accrue postretirement benefit costs to an unfunded reserve for retail ratemaking. Florida Power contributed approximately $1.3 million annually in both 1998 and 1997 to the trust fund.
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10TE 8: SUS
- 55 SEGS !NTS 1e Company's principal business segment is Florida Power, an The Company's business segment information for 1998,1997
;ectric utility engaged in the generation, purchase, transmis- and 1996 is summarized below. The Company's significant oper-ion, distribution and sale of electricity. The other reportable ations are geographically located in the United States. The usiness segments are Electric Fuels' Energy and Related Company's segments are based on differences in products and ervices, Rail Services and Inland Marine Transportation units, services, and therefore no additional disclosures are presented, nergy and Related Services includes coal operations, river ter. Intersegment sales and transfers consist of coal sales from tinal services and off-shore marine transportation. Rail Electric Fuels to Florida Power. The price Electric Fuels charges ervices' operations include railcar repair, rail parts recondition- Florida Power is based on market rates for coal procurement ig and sales, railcar leasing and sales, providing rail and track and for water borne transportation under a methodology laterial, and metal recycling. Inland Marine provides trans- approved by the FPSC. Rail transportation is also based on mar-ortation of coal, agricultural and other dry-bulk commodities ket rates plus a return allowed by the FPSC on equity utilized s well as fleet management services. The other category in transporting coal to Florida Power. The allowed rate of return icludes the parent holding company Florida Progress is currently 12% No single customer accounted for 10% or orporation, which allocates a portion of its operating expenses more of unaffiliated revenues. > business segments. This category also includes segments elow the quantitative threshold required for separate isclosure.
Energy and Rail Inland Marine in miulons) Utility Related Services Services Transportation Other Eliminations Consolidated 998 evenues $2,648.2 $173.8 $658.5 $124.6 $ 10.9 $ 4.3 $3,620.3 ntersegment revenues - 273 9 1.3 14.0 - (289.2) - epreciation and amortization 382.7 14.4 19.4 4.5 3.6 - 424.6 iterest expense 136.5 5.8 21.3 4.4 20.8 187.1 (1.7) 1come taxes 141.0 6.3 12.3 6.3 (17.3) - 148.6 egment net income (loss) 248.6 20.4 15.9 10.3 (13.5) - 281.7 atal assets 4,928.1 316.5 680.0 99.5 334.0 6,160.8 (197.3) roperty additions 326.0 32.0 91.0 93.6 .7 -- 543.3 997 evenues $2,448.4 $165.6 $477.1 $105.5 $115.7 $ 4.1 $3,316.4
,tersegment revenues -
286.0 1.3 14.2 - (301.5) - epreciation and amortization 333.8 11.7 11.2 4.3 3.2 - 364.2 nterest expense 117.3 6.5 13.9 2.5 19.1 158.7 (.6)
,come taxes 69.9 8.4 9.8 3.3 66.4 (25.0) -
egment net income (loss) 134.4 16.8 13.3 5.9 (116.1) - 54.3 ptal assets 4,900.8 299.2 385.3 138.9 210.4 5,760.0 (174.6) roperty additions 395.0 16.8 41.6 59.0 1.2 -
$13.6 996 evenues $2,393.6 $165.6 $353.7 $ 86.4 $155.2 $ 3.4 $ 3,157.9 7tersegment revenues -
273.2 .8 13.7 - (287.7) - epreciation and amortization 341.1 11.4 7.4 4.5 2.3 - 366.7 nterest expense 98.4 6.3 9.9 1.9 20.5 (1.1) 135.9 ncome taxes 135.7 (9.3) 6.9 4.4 8.2 - 145.9 egment net income (loss) 232.6 (12.5) 9.7 7.1 (12.5) - 224.4 ptal assets 4,264.0 272.4 294.2 79.0 577.2 5,348.4 (138.4) roperty additions 222.9 11.7 16.1 12.7 .6 - 264.0 In December 1996, the Energy and Related Services segment of Electric Fuels revised its assessment that low-sulfur coal market
- rices were depressed temporarily. Electric Fuels decided to close and dispose of its unprofitable coat operations and recorded a rovision for loss of $40.9 million, i
41
NOTE 9: RATES rates or the authorized range of its return on equity during the four-year amortization period. The settlement agreement also Florida Powefs retail rates are set by the FPSC, while its provided that for purposes of monitoring Florida Powe/s future ! wholesale rates are governed by the FERC. Florida Powers last earnings, the FPSC will exclude the nuclear outage costs when general rate case was approved in 1992 and allowed a 12% assessing Florida Powefs regulatory return on equity. The regulatory return on equity with an allowed range between agreement resolved all present and future disputed issues 11% and 135 between the parties regarding the extended outage of the Tiger Bay Buy-Out - In 1997, Florida Power bought out nuclear plant, the Tiger Bay purchased power contracts for $370 million and acquired the cogeneration facility for $75 million, for a total NOTE 10: DISCONTINUED OPERATIONS of $445 million. Of the $370 million of contract termination costs, $350 million was recorded as a regulatory asset and the On November 21,1996, the Company's Board of Diiectors , remaining $20 million was written off. Florida Power recorded declared a spin-off distribution to common shareholders of
$75 million as electric plant. record on December 5,1996, of the common shares of Echelon The regulatory asset is being recovered pursuant to an agree. International Corporation (Echelon), which comprised the ,
