UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
-------- ---------
Commission Exact name of registrants as specified in their charters, state of I.R.S. Employer
File Number incorporation, address of principal executive offices, and telephone number Identification Number
1-8349 Florida Progress Corporation 59-2147112
A Florida Corporation
410 South Wilmington Street
Raleigh, North Carolina 27601
Telephone (919) 546-6111
1-3274 Florida Power Corporation 59-0247770
d/b/a Progress Energy Florida, Inc.
A Florida Corporation
100 Central Avenue
St. Petersburg, Florida 33701
Telephone (727) 820-5151
NONE
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) have been subject to such
filing requirements for the past 90 days. Yes X . No .
Indicate by check mark whether the registrants are accelerated filers (as
defined in Rule 12b-2 of the Exchange Act). Yes __. No X.
This combined Form 10-Q is filed separately by two registrants: Florida Progress
Corporation and Florida Power Corporation. Information contained herein relating
to either individual registrant is filed by such registrant solely on its own
behalf. Each registrant makes no representation as to information relating
exclusively to the other registrant.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. As of April 30, 2003, each
registrant had the following shares of common stock outstanding:
Registrant Description Shares
---------- ----------- ------
Florida Progress Corporation Common Stock, without par value 98,616,658 (all of which were
held by Progress Energy, Inc.)
Florida Power Corporation Common Stock, without par value 100 (all of which were held by
Florida Progress Corporation)
Florida Progress Corporation and Florida Power Corporation meet the conditions
set forth in General Instruction H(1)(a) and (b) of Form 10-Q and are therefore
filing this form with the reduced disclosure format.
1
FLORIDA PROGRESS CORPORATION AND PROGRESS ENERGY FLORIDA, INC.
FORM 10-Q - For the Quarter Ended March 31, 2003
Glossary of Terms
Safe Harbor For Forward-Looking Statements
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Florida Progress Corporation
Consolidated Statements of Income
Consolidated Balance Sheets
Consolidated Statements of Cash Flows
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
Statements of Income
Balance Sheets
Statements of Cash Flows
Notes to Financial Statements
Florida Progress Corporation and Progress Energy Florida, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signatures
2
GLOSSARY OF TERMS
The following abbreviations or acronyms used in the text of this combined Form
10-Q are defined below:
TERM DEFINITION
AFUDC Allowance for funds used during construction
the Agreement Stipulation and Settlement Agreement
Bcf Billion cubic feet
Btu British thermal units
Company or Florida Progress Florida Progress Corporation
Code Internal Revenue Service Code
CP&L Energy CP&L Energy, Inc.
CR3 Florida Power's nuclear generating plant, Crystal River Unit No. 3
DIG Derivative Implementation Group
DOE United States Department of Energy
EBITDA Earnings before interest, taxes, and depreciation and amortization
EPA United States Environmental Protection Agency
FASB Financial Accounting Standards Board
FDEP Florida Department of Environmental Protection
FERC Federal Energy Regulatory Commission
Florida Progress or FPC Florida Progress Corporation
FPSC Florida Public Service Commission
Funding Corp. Florida Progress Funding Corporation
IRS Internal Revenue Service
ISO Independent System Operator
KWh Kilowatt hour
MACT Maximum Available Control Technology
MGP Manufactured Gas Plant
MW Megawatts
NEIL Nuclear Electric Insurance Limited
NRC United States Nuclear Regulatory Commission
PEF or the utility Progress Energy Florida, Inc.
PFA IRS Prefiling Agreement
the Plan Revenue Sharing Incentive Plan
PLR Private Letter Ruling
Preferred Securities 7.10% Cumulative Quarterly Income Preferred Securities, Series A, of FPC Capital
I, fully and unconditionally guaranteed by Florida Progress
Preferred Stock Florida Power Cumulative Preferred Stock, $100 par value
Progress Capital Progress Capital Holdings, Inc.
Progress Energy Progress Energy, Inc.
Progress Rail Progress Rail Services Corporation
Progress Telecom Progress Telecommunications Corporation
PVI Progress Ventures, Inc., formerly referred to as Energy Ventures
PUHCA Public Utility Holding Company Act of 1935, as amended
RAFT Railcar Asset Financing Trust
RTO Regional Transmission Organization
SEC United States Securities and Exchange Commission
Section 29 Section 29 of the Internal Revenue Service Code
Service Company Progress Energy Service Company, LLC
SFAS Statement of Financial Accounting Standards
SFAS No. 5 Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies"
SFAS No. 71 Statement of Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation"
SFAS No. 133 Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
and Hedging Activities"
SFAS No. 142 Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets"
SFAS No. 143 Statement of Financial Accounting Standards No. 143, "Accounting for Asset
Retirement Obligations"
3
SFAS No. 148 Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - An Amendment of FASB Statement No.
123"
SFAS No. 149 Statement of Financial Accounting Standards No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities"
SMD NOPR Notice of Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue
Discrimination through Open Access Transmission and Standard Market Design
the Trust FPC Capital I
4
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
This combined report contains forward-looking statements within the meaning of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The matters discussed throughout this combined Form 10-Q that are not
historical facts are forward-looking and, accordingly, involve estimates,
projections, goals, forecasts, assumptions, risks and uncertainties that could
cause actual results or outcomes to differ materially from those expressed in
the forward-looking statements.
In addition, forward-looking statements are discussed in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
including, but not limited to, statements under the sub-heading "Liquidity and
Capital Resources" concerning operating cash flows and estimated capital
requirements.
Any forward-looking statement speaks only as of the date on which such statement
is made, and Florida Progress and Progress Energy Florida, Inc. (PEF) undertake
no obligation to update any forward-looking statement or statements to reflect
events or circumstances after the date on which such statement is made.
Examples of factors that you should consider with respect to any forward-looking
statements made throughout this document include, but are not limited to, the
following: the impact of fluid and complex government laws and regulations,
including those relating to the environment; the impact of recent events in the
energy markets that have increased the level of public and regulatory scrutiny
in the energy industry and in the capital markets; the impact of the settlement
of PEF's rate case; deregulation or restructuring in the electric industry that
may result in increased competition and unrecovered (stranded) costs; the
uncertainty regarding the timing, creation and structure of regional
transmission organizations; weather conditions that directly influence the
demand for electricity and natural gas; recurring seasonal fluctuations in
demand for electricity and natural gas; fluctuations in the price of energy
commodities and purchased power; successful maintenance and operation of PEF's
energy commodities and purchased power; economic fluctuations and the
corresponding impact on PEF's commercial and industrial customers; the inherent
risks associated with operating nuclear facilities, including environmental,
health, regulatory and financial risks; the impact of any terrorist acts
generally and on our generating facilities and other properties; the ability to
access capital markets on favorable terms; the impact that increases in leverage
may have on the Company and PEF; the ability of the Company and PEF to maintain
their current credit ratings; the impact of derivative contracts used in the
normal course of business; the Company's continued ability to use Section 29 tax
credits related to its coal and synthetic fuels businesses; the continued
depressed state of the telecommunications industry and the Company's ability to
realize future returns from Progress Telecommunications Corporation (Progress
Telecom); the Company's ability to successfully integrate newly acquired assets
or properties into its operations as quickly or as profitably as expected; and
unanticipated changes in operating expenses and capital expenditures. Many of
these risks similarly impact the Company's subsidiaries.
These and other risks are detailed from time to time in the SEC reports of the
Company and PEF. All such factors are difficult to predict, contain
uncertainties that may materially affect actual results, and may be beyond the
control of the Company and PEF. Many, but not all of the factors that may impact
actual results of the Company and PEF are discussed in the Risk Factors section
of PEF's annual report on Form 10-K for the year ended December 31, 2002 filed
with the SEC on March 21, 2003. You should carefully read these SEC reports. New
factors emerge from time to time, and it is not possible for management to
predict all such factors, nor can it assess the effect of each such factor on
Florida Progress and PEF.
5
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Florida Progress Corporation
CONSOLIDATED INTERIM FINANCIAL STATEMENTS
March 31, 2003
CONSOLIDATED STATEMENTS of INCOME
(Unaudited)
Three Months Ended
March 31,
- ---------------------------------------------------------------------------------------
(In thousands) 2003 2002
- ---------------------------------------------------------------------------------------
Operating Revenues
Utility $ 728,417 $ 686,441
Diversified business 315,737 292,338
- ---------------------------------------------------------------------------------------
Total Operating Revenues 1,044,154 978,779
- ---------------------------------------------------------------------------------------
Operating Expenses
Utility
Fuel used in electric generation 186,081 198,862
Purchased power 129,562 107,964
Operation and maintenance 139,750 132,763
Depreciation and amortization 79,429 69,294
Taxes other than on income 58,635 57,141
Diversified business
Cost of sales 269,310 275,374
Depreciation and amortization 18,706 16,390
Other 35,081 18,308
- ---------------------------------------------------------------------------------------
Total Operating Expenses 916,554 876,096
- ---------------------------------------------------------------------------------------
Operating Income 127,600 102,683
- ---------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 904 721
Other, net (5,254) (3,632)
- ---------------------------------------------------------------------------------------
Total Other Income (Expense) (4,350) (2,911)
- ---------------------------------------------------------------------------------------
Interest Charges
Interest charges 46,815 47,531
Allowance for borrowed funds used during construction (1,961) (459)
- ---------------------------------------------------------------------------------------
Total Interest Charges, Net 44,854 47,072
- ---------------------------------------------------------------------------------------
Income before Income Taxes 78,396 52,700
Income Tax Benefit (2,521) (23,073)
- ---------------------------------------------------------------------------------------
Net Income $ 80,917 $ 75,773
- ---------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.
6
Florida Progress Corporation
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands) March 31, December 31,
Assets 2003 2002
- ----------------------------------------------------------------------------------------------------------------
Utility Plant
Utility plant in service $ 7,654,721 $ 7,477,025
Accumulated depreciation (3,882,750) (4,123,947)
- ----------------------------------------------------------------------------------------------------------------
Utility plant in service, net 3,771,971 3,353,078
Held for future use 7,921 7,921
Construction work in progress 452,643 426,641
Nuclear fuel, net of amortization 72,517 40,260
- ----------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 4,305,052 3,827,900
- ----------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 14,610 33,601
Accounts receivable 403,451 385,431
Unbilled accounts receivable 59,744 60,481
Receivables from affiliated companies 70,195 42,418
Deferred income taxes 5,444 26,209
Inventory 476,699 492,273
Deferred fuel cost 91,249 37,503
Prepayments and other current assets 88,724 93,802
- ----------------------------------------------------------------------------------------------------------------
Total Current Assets 1,210,116 1,171,718
- ----------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Regulatory assets 129,563 130,114
Unamortized debt expense 30,990 23,363
Nuclear decommissioning trust funds 367,607 373,551
Diversified business property, net 828,849 699,493
Miscellaneous other property and investments 79,605 83,222
Prepaid pension cost 226,907 226,413
Other assets and deferred debits 109,477 90,716
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 1,772,998 1,626,872
- ----------------------------------------------------------------------------------------------------------------
Total Assets $ 7,288,166 $ 6,626,490
- ----------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- ----------------------------------------------------------------------------------------------------------------
Capitalization
- ----------------------------------------------------------------------------------------------------------------
Common stock $ 1,761,536 $ 1,628,951
Retained earnings 556,005 598,191
Accumulated other comprehensive loss (16,790) (15,737)
Preferred stock of subsidiaries - not subject to mandatory redemption 33,497 33,497
Unsecured note with parent 500,000 500,000
Long-term debt, net 2,188,519 1,710,363
- ----------------------------------------------------------------------------------------------------------------
Total Capitalization 5,022,767 4,455,265
- ----------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 230,164 275,397
Accounts payable 398,021 348,842
Payables to affiliated companies 76,547 102,619
Notes payable to affiliated companies 220,803 379,677
Interest accrued 54,979 68,120
Short-term obligations 175,900 257,100
Customer deposits 122,838 121,998
Other current liabilities 157,687 167,164
- ----------------------------------------------------------------------------------------------------------------
Total Current Liabilities 1,436,939 1,720,917
- ----------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred investment tax credits 46,403 47,914
Regulatory liabilities 124,230 61,004
Asset retirement obligation 316,460 -
Other liabilities and deferred credits 341,367 341,390
- ----------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 828,460 450,308
- ----------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 14)
- ----------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 7,288,166 $ 6,626,490
- ----------------------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.
7
Florida Progress Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(In thousands) 2003 2002
- ---------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 80,917 $ 75,773
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 102,709 88,593
Deferred income taxes and investment tax credits, net 19,455 19,354
Deferred fuel cost (credit) (53,746) 37,377
Net increase in accounts receivable (39,866) (26,240)
Net (increase) decrease in inventories 14,840 (11,527)
Net increase in prepayments and other current assets (2,790) (415)
Net increase in accounts payable 40,422 1,505
Net increase in customer deposits 1,088 4,601
Net decrease in income taxes, net (19,902) (26,250)
Net increase (decrease) in other current liabilities (14,280) 14,196
Other 13,903 2,583
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 142,750 179,550
- ---------------------------------------------------------------------------------------------------------------
Investing Activities
Property additions (141,380) (77,508)
Diversified business property additions and acquisitions (164,609) (40,722)
Nuclear fuel additions (38,361) -
Net contributions to nuclear decommissioning trust - (2,001)
Other (287) (1,508)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (344,637) (121,739)
- ---------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 639,138 -
Net increase (decrease) in short-term obligations (81,200) 77,700
Retirement of long-term debt (225,598) (54,836)
Net decrease in intercompany notes (158,874) (5,176)
Equity contributions from parent 132,582 33,809
Dividends paid to parent (123,112) (100,000)
Other (40) (481)
- ---------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 182,896 (48,984)
- ---------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (18,991) 8,827
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period 33,601 5,201
- ---------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 14,610 $ 14,028
- ---------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized) $ 57,994 $ 43,678
income taxes (net of refunds) $ 990 $ 3,937
See Notes to Interim Financial Statements.
8
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
INTERIM FINANCIAL STATEMENTS
March 31, 2003
STATEMENTS of INCOME
(Unaudited)
Three Months Ended
March 31,
- -------------------------------------------------------------------------------------------------------
(In thousands) 2003 2002
- -------------------------------------------------------------------------------------------------------
Operating Revenues
Utility $ 728,417 $ 686,441
- -------------------------------------------------------------------------------------------------------
Total Operating Revenues 728,417 686,441
- -------------------------------------------------------------------------------------------------------
Operating Expenses
Fuel used in electric generation 186,081 198,862
Purchased power 129,562 107,964
Operation and maintenance 139,750 132,763
Depreciation and amortization 79,429 69,294
Taxes other than on income 58,635 57,141
- -------------------------------------------------------------------------------------------------------
Total Operating Expenses 593,457 566,024
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Operating Income 134,960 120,417
- -------------------------------------------------------------------------------------------------------
Other Income (Expense)
Interest income 120 708
Other, net (480) (1,336)
- -------------------------------------------------------------------------------------------------------
Total Other Income (Expense) (360) (628)
- -------------------------------------------------------------------------------------------------------
Interest Charges
Interest charges 28,463 28,739
Allowance for borrowed funds used during construction (1,961) (459)
- -------------------------------------------------------------------------------------------------------
Total Interest Charges, Net 26,502 28,280
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Income before Income Taxes 108,098 91,509
Income Tax Expense 36,963 33,388
- -------------------------------------------------------------------------------------------------------
Net Income $ 71,135 $ 58,121
Dividends on Preferred Stock 378 378
- -------------------------------------------------------------------------------------------------------
Earnings for Common Stock $ 70,757 $ 57,743
- -------------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.
9
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
BALANCE SHEETS
(Unaudited)
(In thousands) March 31, December 31,
Assets 2003 2002
- ----------------------------------------------------------------------------------------------------------------------
Utility Plant
Utility plant in service $ 7,654,721 $ 7,477,025
Accumulated depreciation (3,882,750) (4,123,947)
- ----------------------------------------------------------------------------------------------------------------------
Utility plant in service, net 3,771,971 3,353,078
Held for future use 7,921 7,921
Construction work in progress 452,643 426,641
Nuclear fuel, net of amortization 72,517 40,260
- ----------------------------------------------------------------------------------------------------------------------
Total Utility Plant, Net 4,305,052 3,827,900
- ----------------------------------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents 12,212 15,636
Accounts receivable 172,750 186,630
Unbilled accounts receivable 59,744 60,481
Receivables from affiliated companies 41,556 44,976
Deferred income taxes 5,444 26,209
Inventory 238,921 235,043
Deferred fuel cost 91,249 37,503
Prepayments and other current assets 4,409 5,339
- ----------------------------------------------------------------------------------------------------------------------
Total Current Assets 626,285 611,817
- ----------------------------------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Regulatory assets 129,563 130,114
Unamortized debt expense 22,208 14,503
Nuclear decommissioning trust funds 367,607 373,551
Miscellaneous other property and investments 37,065 39,298
Prepaid pension cost 222,838 222,543
Other assets and deferred debits 6,210 6,517
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Debits and Other Assets 785,491 786,526
- ----------------------------------------------------------------------------------------------------------------------
Total Assets $ 5,716,828 $ 5,226,243
- ----------------------------------------------------------------------------------------------------------------------
Capitalization and Liabilities
- ----------------------------------------------------------------------------------------------------------------------
Capitalization
- ----------------------------------------------------------------------------------------------------------------------
Common stock $ 1,081,257 $ 1,081,257
Retained earnings 917,441 969,795
Accumulated other comprehensive loss (2,450) (2,684)
Preferred stock - not subject to mandatory redemption 33,497 33,497
Long-term debt, net 1,747,254 1,244,411
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization 3,776,999 3,326,276
- ----------------------------------------------------------------------------------------------------------------------
Current Liabilities
Current portion of long-term debt 146,974 216,921
Accounts payable 216,865 147,978
Payables to affiliated companies 57,253 88,661
Notes payable to affiliated companies 19,099 237,425
Taxes accrued 15,760 24,472
Interest accrued 46,234 55,675
Short-term obligations 175,900 257,100
Customer deposits 122,839 121,998
Other current liabilities 61,838 55,323
- ----------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 862,762 1,205,553
- ----------------------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities
Accumulated deferred income taxes 382,091 361,133
Accumulated deferred investment tax credits 45,917 47,423
Regulatory liabilities 124,230 61,004
Asset retirement obligation 306,841 -
Other liabilities and deferred credits 217,988 224,854
- ----------------------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 1,077,067 694,414
- ----------------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Note 14)
- ----------------------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $ 5,716,828 $ 5,226,243
- ----------------------------------------------------------------------------------------------------------------------
See Notes to Interim Financial Statements.
10
Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
(In thousands) 2003 2002
- --------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $ 71,135 $ 58,121
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 84,098 72,279
Deferred income taxes and investment tax credits, net 38,314 15,281
Deferred fuel (credit) cost (53,746) 37,377
Net (increase) decrease in accounts receivable 18,037 (17,855)
Net (increase) decrease in inventories (3,878) 4,364
Net (increase) decrease in prepayments and other current assets 930 (4,574)
Net increase (decrease) in accounts payable 37,479 (78,567)
Net increase in customer deposits 841 6,137
Net increase (decrease) in income taxes, net (8,712) 12,263
Net increase (decrease) in other current liabilities (2,549) 30,136
Other 1,644 (7,870)
- --------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 183,593 127,092
- --------------------------------------------------------------------------------------------------------------
Investing Activities
Property additions (141,380) (77,508)
Nuclear fuel additions (38,361) -
Net contributions to nuclear decommissioning trust - (2,001)
Other 2,227 1,015
- --------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (177,514) (78,494)
- --------------------------------------------------------------------------------------------------------------
Financing Activities
Proceeds from issuance of long-term debt 639,138 -
Net increase (decrease) in short-term obligations (81,200) 77,700
Retirement of long-term debt (225,625) -
Net decrease in intercompany notes (218,326) (20,022)
Dividends paid to parent (123,112) (100,000)
Dividends paid on preferred stock (378) (378)
- --------------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (9,503) (42,700)
- --------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (3,424) 5,898
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at Beginning of the Period 15,636 -
- --------------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of the Period $ 12,212 $ 5,898
- --------------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash paid during the year - interest (net of amount capitalized) $ 35,943 $ 40,276
income taxes (net of refunds) $ 9,621 $ 3,980
See Notes to Interim Financial Statements.