ment between Florida Power and severalintervening parties, Company's lending, leasing and real estate operations. Commen which was approved by the FPSC in June 1997. The amortization shares were distributed on the basis of one share of Echelon of the regulatory asset is calculated using revenues collected common stock for every 15 shares of the Company's common under the fuel adjustment clause as if the purchased power stock. agreements related to the facility were stillin effect, less the In connection with the spin-off in 1996, the Company has actual fuel costs and the related debt interest expense. This will presented Echelon as a discontinued operation in the accompa-continue until the regulatory asset is fully amortued. Florida nying Consolidated Statements of Income. Power has the option to accelerate the amortization. Summarized income statement information relating to Approximately $27.2 million and $4.4 million of amortization Echelon's results of operations (as reported in discontinued expense was recorded in 1998 and 1997, respectively. operations) for the year ended December 31 is as follows: In December 1998, Florida Power received approval from the (In minions) 1996 FPSC to defer nonfuel revenues towards the development of a sales and revenues $ 63.2 plan that would allow customers to realize the benefits earlier Loss from operations (net of income tax) - than if they are used to accelerate the amortization of the Provision for loss on disposition of assets Tiger Bay regulatory asset. If this plan is not submitted by (net of income tax benefits of $11.3) (18.0) May 1,1999, or not approved by the FPSC, then deferred rev- Spin-off transaction costs (net enues of $10.1 million plus interest will be applied towards the of income tax benefits of $1.8) (8.3) amortization of Tiger Bay. Total discontinued operations $(26.3) Extended Nuclear Outage - In June 1997, a settlement agreement between Florida Power and all parties who inter-vened in Florida Powefs request to recover replacement fuel NOTE 11: COMMITMENTS AND CONTINGENCIES and purchased power costs resulting from the extended outage of its nuclear plant was approved by the FPSC. The plant was Fuel, Coal and Purchased Power Commitments - Florida taken off-line in September 1996 to address certain design Power has entered into various long-term contracts to provide issues related to its safety systems. In late January 1998, the fossil and nuclear fuel requirements of its generating Florida Power notified the NRC that it had completed all of the plants and to reserve pipeline capacity for natural gas. In most requirements and was subsequently granted permission to cases, such contracts contain provisions for price escalation, , restart the plant. The plant returned to service in February minimum purchase levels and other financial commitments. 1998. Estimated annua! payments, based on current market prices, for Florida Power incurred approximately $174 million in 1997 Florida Powers firm commitments for fuel purchases and trans-and an additional $5 million in 1998 in total system replace. portation costs, excluding delivered coal and purchased power, ment power costs. In accordance with the settlement agree. are $56 million, $56 million, $62 million, $63 million and $64 / ment, Florida Power recorded a charge of approximately $73 million for 1999 through 2003, respectively, and $499 million million in 1997 and $5 million in 1998 for retail replacement in total thereafter. Additional commitments will be required in power costs incurred that will not be recovered through its the future to supply Florida Powers fuel needs. fuel cost recovery clause. Florida Power is currently recovering Electric Fuels has two coal supply contracts with Florida approximately $38 million through its fuel cost recovery Power, the provisions of which require Florida Power to buy and clause, and approximately $63 million of replacement power Electric Fuels *o supply substantially all of the coal require-costs were recorded as a regulatory asset in 1997. The regula- ments of four of Florida Powefs power plants, two through l tory asset is being amortized for a period of up to four years. 2002 and two through 200/.. in connection with these con- ) The amortization is being recovered by the suspension of fossil tracts, Electric Fuels has entertd into several contracts with l plant dismantlement accruals during the amortization period. outside parties for the purchase of coal. The annual obligations The parties to the settlement agreement agreed not to seek for coal purchases and transportation under these contracts are l or support any increase or reduction in Florida Powe/s base $107.1 million, $61 million, $48.9 million and $22.7 million 42
1999 through 2002, respectively, with no further obliga- Some rental payments include minimum rentals plus contingent s thereafter. The total cost incurred for these commitments rentals based on mileage. Contingent rentals were not signifi-
$117.7 million in 1998, $156.8 million in 1997 and cant. The minimum future lease payments under noncancelable 1.5 million in 1996. operating leases, including the synthetic lease described below, lorida Power has long-term contracts for about 460 are $38.7 million, $31.7 million, $27.7 million, $23.4 million . awatts of purchased power with other utilities, including a and $23.4 million for 1999 through 2003, respectively, with a Itract with The Southern Company for approximately 400 $227 million total obligation thereafter. The total costs incurred gawatts of purchased power annually through 2010. This under these commitments were $30.9 million, $34.8 million and > resents 4.5% of Florida Power's total current system capaci- $33.3 million during 1998,1997 and 1996, respectively.
Florida Power has an option to lower these Southern pur- On August 6,1998, MEMC0 Barge Line, Inc. (MEMCO), a ' Lses to approximately 200 megawatts annually with a three- wholly owned subsidiary of Electric Fuels, entered into a syn-1 r notice. The purchased power from Southern is supplied by thetic lease financing, accomplished via a sale and leaseback, ierating units with a capacity of approximately 3,500 for an aggregate of approximately $175 million in inland river gawatts and is guaranteed by Southern's entire system, barges and $25 million in towboats (vessels). As of December
'aling more than 30,000 megawatts. 31,1998, MEMC0 had sold and leased back $153 million of s of December 31,1998, Florida Power had entered into vessels. Acquisition and subsequent sale and leaseback of the based power contracts with certain qualifying facilities for remaining $47 million of vessels are expected to occur by June megawatts of capacity with expiration dates ranging from 30,1999. The lease (charter) is an operating lease for financiv.
2 to 2025. The purchased power contracts provide for reporting purposes and a secured financing for tax purpor% acity and energy payments. Energy payments are based on The term of the noncancelable charter expires on Lecember actual power taken under these contracts. Capacity pay- 30,2012, and provides MEMC0 one 18-month renewal option nts are subject to the qualifying facilities meeting certain on the same terms and conditions. MEMC0 is responsible for all itract performance obligations. In most cases, these con- executory costs, including insurance, maintenance and taxes, cts account for 100% of the generating capacity of each of in addition to the charter payments. MEMC0 has options to i facilities. Of the 871 megawatts under contract,831 purchase the vessels throughout the term of the charter, as
.gawatts currently are available to Florida Power. All commit- well as an option to purchase at the termination of the char-nts have been approved by the FPSC. ter. Assuming MEMC0 exercises no purchase options during the he FPSC allows the capacity payments to be recovered term of the charter, the purchase price for all vessels aggre-ugh a capacity cost recovery clause, which is similar to, gates $141.8 million at June 30,2014. In the event that works in conjunction with, energy payments recovered MEMC0 does not exercise its purchase option for all vessels, it ugh the fuel cost recovery clause, will be obligated to remarket the vessels, and, at the expira-tion of the charter, pay a maximum residual guarantee amount n 1997, through the buy-out of the Tiger Bay purchased er contracts, Florida Power reduced its long-term purchased The minimum future charter payments as of December 31, er commitments by 20 percent. ,
, 1998, are $14.4 million, $15.3 million, $15.4 million, $15.4 torida Power incurred purchased power capacity costs total-million and $15.8 million for 1999 through 2003 and $172.2
$260.1 million in 1998, $292.3 million in 1997 and $284
, million thereafter (excluding the purchase option payment). All lion in 1996. The following table shows minimum expected MEMC0 payment obligations under the transaction documents ure capacity payments for purchased power commitments.
are unconditionally guaranteed by Progress Capital; those ause the purchased power commitments have relatively obligations in turn are guaranteed by Florida Progress. g durations, the total present value of these payments using Construction Program - Substantial commitments have 0% discount rate also is presented. These amounts assume been made in connection with the Company's construction pro- -t all umts are brought into service as contracted and meet gram. In 1999, Florida Power has projected construction tract performance requirements: expenditures of $323 million, primarily for electric plant and Purchased Power Capacity Payments nuclear fuel. Diversified operations have projected capital , millions) Utilities Cogenerators Total additions of $155 million in 1999, primarily for barges and 9 $ 58 $ 215 $ 273 equipment. , 0 59 223 282 Off-Balance Sheet Risk - Several of the Company's sub-1 58 230 288 sidiaries are general partners in unconsolidated partnerships 2 32 235 268 and joint ventures. The Company or subsidiaries have agreed to 3 32 244 276 support certain loan agreements of the partnerships and joint 4-2025 212 5,555 5,767 ventures. These credit risks are not material to the financial hl $451 $6.703 $7.154 statements and the Company considers these credit risks to be i net present value $2.577 minimal, based upon the asset values supporting the partner-ship liabilities. eases - Electric fuels has several noncancelable operating insurance - Florida Progress and its subsidiaries utilize var-lses, primarily for transportation equipment, with varying ious risk management techniques to protect assets from risk of - s
^
ms extending to 2015, and generally require Electric Fuels loss, including the purchase of insurance. Risk avoidance, risk pay all executory costs such as maintenance and insurance. transfer and self-insurance techniques are utilized depending 43
on the Company's ability to assurae rish, the relative cost and An agreement has been reached among the PRPs to spend availability of methods for transferring risk to third parties, up to $1.5 million to perform the Rish Investigation and and the requirements of applicable regulatory bodies. Feasibility Study (RI/FS). Florida Power is liable for 39.7% Florida Power self-insures its transmission and distribution of those costs. On September 25,1998, the EPA formally lines against loss due to storm damage and other natural dis. approved the PRP RI/FS Work Plan. The RI/FS field work was asters. Pursuant to a regulatory order, Florida Power is accruing completed in January 1999. The EPA is expected to review the
$6 million annually to a storm damage reserve and may defer final Treatability Study report and provide further guidance to any losses in excess of the reserve. The reserve balance at the PRPs by August 1999.