11
Florida Progress Corporation and Florida Power Corporation
d/b/a Progress Energy Florida, Inc.
NOTES TO INTERIM FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Organization
Florida Progress Corporation (the Company or Florida Progress) is a holding
company under the Public Utility Holding Company Act of 1935 (PUHCA), as
amended. The Company became subject to the regulations of PUHCA when CP&L
Energy, Inc. acquired it on November 30, 2000. CP&L Energy, Inc.
subsequently changed its name to Progress Energy, Inc. (Progress Energy or
the Parent). Effective January 1, 2003, Florida Power Corporation began
doing business under the assumed name Progress Energy Florida, Inc. The
legal name of the entity has not changed and there was no restructuring of
any kind related to the name change. The current corporate and business
unit structure remains unchanged. Florida Progress' two primary
subsidiaries are Progress Energy Florida, Inc. (PEF) and Progress Fuels
Corporation.
PEF is a regulated public utility engaged in the generation, purchase,
transmission, distribution and sale of electricity primarily in Florida.
PEF is regulated by the Florida Public Service Commission (FPSC) and the
Federal Energy Regulatory Commission (FERC).
Progress Fuels Corporation is a diversified non-utility energy company,
whose principal business segments are Fuels and Rail Services. Progress
Fuels' Rail Services and the non-Florida portion of its Fuels operations
report their results one month in arrears.
B. Basis of Presentation
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP) for
interim financial information and with the instructions to Form 10-Q and
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by GAAP for complete financial statements. Because the
accompanying consolidated interim financial statements do not include all
of the information and footnotes required by GAAP, they should be read in
conjunction with the audited financial statements and notes thereto
included in Florida Progress' and PEF's Form 10-K for the year ended
December 31, 2002.
The amounts included in the consolidated interim financial statements are
unaudited but, in the opinion of management, reflect all adjustments
necessary to fairly present Florida Progress' and PEF's financial position
and results of operations for the interim periods. Due to seasonal weather
variations and the timing of outages of electric generating units, the
results of operations for interim periods are not necessarily indicative of
amounts expected for the entire year. Certain reclassifications have been
made to prior-year amounts to conform to the 2003 presentation.
The financial statements include the financial results of the Company and
its majority-owned operations. Investments in 20% to 50% owned joint
ventures are accounted for using the equity method. Other investments are
stated principally at cost.
In preparing financial statements that conform with GAAP, management must
make estimates and assumptions that affect the reported amounts of assets
and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements and amounts of revenues and expenses
reflected during the reporting period. Actual results could differ from
those estimates.
2. ACQUISITION OF NATURAL GAS RESERVES
During the first quarter of 2003, Progress Fuels Corporation, a subsidiary
of Florida Progress, entered into three independent transactions to acquire
approximately 162 natural gas-producing wells with proven reserves of
approximately 195 billion cubic feet (Bcf) from Republic Energy, Inc. and
two other privately-owned companies, all headquartered in Texas. The
primary assets in the acquisition have been contributed to Progress Fuels
North Texas Gas, L.P., a wholly owned subsidiary of Progress Fuels
Corporation. The total cash purchase price for the transactions was $148
million.
12
3. RAILCAR LTD. DIVESTITURE
In December 2002, the Progress Energy Board of Directors adopted a
resolution to sell the assets of Railcar Ltd., a leasing subsidiary
included in the Rail Services segment. A series of sales transactions is
expected to take place throughout 2003. An estimated impairment on assets
held for sale was recognized in December 2002 for the write-down of the
assets to be sold to fair value less the costs to sell.
The assets of Railcar Ltd. have been grouped as assets held for sale and
are included in other current assets on the Consolidated Balance Sheets as
of March 31, 2003.
On March 12, 2003, the Company signed a letter of intent to sell the
majority of Railcar Ltd. assets to The Andersons, Inc. The majority of the
proceeds from the sale will be used to pay off certain Railcar Ltd. off
balance sheet lease obligations for railcars that will be transferred to
The Andersons as part of the sales transaction. The transaction is subject
to various closing conditions including financing, due diligence and the
completion of a definitive purchase agreement.
4. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company's principal business segment is PEF, an electric utility
engaged in the generation, purchase, transmission, distribution and sale of
electricity primarily in Florida. The other reportable business segments
are Fuels and Rail Services (Rail). The Fuels segment includes natural gas
drilling and production, coal and synthetic fuel operations, river terminal
services and off-shore marine transportation. The Rail segment includes
railcar repair, rail parts reconditioning and sales, railcar leasing and
sales, providing rail and track material, and scrap metal recycling. Other
consists primarily of Progress Telecommunications Corporation (Progress
Telecom), the Company's telecommunications subsidiary; the Company's
investment in FPC Capital Trust, which holds the Preferred Securities; and
the holding company, Florida Progress Corporation. Progress Telecom markets
wholesale fiber-optic based capacity service in the Eastern United States
and also markets wireless structure attachments to wireless communication
companies and governmental entities.
The Company's business segment information for the first quarter of 2003
and 2002 is summarized below. The Company's significant operations are
geographically located in the United States with limited operations in
Mexico and Canada. The Company's segments are based on differences in
products and services, and therefore no additional disclosures are
presented. Intersegment sales and transfers consist primarily of coal sales
from the Fuels segment to PEF. The price that Fuels charges PEF is based on
market rates for coal procurement and for water-borne transportation under
a methodology approved by the FPSC. Rail transportation is also based on
market rates plus a return allowed by the FPSC on equity in transportation
equipment utilized in transporting coal to PEF. The allowed rate of return
is currently 12%. No single customer accounted for 10% or more of
unaffiliated revenues.
Financial data for business segments for the periods covered in this Form
10-Q are presented in the table below:
(In thousands) PEF Fuels Rail Other Consolidated
----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2003:
Revenues $728,417 $ 128,740 $ 177,687 $ 9,310 $ 1,044,154
Intersegment revenues - 84,208 122 (84,330) -
Total revenues 728,417 212,948 177,809 (75,020) 1,044,154
Net Income 70,757 13,556 (3,396) - 80,917
Total segment assets 5,716,828 977,302 504,533 89,503 7,288,166
================================================================================================================
PEF Fuels Rail Other Consolidated
----------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2002:
Revenues $686,441 $ 128,876 $ 154,469 $ 8,993 $ 978,779
Intersegment revenues - 72,573 496 (73,069) -
Total revenues 686,441 201,449 154,965 (64,076) 978,779
Net Income 57,743 27,648 (701) (8,917) 75,773
Total segment assets 5,039,094 800,406 596,765 101,074 6,537,339
================================================================================================================
13
5. IMPACT OF NEW ACCOUNTING STANDARDS
SFAS No. 148, "Accounting for Stock-Based Compensation" For purposes of the
pro forma disclosures required by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure - an Amendment of FASB Statement
No. 123," the estimated fair value of Progress Energy's stock options is
amortized to expense over the options' vesting period. The Company's
information related to the pro forma impact on earnings assuming stock
options were expensed for the three months ended March 31 is as follows.
(in thousands)
FLORIDA PROGRESS 2003 2002
---------------- ----------------
Net income, as reported $ 80,917 $ 75,773
Deduct: Total stock option expense determined under fair
value method for all awards, net of related tax effects 418 310
---------------- ----------------
Pro forma net income $ 80,499 $ 75,463
================ ================
PROGRESS ENERGY FLORIDA, INC. 2003 2002
---------------- ----------------
Earnings for common stock, as reported $ 70,757 $ 57,743
Deduct: Total stock option expense determined under fair
value method for all awards, net of related tax effects 383 295
---------------- ----------------
Pro forma earnings for common stock $ 70,374 $ 57,448
================ ================
In April 2003, the Financial Accounting Standards Board (FASB) approved
certain decisions on its stock-based compensation project. Some of the key
decisions reached by the FASB were that stock-based compensation should be
recognized in the income statement as an expense and that the expense
should be measured as of the grant date at fair value. A significant issue
yet to be addressed by the FASB is the determination of the appropriate
fair value measure. The FASB has not scheduled when it will deliberate
additional issues in this project; however, the FASB plans to issue an
exposure draft in 2003 that could become effective in 2004.
SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities"
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." The statement amends and
clarifies SFAS No. 133 on accounting for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The new guidance incorporates decisions made as part of the
Derivatives Implementation Group (DIG) process, as well as decisions
regarding implementation issues raised in relation to the application of
the definition of a derivative. SFAS No. 149 is generally effective for
contracts entered into or modified after June 30, 2003. The Company is
currently evaluating what effects, if any, this statement will have on its
results of operations and financial position.
FIN No. 45, "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others"
In November of 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others - an interpretation of FASB Statements
No. 5, 57 and 107 and Rescission of FASB Interpretation No. 34" (FIN No.
45). This interpretation clarifies the disclosures to be made by a
guarantor in its interim and annual financial statements about obligations
under certain guarantees that it has issued. It also clarifies that a
guarantor is required to recognize, at the inception of certain guarantees,
a liability for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions of
this interpretation are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. The applicable disclosures have
been made in Notes 8 and 14. The adoption of FIN No. 45 did not have a
material effect on the Company's results of operations or financial
position.
FIN No. 46, "Consolidation of Variable Interest Entities"
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities - an Interpretation of ARB No. 51" (FIN No. 46).
This interpretation provides guidance related to identifying variable
interest entities (previously known as special purpose entities or SPEs)
and determining whether such entities should be consolidated. Certain
disclosures are required if it is reasonably possible that a company will
consolidate or disclose information about a variable interest entity when
it initially applies FIN No. 46. This interpretation must be applied
immediately to variable interest entities created or obtained after January
31, 2003. During the first quarter of 2003, the Company did not participate
in the creation of, or obtain a new variable interest in, any variable
interest entity. For those variable interest entities created or obtained
on or before January 31, 2003, the Company must apply the provisions of FIN
No. 46 in the third quarter of 2003.