December 31,1998 and 1997 was $24.1 million and $18.1 The discussions and resolution of liability for cleanup costs million, respectively. could cause Florida Power to increase its estimate of its liabili-Under the provisions of the Price Anderson Act, which limits ty for those costs. Although estimates of any additional costs liability for accidents at nuclear power plants, Florida Power, as are not currently available, the outcome is not expected to ' an owner of a nuclear plant, can be assessed for a portion of have a material effect on Florida Progress' financial position, any third-party liability claims arising from an accident at any results of operations or liquidity. commercial nuclear power plant in the United States. If total In addition to these designated sites, there are other sites ' third-party claims relating to a single nuclear incident exceed where affiliates may be responsible for additional environmen-
$200 million (the amount of currently available commerciallia- tal cleanup.
bility insurance), Florida Power could be assessed up to $88.1 The Company believes that its subsidiaries will not be million per incident, with a maximum assessment of $10 mil- required to pay a disproportionate share of the costs for lion per year. cleanup of any of these designated sites. The Company's best Florida Power is a member of the Nuclear Electric Insurance, estimates indicate that its proportionate share of liability for Ltd. (NEIL), an industry mutualinsurer, which provides busi- cleaning up all designated sites ranges from $2.5 million to ness interruption and extra expense coverage in the event of $7.5 million. It has accrued $4.4 million against these poten-a major accidental outage at a covered nuclear power plant. tial costs. Florida Power is subject to a retroactive premium assessment LEGAL MATTERS by NEIL under this policy in the event loss experience exceeds Age Discrimination Suit - Florida Power and Florida NEIL's available surplus. Florida Power's present maximum share Progress have been named defendants in an age discrimination of any such retroactive assessment is $2.7 million per policy lawsuit. The number of plaintiffs remains at 116, however, four l' ear. of those plaintiffs have had their federal claims dismissed and Florida Power also maintains nuclear property damage insur- five others have had their state age claims dismissed. While no ance and decontamination and decommissioning liability insur- dollar amount was requested, each plaintiff seeks back pay, ance totaling $2.1 billion. The first layer of $500 million is reinstatement or front pay through their projected dates of purchased in the commercialinsurance market with the normal retirement, costs and attorneys' fees. In October 1996, remaining excess coverage purchased from NEIL. Florida Power the court approved an agreement between parties to provision-is self-insured for any losses that are in excess of this cover- ally certify this case as a class action suit under the Age age. Under the terms of the NEIL policy, Florida Power could be Discrimination in Employment Act. On August 10,1998, Florida assessed up to a maximum of $9.5 million in any policy year if Power filed a motion to decertify the class, and the plaintiffs losses in excess of NEIL's available surplus are incurred. filed their response in opposition on September 30,1998. A Florida Power has never been assessed under these nuclear hearing date for the motion has not yet been set. Florida indemnities or insurance policies. Power has entered into settlement discussions with the plain-Contaminated Site Cleanup - The Company is subject to tiffs. In December 1998, plaintiffs alleged damages of $100 regulation with respect to the environmental impact of its million. Company management, while not believing plaintiffs' ,
]
operations. The Company's disposal of hazardous waste through claim to have merit, offered $5 million in an attempted settle- j third-party vendors can result in costs to clean up facilities ment of all claims. Plaintiffs rejected that offer. As a result, 1 found to be contaminated. Federal and state statutes authorize management has identified a probable range of $5 million to . I governmental agencies to compel responsible parties to pay for $100 million with no amount within that range a better esti-cleanup of these hazardous waste sites. mate of probable loss than any other amount; accordingly, Florida Power and former subsidiaries of the Company, whose Florida Power has accrued $5 million. There can be no assur-properties were sold in prior years, have been identified by the ance that this litigation will be se'ctled, or if settled, that the U.S. Environmental Protection Agency (EPA) as potentially settlement will not exceed $5 million. Additionally, the ulti-responsible parties (PRPs) at certain sites, including a coal mate outcome, if litigated, cannot presently be determined. gasification plant site in Sanford, Florida (Sanford site) that Advanced Separation Technologies (Advanced Separation) Florida Power previously owned and operated. There are five - In 1996, Florida Progress sold its 80% interest in Advanced i parties, including Florida Power, that have been identified as Separation Technologies to Calgon Carbon Corp. (Calgon) for PRPs at the Sanford site. Liability for the cleanup costs of $56 million in cash. Calgon filed a lawsuit in January 1998, these sites is joint and several. and amended it in April 1998, alleging misstatement of Advanced Separation's 1996 revenues, assets and liabilities, i seeking damages and granting Calgon the right to rescind the 44