14
The Company is currently evaluating what effects, if any, this
interpretation will have on its results of operations and financial
position. During this evaluation process, several arrangements through its
Railcar Ltd. subsidiary have been identified to which this interpretation
may apply. These arrangements include an agreement with Railcar Asset
Financing Trust (RAFT), a receivables securitization trust, and seven
synthetic leases. Because the Company expects to sell the majority of
Railcar Ltd. during 2003 (See Note 3) and divest of its interests in these
arrangements, the application of FIN No. 46 is not expected to have a
material impact with respect to these arrangements. If these interests are
not divested as currently planned, the maximum cash obligations under these
arrangements total approximately $54.3 million. However, management
believes the maximum cash obligations would be significantly reduced based
on the current fair values of the underlying assets related to these
arrangements.
6. ASSET RETIREMENT OBLIGATIONS
SFAS No. 143, "Accounting for Asset Retirement Obligations," provides
accounting and disclosure requirements for retirement obligations
associated with long-lived assets and was adopted by the Company effective
January 1, 2003. This statement requires that the present value of
retirement costs for which the Company has a legal obligation be recorded
as a liability with an equivalent amount added to the asset cost and
depreciated over an appropriate period. The liability is then accreted over
time by applying an interest method of allocation to the liability.
Cumulative accretion and accumulated depreciation were recognized for the
time period from the date the liability would have been recognized had the
provisions of this statement been in effect, to the date of adoption of
this statement.
Upon adoption of SFAS No. 143, PEF recorded asset retirement obligations
(AROs) totaling $302.8 million for nuclear decommissioning of radiated
plant. PEF used an expected cash flow approach to measure these
obligations. This amount includes accruals recorded prior to adoption
totaling $283.9 million, which were previously recorded in accumulated
depreciation. The related asset retirement costs, net of accumulated
depreciation, recorded upon adoption totaled $38.5 million for regulated
operations. The adoption of this statement had no impact on the income of
PEF, as the effects were offset by the establishment of a regulatory
liability in the amount of $19.6 million, pursuant to SFAS No. 71,
"Accounting for the Effects of Certain Types of Regulation." The regulatory
liability represents the amount by which previously recorded accruals
exceeded the cumulative accretion and accumulated depreciation for the time
period from the date the liability would have been recognized had the
provisions of this statement been in effect to the date of adoption.
Funds set aside in PEF's nuclear decommissioning trust fund for the nuclear
decommissioning liability totaled $367.6 million at March 31, 2003 and
$373.6 million at December 31, 2002.
The Company also recorded AROs totaling $9.6 million for coal mine
operations, synthetic fuel operations and gas production of Progress Fuels
Corporation. The Company used an expected cash flow approach to measure
these obligations. This amount includes accruals recorded prior to adoption
totaling $4.6 million, which were previously recorded in other liabilities
and deferred credits. The related asset retirement costs, net of
accumulated depreciation, recorded upon adoption totaled $3.4 million for
nonregulated operations. The cumulative effect of initial adoption of this
statement related to nonregulated operations was $1.6 million of pre-tax
expense. The ongoing impact on earnings related to accretion and
depreciation was not significant for the three months ended March 31, 2003.
Pro forma net income has not been presented for prior years because the pro
forma application of SFAS No. 143 to prior years would result in pro forma
net income not materially different from the actual amounts reported.
The Company has identified but not recognized ARO liabilities related to
electric transmission and distribution, gas distribution, and
telecommunications assets as the result of easements over property not
owned by the Company. These easements are generally perpetual and only
require retirement action upon abandonment or cessation of use of the
property for the specified purpose. The ARO liability is not estimable for
such easements, as the Company intends to utilize these properties
indefinitely. In the event the Company decides to abandon or cease the use
of a particular easement, an ARO liability would be recorded at that time.
PEF has previously recognized removal costs as a component of depreciation
in accordance with regulatory treatment. As of March 31, 2003, the portion
of such costs not representing AROs under SFAS No. 143 was $931.4 million.
This amount is included in accumulated depreciation on the accompanying
Balance Sheets. PEF has collected amounts for non-radiated areas at nuclear
facilities, which do not represent AROs. These amounts as of March 31, 2003
totaled $61.5 million, which is included in accumulated depreciation on the
accompanying Balance Sheets. PEF previously collected amounts for
dismantlement of its fossil generation plants. As of March 31, 2003, this
amounted to $142.0, which is included in accumulated depreciation on the
accompanying Balance Sheets. This collection was suspended pursuant to the
rate case settlement discussed in Note 9.
15
On January 23, 2003, the Staff of the FPSC issued a notice of proposed rule
development to adopt provisions relating to accounting for AROs under SFAS
No. 143. Accompanying the notice was a draft rule presented by the Staff
which adopts the provisions of SFAS No. 143 along with the requirement to
record the difference between amounts prescribed by the FPSC and those used
in the application of SFAS No. 143 as regulatory assets or regulatory
liabilities, which was accepted by all parties. The adoption and acceptance
of this draft rule is subject to FPSC approval.
7. GOODWILL AND OTHER INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." This statement clarifies the criteria for
recording of other intangible assets separately from goodwill. Effective
January 1, 2002, goodwill was no longer subject to amortization over its
estimated useful life. Instead, goodwill is subject to at least an annual
assessment for impairment by applying a two-step fair-value based test.
This assessment could result in periodic impairment charges. The Company
completed the first step of the initial transitional goodwill impairment
test, which indicated that the Company's goodwill was not impaired as of
January 1, 2002. The Company's carrying amount of goodwill at March 31,
2003 and December 31, 2002, was $9.9 million and $11.1 million,
respectively, in the Fuels segment. PEF has no goodwill as of March 31,
2003 and December 31, 2002. The Company and PEF have no significant
intangible assets as of March 31, 2003 and December 31, 2002.
8. COMPANY-OBLIGATED MANDATORILY REDEEMABLE CUMULATIVE QUARTERLY INCOME
PREFERRED SECURITIES OF A SUBSIDIARY TRUST HOLDING SOLELY FLORIDA PROGRESS
GUARANTEED SUBORDINATED DEFERRABLE INTEREST NOTES
In April 1999, FPC Capital I (the Trust), an indirect wholly-owned
subsidiary of the Company, issued 12 million shares of $25 par cumulative
Company-obligated mandatorily redeemable preferred securities (Preferred
Securities) due 2039, with an aggregate liquidation value of $300 million
with an annual distribution rate of 7.10%, payable quarterly. Currently,
all 12 million shares of the Preferred Securities that were issued are
outstanding. Concurrent with the issuance of the Preferred Securities, the
Trust issued to Florida Progress Funding Corporation (Funding Corp.) all of
the common securities of the Trust (371,135 shares), for $9.3 million.
Funding Corp. is a direct wholly owned subsidiary of the Company.
The existence of the Trust is for the sole purpose of issuing the Preferred
Securities and the common securities and using the proceeds thereof to
purchase from Funding Corp. its 7.10% Junior Subordinated Deferrable
Interest Notes (subordinated notes) due 2039, for a principal amount of
$309.3 million. The subordinated notes and the Notes Guarantee (as
discussed below) are the sole assets of the Trust. Funding Corp.'s proceeds
from the sale of the subordinated notes were advanced to Progress Capital
and used for general corporate purposes including the repayment of a
portion of certain outstanding short-term bank loans and commercial paper.
The Company has fully and unconditionally guaranteed the obligations of
Funding Corp. under the subordinated notes (the Notes Guarantee). In
addition, the Company has guaranteed the payment of all distributions
required to be made by the Trust, but only to the extent that the Trust has
funds available for such distributions (Preferred Securities Guarantee).
The Preferred Securities Guarantee, considered together with the Notes
Guarantee, constitutes a full and unconditional guarantee by the Company of
the Trust's obligations under the Preferred Securities.
The subordinated notes may be redeemed at the option of Funding Corp.
beginning in 2004 at par value plus accrued interest through the redemption
date. The proceeds of any redemption of the subordinated notes will be used
by the Trust to redeem proportional amounts of the Preferred Securities and
common securities in accordance with their terms. Upon liquidation or
dissolution of Funding Corp., holders of the Preferred Securities would be
entitled to the liquidation preference of $25 per share plus all accrued
and unpaid dividends thereon to the date of payment.
These Preferred Securities are classified as long-term debt on Florida
Progress' Consolidated Balance Sheets.
9. REGULATORY MATTERS
A. Retail Rate Matters
On March 27, 2002, the parties in PEF's rate case entered into a
Stipulation and Settlement Agreement (the Agreement) related to retail rate
matters. The Agreement was approved by the FPSC on April 23, 2002. The
Agreement provides that PEF will operate under a Revenue Sharing Incentive
Plan (the Plan) through 2005, and thereafter until terminated by the FPSC.
16
The Plan provides that all retail base revenues between an established
threshold and cap will be shared - a 2/3 share to be refunded to PEF's
retail customers, and a 1/3 share to be received by PEF's shareholders. All
retail base rate revenues above the retail base rate revenue caps
established for each year will be refunded 100% to retail customers on an
annual basis. The retail base revenue cap for 2003 is $1.393 billion and
will increase $37 million each year thereafter. As of December 31, 2002,
$4.7 million was accrued and was refunded to customers in March 2003. On
February 24, 2003, the parties to the Agreement filed a motion seeking an
order from the FPSC to enforce the Agreement. In this motion, the parties
dispute PEF's calculation of retail revenue subject to refund and contend
that the refund should be approximately $23 million. This issue will be
addressed by the FPSC in the near future. The Company cannot predict the
outcome of this matter.
On March 4, 2003, the FPSC approved PEF's petition to increase its fuel
factors due to continuing increases in oil and natural gas commodity
prices. The crisis in the Middle East along with the Venezuelan oil
workers' strike have put upward pressure on commodity prices that were not
anticipated by the Company when fuel factors for 2003 were approved by the
FPSC in November 2002. New rates became effective on March 28, 2003.
B. Regional Transmission Organizations
In early 2000 the FERC issued Order 2000 regarding regional transmission
organizations (RTOs). This Order set minimum characteristics and functions
that RTOs must meet, including independent transmission service. As a
result of Order 2000, PEF, along with Florida Power & Light Company and
Tampa Electric Company, filed with the FERC, in October 2000, an
application for approval of a GridFlorida RTO. In March 2001, the FERC
issued an order provisionally approving GridFlorida. However, in July 2001,
FERC issued orders recommending that companies in the Southeast engage in a
mediation to develop a plan for a single RTO for the Southeast. PEF
participated in the mediation. The FERC has not issued an order
specifically on this mediation. In July 2002, FERC issued its Notice of
Proposed Rulemaking in Docket No. RM01-12-000, Remedying Undue
Discrimination through Open Access Transmission Service and Standard
Electricity Market Design (SMD NOPR). If adopted as proposed, the rules set
forth in the SMD NOPR would materially alter the manner in which
transmission and generation services are provided and paid for. PEF, as a
subsidiary of Progress Energy, filed comments on November 15, 2002 and
supplement comments on January 10, 2003. On April 28, 2003, FERC released a
White Paper on the Wholesale Market Platform. The White Paper provides an
overview of what FERC currently intends to include in a final rule in the
SMD NOPR docket. The White Paper retains the fundamental and most protested
aspects of SMD NOPR, including mandatory RTOs and FERC's assertion of
jurisdiction over certain aspects of retail service. PEF, as a subsidiary
of Progress Energy, plans to file comments on the White Paper. The FERC has
also indicated that it expects to issue final rules during the summer 2003.
The Company cannot predict the outcome of these matters or the effect that
they may have on the GridFlorida proceedings currently ongoing before the
FERC.
The Company has actively participated in the RTO formation in Florida. The
three peninsular Florida investor-owned utilities, Florida Power
Corporation, Florida Power and Light Company, and Tampa Electric Company,
(the Applicants) have proposed the formation of GridFlorida, a single ISO
(Independent System Operator) for peninsular Florida. Participation is
expected from many of the other transmission owners in the state of
Florida. The GridFlorida proposal is pending before both the FERC and the
FPSC. The FERC provisionally approved the structure and governance of
GridFlorida in May 2001. In December 2001 the FPSC found the Applicants
were prudent in proactively forming GridFlorida but ordered the Applicants
to modify the proposal in several material respects, including a change to
status as a not-for-profit ISO. The Commission's most recent order in
September 2002 ordered further state proceedings. The issues to be
addressed as modifications include but are not limited to 1) pricing/rate
structure; 2) elimination of pancaking revenues; 3) cost recovery of
incremental costs; 5) demarcation dates for new facilities and long term
transmission contracts; 6) market design. The Florida Office of Public
Counsel appealed the September order to the Florida Supreme Court and on
October 15, 2002 the FPSC abated its proceedings pending the outcome of the
appeal. Oral Argument before the Florida Supreme Court occurred on May 6,
2003. It is unknown what the outcome of this appeal will be at this time.
It is unknown when the FERC or the FPSC will take final action with regard
to the status of GridFlorida or what the impact of further proceedings will
have on the Company's earnings, revenues or prices.
10. COMPREHENSIVE INCOME
Comprehensive income for Florida Progress for the three months ended March
31, 2003 and 2002 was $79.9 million and $75.4 million, respectively.
Comprehensive income for PEF for the three months ended March 31, 2003 was
$71.4 million. PEF did not have any items of other comprehensive income for
the three months ended March 31, 2002. Items of other comprehensive income
17
for the three month periods consisted primarily of changes in fair value of
derivatives used to hedge cash flows related to interest on long-term debt
and gas sales, and to foreign currency translation adjustments.
11. FINANCING ACTIVITIES
On February 21, 2003, PEF issued $425 million of First Mortgage Bonds,
4.80% Series Due March 1, 2013 and $225 million of First Mortgage Bonds,
5.90% Series Due March 1, 2033.
On March 1, 2003, $70 million of PEF First Mortgage Bonds, 6.125% Series,
matured and were retired. PEF funded this maturity through the First
Mortgage Bonds issued in February 2003.
On March 24, 2003, PEF redeemed $150 million of First Mortgage Bonds, 8%
Series, Due December 1, 2022 at 103.75% of the principal amount of such
bonds. PEF funded this maturity through the First Mortgage Bonds issued in
February 2003.
On April 1, 2003, PEF entered into a new $200 million 364-day credit
agreement and a new $200 million three-year credit agreement replacing its
prior credit facilities (which had been a $90 million 364-day facility and
a $200 million five-year facility).
The new PEF credit facilities contain a defined maximum total debt to total
capital ratio of 65%; as of March 31, 2003 the calculated ratio was 50.9%.
The new credit facilities also contain a requirement that the ratio of
EBITDA, as defined in the facilities, to interest expense to be at least 3
to 1; as of March 31, 2003 the calculated ratio was 8.7 to 1.
12. RISK MANAGEMENT ACTIVITIES AND DERIVATIVE TRANSACTIONS
Progress Energy and its subsidiaries are exposed to various risks related
to changes in market conditions. The Company has a risk management
committee that is chaired by the Chief Financial Officer and includes
senior executives from various business groups. The risk management
committee is responsible for administering risk management policies and
monitoring compliance with those policies by all subsidiaries.
The Company manages its market risk in accordance with its established risk
management policies, which may include entering into various derivative
transactions.
Progress Energy, on behalf of the Company, uses interest rate derivative
instruments to adjust the fixed and variable rate debt components of its
debt portfolio and to hedge interest rates with regard to future fixed rate
debt issuances.
Progress Fuels Corporation periodically enters into derivative instruments
to hedge its exposure to price fluctuations on natural gas sales. As of
March 31, 2003, Progress Fuels Corporation has executed cash flow hedges on
approximately 22.6 Bcf of natural gas sales through December 2004. These
instruments did not have a material impact on the Company's consolidated
financial position or results of operations.
In connection with the January 2003 FASB Emerging Issues Task Force (EITF)
meeting, the FASB was requested to reconsider an interpretation of SFAS No.
133. The interpretation, which is contained in the Derivatives
Implementation Group's C11 guidance, relates to the pricing of contracts
that include broad market indices (e.g., CPI). In particular, that guidance
discusses whether the pricing in a contract that contains broad market
indices could qualify as a normal purchase or sale (the normal purchase or
sale term in a defined accounting term, and may not, in all cases, indicate
whether the contract would be "normal" from an operating entity viewpoint).
In April 2003, the FASB issued tentative superceding guidance (DIG Issue
C20) on this issue that is expected to be finalized in the second or third
quarter of 2003.
13. OTHER INCOME AND OTHER EXPENSE
Other income and expense includes interest income and other income and
expense items as discussed below. The components of other, net as shown on
the Consolidated Statements of Income for the three months ended March 31,
2003 and 2002 are as follows:
18
(in thousands) 2003 2002
----------------- ----------------
Other income
Net energy purchased for resale gain $ 1,188 $ 98
Nonregulated energy and delivery services income 3,303 4,047
AFUDC equity 789 185
Other 92 9
----------------- ----------------
Total other income - PEF $ 5,372 $ 4,339
----------------- ----------------
Other income - Florida Progress - 1,066
----------------- ----------------
Total other income - Florida Progress $ 5,372 $ 5,405
----------------- ----------------
Other expense
Nonregulated energy and delivery services expenses $ 2,243 $ 1,504
Donations 2,027 2,898
Other 1,582 1,273
----------------- ----------------
Total other expense - PEF $ 5,852 $ 5,675
----------------- ----------------
Loss from equity investments 2,297 2,983
Other expense - Florida Progress 2,477 379
----------------- ----------------
Total other expense - Florida Progress $ 10,626 $ 9,037
----------------- ----------------
Other, net $ (5,254) $ (3,632)
================= ================
Net energy purchased for resale represents electricity purchased for sale
to a third party. Nonregulated energy and delivery services include power
protection services and mass market programs (surge protection, appliance
services and area light sales) and delivery, transmission and substation
work for other utilities.
14. COMMITMENTS AND CONTINGENCIES
Commitments
Guarantees
As a part of normal business, Florida Progress and certain subsidiaries
including PEF enter into various agreements providing financial or
performance assessments to third parties. Such agreements include
guarantees, standby letters of credit and surety bonds. These agreements
are entered into primarily to support or enhance the creditworthiness
otherwise attributed to a subsidiary on a stand-alone basis, thereby
facilitating the extension of sufficient credit to accomplish the
subsidiaries' intended commercial purposes.
At March 31, 2003, outstanding guarantees are as follows:
(in millions)
Standby letters of credit $ 42.5
Surety bonds 36.5
Other guarantees 10.1
--------------------
Total
$ 89.1
====================
Each of these guarantees is discussed more fully below.
Standby Letters of Credit
The Company has issued standby letters of credit to financial institutions
for the benefit of third parties that have extended credit to the Company
and certain subsidiaries. PEF has issued letters of credit totaling $11.1
million which is included in the balance above. These letters of credit
have been issued primarily for the purpose of supporting payments of trade
payables, securing performance under contracts and lease obligations and
self insurance for workers compensation. If a subsidiary does not pay
amounts when due under a covered contract, the counterparty may present its
claim for payment to the financial institution, which will in turn request
payment from the Company. Any amounts owed by the Company's subsidiaries
are reflected in the Consolidated Balance Sheets.
Surety Bonds
At March 31, 2003, the Company had $36.5 million in surety bonds, of which
PEF accounted for $4.4 million, purchased primarily for purposes such as
providing workers compensation coverage and obtaining licenses, permits and
rights-of-way. Surety bonds decreased $2.0 million for the Company during
the quarter. Bonds for PEF account for approximately one-half of the
decrease. To the extent liabilities are incurred as a result of the
activities covered by the surety bonds, such liabilities are included in
the Consolidated Balance Sheets.
19
Other Guarantees
The Company has other guarantees outstanding related primarily to prompt
performance payments, lease obligations, and other payments subject to
contingencies. Approximately $5.0 million in additional guarantees were
issued during the quarter.
Progress Energy has issued approximately $7.5 million of financial
guarantees on behalf of Progress Rail Services Corporation for obligations
related to the purchase and sale of railcar parts, equipment and services.
As of March 31, 2003, management does not believe conditions are likely for
performance under these agreements.
Contingencies
1) Claims and Uncertainties
The Company is subject to federal, state and local regulations addressing
hazardous and solid waste management, air and water quality and other
environmental matters.