sale. The lawsuit also accuses Florida Progress of failing to dis. In December 1997, the Commissioner filed a lawsuit against close flaws in Advanced Separation's manufacturing process Florida Progress, certain of its directors and officers, and cer-and a lack of quality control. No projection of an outcome or tain former Mid-Continent officers, making a number of allega-estimate of a potentialliability, if any, can be determined at tions and seeking access to Florida Progress' assets to satisfy the date of issuance of these financial statements. Florida policyholder and creditor claims. On April 17,1998, the court Progress believes the lawsuit is without merit and intends to granted motions to dismiss the individual defendants, leaving vigorously defend itself. Accordingly, Florida Progress has not Florida Progress as the sole remaining defendant in the law-made provision for any loss for this matter, suit. Qualifying Facilities Contracts - The purchased power A new Commissioner was elected in November 1998 and has contracts with qualifying facilities employ separate pricing stated his intention to work with Florida Progress and others methodologies for capacity payments and energy payments. to develop a plan to rehabilitate Mid-Continent rather than Florida Power has interpreted the pricing provision in these pursue litigation against Florida Progress. Altlough Florida contracts to allow it to pay an as-available energy price rather Progress hasn't had access to recent Mid-Continent data, its than a higher firm energy price when the avoided unit upon estimate of the present value of the projected deficiency, after which the applicable contract is based would not have been applying Mid-Continent's statutory surplus, is in the range of operated. $100 million, rather than the $348 million alleged by the for-Owners of four qualifying facilities filed suit against Florida mer Commissioner. Florida Progress believes that the former Power in state court over the contract payment terms, one of Commissioner's estimate is untenable and not based on sound which also filed in federal court. Two of the suits have been actuarial principles. Florida Progress is working with the new settled, and the federal case was dismissed, although the Commissioner to develop a viable plan to rehabilitate Mid-plaintiff has appealed. Of the two remaining suits, one trial Continent, which would include the sale of that company. concluded in December 1998. The other remaining suit remains In January 1999, five Mid-Continent policyholders filed a with no date presently set for trial. Management does not purported class action against Mid-Continent and the same expect that the results of these legal actions will have a mate- defendants named in the case filed by the former Commis-rialimpact on Florida Power's financial position, operations or sioner. The complaint contains substantially the same factual liquidity. Florida Power anticipates that all fuel and capacity allegations as those made by the Commissioner. The suit expenses will be recovered from its customers. asserts " Extra Life" policyho!ders have been injured as a result Mid-Continent Life Insurance Company (Mid-Continent) of representations made in connection with the sale of that
- A series of events in 1997 as discussed below, significantly policy. The suit seeks unspecified actual and punitive damages, jeopardized the ability nf Mid-Continent to implement a plan Although Florida Progress hopes to reach a negotiated reso-to eliminate a projected reserve deficiency resulting in the lution of these matters, it would continue to vigorously defend impairment of Florida Progress' investment in Mid-Continent. itself against the two lawsuits should negotiations fail, since it Therefore, the Company recorded a provision for loss on believes they are without merit. Because neither the outcome investment of $86.9 million in 1997. In addition, tax benefits of the litigation nor the ultimate effects of any rehabilitation of approximately $11 million related to the excess of the tax plan, including the possible sale of Mid-Continent, can be esti-basis over the book value in the investment in Mid-Continent mated, Florida Progress has not made provision for any addi-as of December 31,1997, were not recorded because of uncer- tional losses that might result, tainties associated with the timing of a tax deduction. Florida Other Legal Matters - The Company is involved in various Progress also recorded an accrual at December 31,1997, for other claims and legal actions arising in the ordinary course of legal fees associated with defending its position in current business. In the opinion of management, the ultimate disposi-Mid-Continent legal proceedings. tion of these matters will not have a material adverse effect In the spring of 1997, the Insurance Commissioner of the upon the Company's consolidated financial position, results of State of OL!ahoma (Commissioner) received court approval to operations or liquidity.