Hazardous and Solid Waste Management
Various organic materials associated with the production of manufactured
gas, generally referred to as coal tar, are regulated under federal and
state laws. The principal regulatory agency that is responsible for a
specific former manufactured gas plant (MGP) site depends largely upon the
state in which the site is located. There are several MGP sites to which
the Company has some connection. In this regard, PEF and other potentially
responsible parties, are participating in investigating and, if necessary,
remediating former MGP sites with several regulatory agencies, including,
but not limited to, the U.S. Environmental Protection Agency (EPA), and the
Florida Department of Environmental Protection (FDEP). In addition, PEF is
periodically notified by regulators such as the EPA and various state
agencies of their involvement or potential involvement in sites, other than
MGP sites, that may require investigation and/or remediation.
PEF There are two former MGP sites and 11 other active sites associated
with PEF that have required or are anticipated to require investigation
and/or remediation costs. As of March 31, 2003, PEF has accrued
approximately $10.8 million, for probable and reasonably estimable costs at
these sites. PEF does not believe that it can provide an estimate of the
reasonably possible total remediation costs beyond what is currently
accrued. In 2002, PEF filed a petition for annual recovery of approximately
$4.0 million in environmental cost through the Environmental Cost Recovery
Clause with the FPSC. PEF was successful with this filing and will recover
costs through rates for investigation and remediation associated with
transmission and distribution substations and transformers. As more
activity occurs at these sites, PEF will assess the need to adjust the
accruals. These accruals have been recorded on an undiscounted basis. PEF
measures its liability for these sites based on available evidence
including its experience in investigating and remediating environmentally
impaired sites. This process often includes assessing and developing
cost-sharing arrangements with other potentially responsible parties.
Presently, PEF cannot determine the total costs that may be incurred in
connection with the remediation of all sites. According to current
information, these future costs at the PEF sites are not expected to be
material to the Company's financial condition or results of operations.
Florida Progress In 2001, Florida Progress sold Inland Marine
Transportation to AEP Resources, Inc. Florida Progress established an
accrual to address indemnities and retained environmental liability
associated with the transaction. The balance in this accrual is $9.9
million at March 31, 2003. Florida Progress estimates that its maximum
contractual liability to AEP Resources, Inc. associated with Inland Marine
Transportation is $60 million. This accrual has been determined on an
undiscounted basis. Florida Progress measures its liability for this site
based on estimable and probable remediation scenarios. The Company believes
that it is reasonably probable that additional costs, which cannot be
currently estimated, may be incurred related to the environmental
indemnification provision beyond the amount accrued. The Company cannot
predict the outcome of this matter.
PEF has filed claims with the Company's general liability insurance
carriers to recover costs arising out of actual or potential environmental
liabilities. Some claims have been settled and others are still pending.
While management cannot predict the outcome of these matters, the outcome
is not expected to have a material effect on the financial position or
results of operations.
20
Certain historical waste sites exist that are being addressed voluntarily
by the Fuels segment. The Company cannot determine the total costs that may
be incurred in connection with these sites. According to current
information, these future costs are not expected to be material to the
Company's financial condition or results of operations.
Rail Services is voluntarily addressing certain historical waste sites. The
Company cannot determine the total costs that may be incurred in connection
with these sites. According to current information, these future costs are
not expected to be material to the Company's financial condition or results
of operations.
The Company is also currently in the process of assessing potential costs
and exposures at other environmentally impaired sites. As the assessments
are developed and analyzed, the Company will accrue costs for the sites to
the extent the costs are probable and can be reasonably estimated.
Air and Water Quality
There has been and may be further proposed federal legislation requiring
reductions in air emissions for nitrogen oxides, sulfur dioxide, carbon
dioxide and mercury. Some of these proposals establish nationwide caps and
emission rates over an extended period of time. This national
multi-pollutant approach to air pollution control could involve significant
capital costs which could be material to the Company's consolidated
financial position or results of operations. Some companies may seek
recovery of the related cost through rate adjustments or similar
mechanisms. However, the Company cannot predict the outcome of this matter.
The EPA is conducting an enforcement initiative related to a number of
coal-fired utility power plants in an effort to determine whether
modifications at those facilities were subject to New Source Review
requirements or New Source Performance Standards under the Clean Air Act.
PEF was asked to provide information to the EPA as part of this initiative
and cooperated in providing the requested information. During the first
quarter of 2003, PEF received a supplemental information request from the
EPA and will respond to it in the second quarter. The EPA initiated civil
enforcement actions against other unaffiliated utilities as part of this
initiative. Some of these actions resulted in settlement agreements calling
for expenditures, ranging from $1.0 billion to $1.4 billion. A utility that
was not subject to a civil enforcement action settled its New Source Review
issues with the EPA for $300 million. These settlement agreements have
generally called for expenditures to be made over extended time periods,
and some of the companies may seek recovery of the related cost through
rate adjustments or similar mechanisms. The Company cannot predict the
outcome of this matter.
Other Environmental Matters
The Kyoto Protocol was adopted in 1997 by the United Nations to address
global climate change by reducing emissions of carbon dioxide and other
greenhouse gases. The United States has not adopted the Kyoto Protocol;
however, a number of carbon dioxide emissions control proposals have been
advanced in Congress and by the Bush Administration. The Bush
Administration favors voluntary programs. Reductions in carbon dioxide
emissions to the levels specified by the Kyoto Protocol and some
legislative proposals could be materially adverse to the Company's
financials and operations if associated costs cannot be recovered from
customers. The Company favors the voluntary program approach recommended by
the administration, and is evaluating options for the reduction, avoidance,
and sequestration of greenhouse gases. However, the Company cannot predict
the outcome of this matter.
In 1997, the EPA's Mercury Study Report and Utility Report to Congress
conveyed that mercury is not a risk to the average American and expressed
uncertainty about whether reductions in mercury emissions from coal-fired
power plants would reduce human exposure. Nevertheless, the EPA determined
in 2000 that regulation of mercury emissions from coal-fired power plants
was appropriate. Pursuant to a Court Order, the EPA is developing a Maximum
Available Control Technology (MACT) standard, which is expected to become
final in December 2004, with compliance in 2008. Achieving compliance with
the MACT standard could be materially adverse to the Company's financial
condition and results of operations. However, the Company cannot predict
the outcome of this matter.
Legal Matters
1) Franchise Litigation
Six cities, with a total of approximately 49,000 customers, have sued PEF
in various circuit courts in Florida. The lawsuits principally seek (1) a
declaratory judgment that the cities have the right to purchase PEF's
21
electric distribution system located within the municipal boundaries of the
cities, (2) a declaratory judgment that the value of the distribution
system must be determined through arbitration, and (3) injunctive relief
requiring PEF to continue to collect from PEF's customers and remit to the
cities, franchise fees during the pending litigation, and as long as PEF
continues to occupy the cities' rights-of-way to provide electric service,
notwithstanding the expiration of the franchise ordinances under which PEF
had agreed to collect such fees. Five circuit courts have entered orders
requiring arbitration to establish the purchase price of PEF's electric
distribution system within five cities. Two appellate courts have upheld
those circuit court decisions and authorized cities to determine the value
of PEF's electric distribution system within the cities through
arbitration. To date, no city has attempted to actually exercise the option
to purchase any portion of PEF's electric distribution system. An
arbitration in one of the cases (the City of Casselberry) was held in
August 2002 and an award was issued in October 2002 setting the value of
PEF's distribution system within that city at approximately $22 million. On
April 2, 2003, PEF filed a rate filing with the FERC to recover $10.6
million in stranded costs from the City of Casselberry in the event the
city ultimately chooses and is allowed to form a municipal electric
utility. PEF has made a settlement proposal, which is scheduled to be voted
on by the City Commission on May 12, 2003. At this time, whether and when
there will be further proceedings regarding the City of Casselberry cannot
be determined. A second arbitration (with the City of Winter Park) was
completed in February 2003. A decision from the arbitration panel has not
yet been issued in that case. Two additional arbitrations have been
scheduled to occur in the second quarter of 2003 and the first quarter of
2004.
As part of the above litigation, two appellate courts have also reached
opposite conclusions regarding whether PEF must continue to collect from
its customers and remit to the cities "franchise fees" under the expired
franchise ordinances. PEF has filed an appeal with the Florida Supreme
Court to resolve the conflict between the two appellate courts. The Florida
Supreme Court has set oral argument for August 27, 2003. PEF cannot predict
the outcome of these matters at this time.
2) DOE Litigation
As required under the Nuclear Waste Policy Act of 1982, PEF entered into a
contract with the U.S. Department of Energy (DOE) under which the DOE
agreed to begin taking spent nuclear fuel by no later than January 31,
1998. All similarly situated utilities were required to sign the same
standard contract.
In April 1995, the DOE issued a final interpretation that it did not have
an unconditional obligation to take spent nuclear fuel by January 31, 1998.
In Indiana & Michigan Power v. DOE, the Court of Appeals vacated the DOE's
final interpretation and ruled that the DOE had an unconditional obligation
to begin taking spent nuclear fuel. The Court did not specify a remedy
because the DOE was not yet in default.
After the DOE failed to comply with the decision in Indiana & Michigan
Power v. DOE, a group of utilities petitioned the Court of Appeals in
Northern States Power (NSP) v. DOE, seeking an order requiring the DOE to
begin taking spent nuclear fuel by January 31, 1998. The DOE took the
position that its delay was unavoidable, and the DOE was excused from
performance under the terms and conditions of the contract. The Court of
Appeals did not order the DOE to begin taking spent nuclear fuel, stating
that the utilities had a potentially adequate remedy by filing a claim for
damages under the contract.
After the DOE failed to begin taking spent nuclear fuel by January 31,
1998, a group of utilities filed a motion with the Court of Appeals to
enforce the mandate in NSP v. DOE. Specifically, this group of utilities
asked the Court to permit the utilities to escrow their waste fee payments,
to order the DOE not to use the waste fund to pay damages to the utilities,
and to order the DOE to establish a schedule for disposal of spent nuclear
fuel. The Court denied this motion based primarily on the grounds that a
review of the matter was premature, and that some of the requested remedies
fell outside of the mandate in NSP v. DOE.
Subsequently, a number of utilities each filed an action for damages in the
Federal Court of Claims. In a recent decision, the U.S. Circuit Court of
Appeals (Federal Circuit) ruled that utilities may sue the DOE for damages
in the Federal Court of Claims instead of having to file an administrative
claim with DOE. PEF is in the process of evaluating whether it should file
a similar action for damages.
On July 9, 2002, Congress passed an override resolution to Nevada's veto of
DOE's proposal to locate a permanent underground nuclear waste storage
facility at Yucca Mountain, Nevada. DOE plans to submit a license
application for the Yucca Mountain facility by the end of 2004. PEF cannot
predict the outcome of this matter.
22
3) Easement Litigation
In December 1998, PEF was served with a class action lawsuit seeking
damages, declaratory and injunctive relief for the alleged improper use of
electric transmission easements. The plaintiffs contend that the licensing
of fiber-optic telecommunications lines to third parties or
telecommunications companies for other than PEF's internal use along the
electric transmission line right-of-way exceeds the authority granted in
the easements. In June 1999, plaintiffs amended their complaint to add
Progress Telecom as a defendant and adding counts for unjust enrichment and
constructive trust. In January 2000, the trial court conditionally
certified the class statewide. In mediation held in March 2000, the parties
reached a tentative settlement of this claim. In January 2001, the trial
court preliminarily approved the amended settlement agreement, certified
the settlement class and approved the class notice. On November 16, 2001,
the trial court issued a final order approving the settlement. Several
objectors to the settlement appealed the order to the First District Court
of Appeal. On February 12, 2003, the appellate court issued an opinion
upholding the trial court's subject matter jurisdiction over the case, but
reversing the trial court's order approving the mandatory settlement class
for purposes of declaratory and injunctive relief. The appellate court
remanded the case to the trial court for further proceedings. The Company
filed a motion to seek discretionary review before the Florida Supreme
Court. Other parties filed similar motions as well as motions for rehearing
before the First District Court of Appeal. Subsequent to filing these
motions, the Company and the appellants reached a settlement resolving the
appellants' dispute. The settlement is ultimately contingent upon the trial
court approving a mandatory class settlement consistent with the First
District Court of Appeal's February 12, 2003 opinion. The First District
Court of Appeal thereafter granted the parties joint motion to relinquish
jurisdiction of the case to the trial court. The Company cannot predict the
outcome of any future proceedings in this case.
4) Synthetic Fuel Tax Credits
The Company, through its subsidiaries, is a majority owner in three
entities and a minority owner in three entities that own facilities that
produce synthetic fuel from coal fines. The production and sale of the
synthetic fuel from these facilities qualifies for tax credits under
Section 29 of the Code (Section 29) if certain requirements are satisfied,
including a requirement that the synthetic fuel differs significantly in
chemical composition from the coal used to produce such synthetic fuel. Any
synthetic fuel tax credit amounts not utilized are carried forward
indefinitely. All three majority-owned entities and all three
minority-owned entities have received private letter rulings (PLRs) from
the Internal Revenue Service (IRS) with respect to their synthetic fuel
operations. These tax credits are subject to review by the IRS, and if the
Company fails to prevail through the administrative or legal process, there
could be a significant tax liability owed for previously taken Section 29
credits, with a significant impact on earnings and cash flows.
One synthetic fuel entity, Colona Synfuel Limited Partnership, L.L.L.P.
(Colona), from which Progress Energy (and Florida Progress prior to its
acquisition by Progress Energy) has been allocated approximately $231
million in tax credits to date, is being audited by the IRS. The audit of
Colona was expected. The Company is audited regularly in the normal course
of business, as are most similarly situated companies. In September 2002,
all of Progress Energy's majority-owned synthetic fuel entities, including
Colona, were accepted into the IRS Prefiling Agreement (PFA) program. The
PFA program allows taxpayers to voluntarily accelerate the IRS exam process
in order to seek resolution of specific issues. Either Progress Energy or
the IRS can withdraw from the program at any time, and issues not resolved
through the program may proceed to the next level of the IRS exam process.
While the ultimate outcome is uncertain, the Company believes that
participation in the PFA program will likely shorten the tax exam process.
In management's opinion, Progress Energy is complying with all the
necessary requirements to be allowed such credits under Section 29 and
believes it is likely, although it cannot provide certainty, that it will
prevail if challenged by the IRS on any credits taken. The current Section
29 tax credit program expires in 2007.
5) Other Legal Matters
Florida Progress and PEF are involved in various other claims and legal
actions arising in the ordinary course of business, some of which involve
claims for substantial amounts. Where appropriate, accruals have been made
in accordance with SFAS No. 5, "Accounting for Contingencies," to provide
for such matters. Florida Progress and PEF believe the ultimate disposition
of these matters will not have a material adverse effect upon either
company's consolidated financial position, results of operation or
liquidity.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis contains forward-looking
statements that involve estimates, projections, goals, forecasts, assumptions,
risks and uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements.
OPERATING RESULTS
Florida Progress' net income for the three months ended March 31, 2003, was
$80.9 million compared to earnings of $75.8 million for the same period in 2002.
Business segment results and the factors affecting them are discussed below.
PROGRESS ENERGY FLORIDA (PEF)
PEF contributed income from continuing operations of $70.8 million and $57.7
million in the first quarter of 2003 and 2002, respectively. This increase is
primarily attributed to favorable weather, retail growth/usage and the absence
of the impact of the retroactive rate refund in 2002. Partially offsetting these
improvements was the impact of the reduced rates in 2003 resulting from the May
2002 rate case settlement.
In March 2002, PEF settled a rate case which provided for a one-time retroactive
rate refund, decreased future retail rates by 9.25% (effective May 1, 2002),
provided for lower depreciation and amortization and provided for increases in
certain service revenue rates.
Revenues
PEF's electric revenues for the first quarter of 2003 and 2002 and the amount
and percentage change by quarter and by customer class are as follows:
- -----------------------------------------------------------------------------------
(in millions)
- -----------------------------------------------------------------------------------
Customer Class 2003 Amount Change % Change 2002
- -----------------------------------------------------------------------------------
Residential $385.0 $5.8 1.5% $379.2
Commercial 150.4 (16.4) (9.8) 166.8
Industrial 47.5 (2.5) (5.0) 50.0
Governmental 38.0 (1.9) (4.8) 39.9
Revenue Sharing/Rate Refund - 35.0 100.0 (35.0)
-------------------------------------------------
Total retail revenues 620.9 20.0 3.3 600.9
Wholesale 71.3 18.9 36.1 52.4
Unbilled (0.7) (7.2) - 6.5
Miscellaneous 36.9 10.3 38.7 26.6
-------------------------------------------------
Total electric revenues $728.4 $42.0 6.1% $686.4
- -----------------------------------------------------------------------------------
PEF's electric energy sales for the first quarter of 2003 and 2002 and the
amount and percentage change by quarter and by customer class are as follows:
- ----------------------------------------------------------------------------------
(in thousands of mWh)
- ----------------------------------------------------------------------------------
Customer Class 2003 Amount Change % Change 2002
- ----------------------------------------------------------------------------------
Residential 4,553 493 12.1% 4,060
Commercial 2,442 (14) (0.6) 2,456
Industrial 916 34 3.9 882
Governmental 657 36 5.8 621
-------------------------------------------------
Total Retail Energy Sales 8,568 549 6.8 8,019
Wholesale 1,277 298 30.4 979
Unbilled 54 22 - 32
-------------------------------------------------
Total mWh Sales 9,899 869 9.6% 9,030
- ----------------------------------------------------------------------------------
24
The first quarter 2002 rate refund of $35.0 million was virtually offset by the
2003 first quarter rate reduction, both of which resulted from the 2002 rate
case settlement. Excluding these impacts, revenue increased due to favorable
weather in the first quarter of 2003, as compared to the first quarter of 2002
(heating degree days increased 25.6%) and continued retail customer growth
(retail customer base increased 1.25%). Increased demand from other utilities
drove the wholesale revenue increase. Higher service rates allowed in the rate
case settlement contributed to the higher miscellaneous revenues.
Expenses
The following summarizes PEF's expenses for the first quarter of 2003 and 2002.
- -----------------------------------------------------------------------------------------
(in millions)
- -----------------------------------------------------------------------------------------
Expense Category 2003 Amount Change % Change 2002
- -----------------------------------------------------------------------------------------
Fuel and purchased power $315.6 $8.8 2.9% $306.8
Operations and maintenance 139.8 7.0 5.3 132.8
Depreciation and amortization 79.4 10.1 14.6 69.3
Taxes other than on income 58.6 1.5 2.6 57.1
Interest expense, net 26.5 (1.8) (6.4) 28.3
Income taxes 37.0 3.6 10.8 33.4
Other expenses 0.7 (0.3) (30.0) 1.0
--------------------------------------------------------
Total expenses $657.6 $28.9 4.6% $628.7
- -----------------------------------------------------------------------------------------
Fuel and purchased power expenses are recovered primarily through cost recovery
clauses and, as such, have no material impact on operating results.
The increase in operations and maintenance expense results from a $5.3 million
lower pension credit.
The increase in depreciation and amortization expense relates primarily to an
increase in amortization of the Tiger Bay regulatory asset. The amortization is
recovered through a cost recovery clause and has no impact on earnings. The
regulatory asset was created as a result of the early termination of certain
long-term cogeneration contracts and is amortized according to a plan approved
by the Florida Public Service Commission.
In accordance with an SEC order under PUHCA, effective in the second quarter of
2002, tax benefits not related to acquisition interest expense that were
previously held unallocated at the holding company must be allocated to the
profitable subsidiaries. As a result, $3.4 million of the tax benefit that was
previously held at the holding company was allocated to PEF in the first quarter
of 2003. The allocation has no impact on Progress Enegy's consolidated tax
expense or net income. Other fluctuations in income taxes are primarily due to
changes in pre-tax income.
FUELS
The Fuels segment, which includes coal and synthetic fuel operations, natural
gas operations and other fuel related operations, earned $13.6 million and $27.6
million in the first quarter of 2003 and 2002, respectively. The decrease was
due primarily to a change in the synthetic fuel production pattern schedule for
2003. The Fuels segment produced 0.9 million and 1.5 million tons of synthetic
fuel for the three months ended March 31, 2003 and 2002, respectively, that
resulted in tax credits of $23.2 million and $43.9 million, respectively. These
tax credits more than offset the pre-tax operating losses of $17.8 million and
$31.1 million for the first quarters of 2003 and 2002, respectively.
In addition, gas operations generated income from continuing operations of $4.9
million and $0.3 million in the first quarter of 2003 and 2002, respectively.