seize control of the operations of Mid-Continent. The Commis-sioner had alleged that Mid-Continent's reserves were under-stated by more than $125 million, thus causing Mid-Continent to be statutority impaired. The insurance commissioner further alleged that Mid-Continent had violated Oklahoma law relating to deceptive trade practices in connection with the sale of its " Extra Life" insurance policies and was not entitled to raise premiums, a key element to Mid-Continent's plan to address the projected reserve deficiency. While sustaining the receiver-ship, the court also ruled that premiums could be raised. Although both sides appealed the decision to the Oklahoma Supreme Court, those appeals were withdrawn in early 1999. 45
- -u-
REP 0RTS FROM M AN AGEMENT AND AU-DITOR$ l Management's Report Independent Auditors' Report To Our Shareholders: To the Shareholders of Florida Progress Corporation: Management is responsible for the integrity and objectivity We have audited the accompanying consolidated balance of the financial and operating information contained in the sheets of Florida Progress Corporation and subsidiaries as of consolidated financial statements and other sections of this December 31,1998 and 1997, and the related consolidated , Annual Report. These statements were prepared in accordance statements of income, cash flows, and common equity and with generally accepted accounting principles and necessarily comprehensive income for each of the years in the three-year include amounts that are based on judgments and estimates by period ended December 31,1998. These financial statements management. are the responsibility of Florida Progress Corporation's manage-Florida Progress Corporation maintains internal control sys- ment. Our responsibility is to express an opinion on these tems and related policies and procedures designed to provide financial statements based on our audits. reasonable assurance that assets are safe-guarded, that trans- We conducted our audits in accordance with generally actions are executed as authorized and are properly recorded, accepted cuditing standards. Those standards require that we and that accounting records may be relied upon for the prepa- plan and perform the audit to obtain reasonable assurance ration of consolidated financial statements and other financial about whether the financial statements are free of material information. These policies and procedures include a Code of misstatement. An audit includes examining, on a test basis, Conduct program intended to ensure employees adhere to the evidence supporting the amounts and disclosures in the finan-highest standards of personal and professionalintegrity. The cial statements. An audit also includes assessing the account-design, monitoring and revision of internal control systems ing principles used and significant estimates made by manage-involve, among other things, management's judgment with ment, as well as evaluating the overall financial statement pre-respect to the relative cost and expected benefits of specific sertation. We believe that our audits provide a reasonable control measures. The company also maintains an internal basis for our opinion. auditing function that evaluates and formally reports on the In our opinion, the financial statements referred to above adequacy and effectiveness of internal controls, policies and present fairly, in all material respects, the financial position of procedures. Florida Progress Corporation and subsidiaries as of December In addition, the audit committee of the board of directors, 31,1998 and 1997, and the results of their operations and consisting solely of outside directors, meets periodically with their cash flows for each of the years in the three year period management, the internal auditors and the independent audi- ended December 31,1998, in conformity with generally tors to review matters related to internal controls, audit accepted accounting principles. results, financial statements and financial reporting. Annually, the audit committee recommends to the board of directors the p selection of independent auditors. Both the independent audi- I b , tors and the internal auditors periodically meet alone with the St. Petersburg, Florida audit committee and have free access to the committee at any January 25,1999 time. For Management, ' l A /M i { Jeffrey R. Heinicka i Senior Vice President and Chief Financial Officer 46 l
Annual Growth (in percent) l 1993 1998 2 1994 M 1997 1996 1995 1994 1993 LORIDA PROGRESS CORPORATION E ummary of operations (in millions): f . Utility revenues 6.2 C $2,648.2 ~ ~ $2,448.4 $2.393.6 $2,271.7 $2,080.5 $1,957.6 Diversified revenues (continuing) 17.7 , 972.1 9 868.0 764.3 736.1 644.8 430.3 Income from continuing operations ; before nonrecurring items 7.5 e '281.7 254.3 252.4 238.9 212.0 196.0 Income from continuing operations 7.5 281.7.~ , 54.3 250.7 238.9 212.0 196.0 Income (loss) from discontinued operations i , and change in accounting , -- (26.3) - -
.6 Net income 7.5 i' 281.7- >
54.3 224.4 238.9 212.0 196.6 halance sheet data (in millions): . l Total assets 2.9 .56,160.8. , $ 5,760.0 $5,348.4 $5,550.4 $5,453.1 $5,338.0 Capitalization: ( Short-term capital 14.4 i $ 3 382.1 $ 230.0 $ 39.0 $ 173.7 $ 99.9 $ 195.2 Long term debt 4.1 * ' 2,250.4 " ' 2,377.8 1,776.9 1,662.3 1,835.2 1,840.5 Preferred stock (25.8) c - 33.5 , 33.5 33.5 138.5 143.5 148.5 Common stock equity .5 ~ 1,862.0 1,776.0 1,924.2 2,078.1 1,984.4 1,820.5 l Total capitalization 2.5 $4,528.0 $4,417.3 $3,773.6 $4,052.6 $4,063.0 $4,004.7 ommon stock data l Average shares outstanding (in millions) 1.9 97.1 97.1 96.8 95.7 93.0 88.3 Earnings per share: Utility before nonrecurring item 4.4 y $2.56 $2.48 $2.40 $2.27 $2.05 $2.06 Diversified continuing before nonrecurring items 16.3 .3 4 - .14 .21 .23 .23 .16 Consolidated continuing before > nonrecurring items 5.5 s i 2.90 2.62 2.61 2.50 2.28 2.22 Consolidated continuing 5.5 '2.90 .56 2.59 2.50 2.28 2.22 Discontinued operations and change in accounting -l - (.27) - -
.01 Consolidated 5.4 2.90 .56 2.32 2.50 2.28 2.23 Dividends per common share 1.9 '
z 2.14 - 2.10 2.06 2.02 1.99 1.95 Dividend payout 73.8 % 375.3 % 88.9% 81.0 % 87.7% 87.6 % Dividend yield (year-end) 4.8% ' 5.4% 6.4% 5.7% 6.7% 5.9% Bock value per share of common stock (1.3) ' $19.13 . $18.30 $19.84 $21.55 $20.85 $20.40 Return on common equity 15.6% ' 2.9% 10.9% 11.8 % 11.1% 11.1 % Common stock price per share: High '47% 39% 36% 35% 33% 36% Low . 3 7'%. 27% 31% 29% 24% 31% Close 5.9 445% ' 39% 32% 35% 30 33% Price earnings ratio (year-end) 15.5 70.1 13.9 14.2 13.2 15.1 VLORIDA POWER CORPORATION
- lectric sales billed (millions of KWH): i,.
Residential 4.3 -- 16,526.3 15,079.8 15,481.4 14,938.0 13,863.4 13,372.6 Commercial 4.9 9,999.3 9,257.3 8,848.0 8,612.1 8,252.1 7,884.8 Industrial 5.3 . 4,375.4 4,187.8 4,223.7 3,864.4 3,579.6 3,380.8 Total retail sales 4.7 33,386.6 30,850.3 30,784.8 29,499.5 27,675.2 26,528.3 Total electric sales 5.4 37,251.1 33,289.9 33,492.5 32,402.6 30,014.6 28,647.8 tesidential service (average annual): . KWH sales per customer 2.4 13,972 12,993 13,560 13,282 12,597 12,420 Revenue per customer 4.1 $1,204 - $1,115 $1,138 $1,114 $1,038 $983 atio of earnings to fixed charges (SEC method) -3.87 2.75 4.80 4.41 3.90 3.83 mbedded cost of long-term debt - L 6.8% L 7.0% 7.2% 7.2% 7.1% 6.8% mbedded cost of preferred stock (7.5) 4.6% 4.6% 4.6% 6.8% 6.8% 6.8% hperating data: Net system capability (MW) .4 7,727 7,717 7,341 7,347 7,295 7,563 Net system peak load (MW) 3.5 8,004 8,066 8,807 7,722 6,955 6,729 Construction expenditures (in millions) (6.2) . $310.2 $387.2 $217.3 $283.4 $319.5 $426.4 Net cash flow to capital expenditures 21.8 169% 76% 175 % 125 % 103% 63 % Average number of customers 2.0 .1,340,853 1,314,508 1,292,075 1,271,784 1,243,891 1,214,653 Number of full-time employees (4.0) 4,740 4,799 4,629 4,658 4,972 5,807 47
DIRECTORS A N-D OFFICERS BOARD OF DIRECTORS Richard Korpan,57,is Chairman of the Clarence V. McKee,56, is Chairman and Joan D. Ruffier, 59, is Chairman of Board, President and Chief Executive Chief Executive Officer of McKee Human Services Technologies, Inc., a Officer of Florida Progress and Chairman Communications, Inc., a television and computer software products company in of the Board of Florida Power Corporation. radio investment firm in Tampa, Florida. Orlando, Florida. A certified public He was appointed Florida Progress He is a director of American Heritage accountant, she is a director of Cyprus , Chairman July 1,1998. He joined the Life Insurance Company and Checkers Equity Fund and INVEST, Inc. She is company in 1989 as Executive Vice Drive-In Restaurants, Inc. A company also Chairman of the lJniversity of President and Chief Financial Officer. He director since 1989, he is chairman of Florida Foundation. A company director is a director of SunTrust Bank of Tampa the Audit Committee and a member of since 1990, she is chairman of the Bay. A company director since 1989, he the Compensation, and Nominating and Finance and Budget Committee and a is chairman of the Executive Committee. Board Governance Committees, member of the Audit and Compliance W.D. (Bill) Frederick, Jr., 64, is a cit- Vincent J. Naimoll, 61, is Chairman, rus