The increase in production drove the increased revenue and earnings with the
addition of the Westchester operations accounting for 64% of the gas production
in the first quarter of 2003.
As a result of an SEC audit of the Progress Energy Service Company allocation
methodology, Fuels incurred additional Service Company allocations of $4.7
million (after tax).
RAIL SERVICES (RAIL)
Rail's operations include railcar and locomotive repair, trackwork, rail parts
reconditioning and sales, scrap metal recycling, railcar leasing and other rail
related services. The Company intends to sell the assets of Railcar Ltd., a
leasing subsidiary, in 2003 and has reported these assets as assets held for
sale at March 31, 2003.
Progress Rail contributed losses from continuing operations of $3.4 million and
$0.7 million for the first quarters of 2003 and 2002, respectively. As a result
of the SEC audit, Rail incurred additional pretax Service Company allocations of
25
$4.7 million for prior year allocations and $1.0 million for current year
allocations in the first quarter of 2003. Rail's results for both quarters were
affected by the downturn in the overall economy. Rail experienced revenue growth
in the first quarter of 2003 with stronger wheel set sales and recycling sales.
Aggressive cost management programs were identified throughout 2002 and in the
first quarter of 2003.
An SEC order approving the merger of FPC requires Progress Energy to divest of
Rail by November 30, 2003. Progress Energy is pursuing alternatives, but does
not expect to find the right divestiture opportunity by that date. Therefore,
Progress Energy has sought an extension from the SEC.
OTHER
The other group includes telecommunications, holding company and financing
expenses and was earnings neutral in the first quarter of 2003, while
contributing a loss of $8.9 million in the first quarter of 2002. The
improvement is due primarily to the recording of an intra-period income tax
allocation adjustment which GAAP requires in order to apply a levelized
effective tax rate to interim periods that is consistent with the estimated
annual rate. This resulted in a tax benefit being allocated from Progress
Energy, Inc. of $4.5 million in the first quarter of 2003 and a tax expense of
$2.8 million being allocated in the first quarter of 2002.
LIQUIDITY AND CAPITAL RESOURCES
Statements of Cash Flows and Financing Activities
Cash provided by operating activities decreased $37 million for the three months
ended March 31, 2003, when compared to the corresponding period in the prior
year. Improved operating cash flow at PEF of $56.5 million was offset by reduced
operating cash flow from the Company's nonregulated activities.
Net cash used in investing activities increased $223 million for the three
months ended March 31, 2003, when compared to the corresponding period in the
prior year. During the first three months of 2003, $141 million was spent on the
PEF construction program and $165 million was spent in diversified operations,
which included $148 million for the acquisition of gas reserves by Progress
Fuels Corporation (See Note 2).
Net cash provided by financing activities increased $232 million for the three
months ended March 31, 2003, when compared to the corresponding period in the
prior year. The increase in financing requirements reflects the higher capital
expenditures for both regulated and nonregulated activities, which exceeded cash
from operations and dividend requirements during the quarter.
On February 7, 2003, Moody's Investors Service (Moody's) announced that it
changed the outlook of Progress Energy Florida, Inc. (A1 senior secured) and
Progress Capital Holdings, Inc. (A3 senior unsecured) from stable to negative.
Moody's cited PEF's 2002 base rate reduction and higher capital expenditures as
factors contributing to their change in outlook. The change in outlook by
Moody's has not materially affected the Company's or PEF's access to liquidity
or the cost of its short-term borrowings.
On February 21, 2003, PEF issued $425 million of First Mortgage bonds, 4.80%
Series Due March 1, 2013 and $225 million of First Mortgage bonds, 5.90% Series
Due March 1, 2033. Proceeds from this issuance were used and will be used to
repay the balance of its outstanding commercial paper, to refinance its secured
and unsecured indebtedness including $70 million of First Mortgage bonds, 6.125%
Series and to redeem the aggregate outstanding balance of its 8% First Mortgage
Bonds due 2022.
On March 24, 2003, PEF redeemed $150 million of First Mortgage bonds, 8% Series,
Due December 1, 2022 at 103.75% of the principal amount of such bonds. PEF
funded this maturity through the First Mortgage bonds issued in February 2003.
On April 1, 2003, PEF entered into a new $200 million 364-day credit agreement
and a new $200 million three-year credit agreement, replacing its prior credit
facilities (which had been a $90 million 364-day facility and a $200 million
five-year facility).
26
The new PEF credit facilities contain a defined maximum total debt to total
capital ratio of 65%; as of March 31, 2003 the calculated ratio was 50.9%. The
new credit facilities also contain a requirement that the ratio of EBITDA, as
defined in the facilities, to interest expense to be at least 3 to 1; as of
March 31, 2003 the calculated ratio was 8.7 to 1.
Future Commitments
As of March 31, 2003, both Florida Progress' and PEF's contractual cash
obligations and other commercial commitments has not changed materially from
what was reported in the 2002 Annual Report on Form 10-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for by ITEM 3 is omitted pursuant to Instruction H(2)(c)
to Form 10-Q (Omission of Information by Certain Wholly Owned Subsidiaries).
27
ITEM 4. CONTROLS AND PROCEDURES
Florida Progress Corporation
Within the 90 days prior to the filing date of this report, Florida Progress
carried out an evaluation, under the supervision and with the participation of
its management, including Florida Progress' Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), of the effectiveness of the design and operation
of Florida Progress' disclosure controls and procedures pursuant to Rules 13a-14
and 15d-14 under the Securities Exchange Act of 1934. Based upon that
evaluation, Florida Progress' CEO and CFO concluded that its disclosure controls
and procedures are effective in timely alerting them to material information
relating to Florida Progress (including its consolidated subsidiaries) required
to be included in its periodic SEC filings.
Since the date of the evaluation, there have been no significant changes in
Florida Progress' internal controls or in other factors that could significantly
affect these controls.
Progress Energy Florida, Inc.
Within the 90 days prior to the filing date of this report, PEF carried out an
evaluation, under the supervision and with the participation of its management,
including PEF's CEO and CFO, of the effectiveness of the design and operation of
PEF's disclosure controls and procedures pursuant to Rules 13a-14 and 15d-14
under the Securities Exchange Act of 1934. Based upon that evaluation, PEF's CEO
and CFO concluded that its disclosure controls and procedures are effective in
timely alerting them to material information relating to PEF (including its
consolidated subsidiaries) required to be included in its periodic SEC filings.
Since the date of the evaluation, there have been no significant changes in
PEF's internal controls or in other factors that could significantly affect
these controls.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Legal aspects of certain matters are set forth in Part I, Item 1. See Note 14 to
the Florida Progress Corporation and Progress Energy Florida, Inc. Financial
Statements. There have been no material developments from the disclosure
provided in the Company's Form 10-K for the year ended December 31, 2002.
28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Florida Progress Energy
Number Description Progress Corporation Florida, Inc.
------ ----------- -------------------- -------------
*10 (i) Progress Energy, Inc. Amended and Restated Management X X
Deferred Compensation Plan Adopted as of January 1,
2000, Revised and Restated effective January 1, 2003
(filed as Exhibit 4.3 to Progress Energy Form S-8 on May
2, 2003, File No. 333-104952).
10 (ii) Florida Power Corporation d/b/a Progress Energy X
Florida, Inc. 364-Day $200,000,000 Credit Agreement
dated as of April 1, 2003
10(iii) Florida Power Corporation d/b/a Progress Energy X
Florida, Inc. 3-Year $200,000,000 Credit Agreement
dated as of April 1, 2003
99 Certifications pursuant to Section 906 of the X X
Sarbanes-Oxley Action of 2002
*Incorporated herein by reference as indicated.
(b) Reports on Form 8-K with respect to the quarter:
Florida Progress Corporation
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
7 Yes February 18, 2003 February 18, 2003
5 No April 1, 2003 April 1, 2003
9, 12 Yes April 23, 2003 April 23, 2003
Progress Energy Florida, Inc.
Financial
Item Statements
Reported Included Date of Event Date Filed
-------- -------- ------------- ----------
5 No January 1, 2003 January 3, 2003
5 No February 7, 2003 February 12, 2003
7 Yes February 18, 2003 February 18, 2003
5 No February 18, 2003 February 18, 2003
5 No February 21, 2003 February 21, 2003
5 No April 1, 2003 April 1, 2003
9, 12 Yes April 23, 2003 April 23, 2003
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLORIDA PROGRESS CORPORATION
FLORIDA POWER CORPORATION
(Registrants)
Date: May 9, 2003 By: /s/ Peter M. Scott III
------------------------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
By: /s/ Robert H. Bazemore, Jr.
-----------------------------------
Robert H. Bazemore, Jr.
Vice President and Controller
Chief Accounting Officer
30
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, William Cavanaugh III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Florida Progress
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003 /s/ William Cavanaugh III
-------------------------
William Cavanaugh III
Chairman and Chief Executive Officer
31
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Scott III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Florida Progress
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003 /s/ Peter M. Scott III
----------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, H. William Habermeyer, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Florida Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003 /s/ H. William Habermeyer, Jr.
------------------------------
H. William Habermeyer, Jr.
President and Chief Executive Officer
33
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Peter M. Scott III, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Florida Power
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 9, 2003 /s/ Peter M. Scott III
----------------------
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
34
EXHIBIT 99
CERTIFICATION FURNISHED PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Florida Progress
Corporation (the "Company") for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, William Cavanaugh III, Chairman and Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ William Cavanaugh III
William Cavanaugh III
Chairman and Chief Executive Officer
May 9, 2003
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
35
CERTIFICATION FURNISHED PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Florida Progress
Corporation (the "Company") for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Peter M. Scott III, Executive Vice President and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Peter M. Scott III
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
May 9, 2003
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
36
CERTIFICATION FURNISHED PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Florida Power
Corporation (the "Company") for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, H. William Habermeyer, Jr., President and Chief Executive Officer of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ H. William Habermeyer, Jr.
H. William Habermeyer, Jr.
President and Chief Executive Officer
May 9, 2003
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
37
CERTIFICATION FURNISHED PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Florida Power
Corporation (the "Company") for the period ending September 30, 2002 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Peter M. Scott III, Executive Vice President and Chief Financial Officer of
the Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Peter M. Scott III
Peter M. Scott III
Executive Vice President and
Chief Financial Officer
May 9, 2003
A signed original of this written statement required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
38