grower and investor. He served as President and Chief Executive Officer of Robert T. Stuart, Jr., 66, is a rancher mayor of the city of Orlando from 1980 Anchor Industries International, Inc., an and investor in Dallas, Texas. He is a to 1992. He retired as a partner from operating and holding company in retired Chairman and Chief Executive the law firm of Holland & Knight in Tampa, Florida. He is also Managing Officer of Mid-Continent Life Insurance 1995. He is a director of Blue Cross / General Partner of the Tampa Bay Devil Company in Oklahoma City, which Florida Blue Shield of Florida and SunTrust Rays, Ltd., a Major League Baseball Club. Progress acquired in 1986. A company Bank, Central Florida, N.A. A company In conjunction with the business activi- director since 1986, he is a member of director since 1995, he is chairman of ties of Anchor Industries, he serves as a the Audit Committee. the Compliance Committee and a director of Russell Stanley Corp. and
, Jean Giles Wittner,64, is President of member of the Compensation, and Players International, Inc. A company Wittner & Co. and Wittner & Associates, Nominatm, g and Board Governance director since 1992, he is a member of Inc., St. Petersburg firms involved in Committees. the Executive, Finance and Budget, and real estate management, insurance bro-Michael P. Graney, 55, is a partner in " '"'". ting and Board Governance kerage and consulting. She is a director the law firm of Simpson Thacher & of Raymond James Bank, F.S.B. A com-Bartlett in Columbus, Ohio. Specializing Richard A. Nunis, 66, is a retired pany director since 1982, she is a mem-in utilities law, litigation and antitrust, Chairman of Walt Disney Attractions in ber of the Executive, Compensation, and he is a member of the American, District Orlando, Florida. He is a director of The Compliance Committees.
of Columbia, Ohio and Columbus Bar Walt Disney Company and SunTrust Associations and the Federal Energy Bar Bank, Central Florida, N.A. in Orlando. Association. A company director since A company director since 1989, he is 1991, he is chairman cf the Nominating chairman of the Compensation and Board Governance Committee and a Committee and a member of the member of the Executive and Audit Executive, and Finance and Budget > Committees. Committees. OFFICERS Richard Korpan Jeffrey R. Heinicka James V. Smallwood Chairman of the Board, President and Senior Vice President and Vice President, Mergers and Acquisitions ; Chief Executive Officer Chief Financial Officer Peter E. Toomey J:seph H. Richardson Kenneth E. Armstrong Vice President, Corporate Development l President and Chief Executive Officer, Vice President and General Counsel Florida Power Corporation Pamela A. Saari William G. Kelley Treasurer Richard D. Keller Vice President, Human Resources President and Chief Executive Officer, '", * 'Y 3 Electric Fuels Corporation ' Vice President and Controller 48
- ._____-______-___O
.e.
. I N-V E S T' O R I N -F O R M A T I O N. .
[. . . ; . ; . 1998 SEC Form 10-K - Copies of the companyi1998 SEC Form 10-K, without
##########ffitifi/I/l..
exhibits, will be supplied to sh'areholders without charge STYXXMAN .by directirng r.equests to: . . The company offers the P.rogress Plos Stock Plan as an '. Investor Services - ' -
' ': e .
economical, convenient and flexible way to . purchase. Florida Progress Corporation shares of Ptorida Progress common stock. Plan partici- ' . : P. O'. Box 14042'(8T118) . pants can purchase stock.directly from the company and: St. Petersburg, FL 33731 :1 reinvest all or a portion of their quarterly dividends with- . (800.) 937-2640. ; . out p'a'ying typical brokerage ~ fees. Those eligible for the
- plan are . .'.1' .-' '
' . Auditoss . -' . i .
KPMG LLP
'* Registered shareholders of Florida Progress. ..
- Nonsharehbiders whoire Florida residents. .
.. : St. Petersburg, FL ,
- Employets of the companyLand its: subsidiaries.
4,,gy,,,, Contact
~
Theplad is offered only by means of a pro.spectus, - Greg Beuris - ; . Whlich can be obtained by conta' c ting the company %
- :-Investor Relations transfer agent and: registrar. . ; , . ., .,' ' .. .
j .. .. (727) 820 5 734 ; Correspondence and i'nquiries concerning 'the plan, 'divii dax P27) 3204869 f dead sheeks, address . changes, finadeial. publications. end ttetransfer'of common stock ceitificates of Florida - Corporate Offkes-
~
Jk :. Prggmss or-pmferred stock certificate's of Meriday Power g ' . Florida Progress Corporation hould .. be disected to~the comp . . 4nis transfer agent and' .' . e.ne Progress.Ptaza topstrarC..
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