Item 3. Legal Proceedings
In October 1988, Union Carbide Corporation, the corporate predecessor of Praxair, Inc. (Praxair), filed suit against FPL and Florida Power Corporation (Florida Power) in the United States District Court for the Middle District of Florida. Praxair requested that Florida Power sell power to its facility located within FPL's service territory, and that FPL transport (wheel) the power to the facility. Florida Power and FPL denied the request as being inconsistent with Florida law and public policy. The FPSC issued a declaratory statement that FPL's denial of Praxair's request was proper and ordered FPL not to wheel power under such circumstances. The suit alleges that through a territorial agreement, FPL and Florida Power have conspired to eliminate competition for the sale of electric power to retail customers, thereby unreasonably restraining trade and commerce in violation of federal antitrust laws as contained in Section 1 of the Sherman Antitrust Act (Sherman Act). The suit seeks treble damages of an unspecified amount based on alleged higher prices paid for electricity and product sales lost. Cross motions for summary judgment were denied. Both parties are appealing the denials.
In November 1988, TEC Cogeneration, Inc., its affiliate Thermo Electron Corporation, RRD Corp. and its affiliate Rolls Royce Inc. filed suit in the United States District Court for the Southern District of Florida against FPL and FPL Group on behalf of South Florida Cogeneration Associates (SFCA), a joint venture which since 1986 has operated a cogeneration facility for Metropolitan Dade County within FPL's service territory in Miami, Florida. The suit alleges that the defendants have engaged in anti-competitive conduct intended to prevent and defeat competition from cogenerators within FPL's service territory, and from SFCA's Metropolitan Dade County facility in particular. It alleges that the defendants' actions constitute monopolization and attempts to monopolize in violation of Section 2 of the Sherman Act; conspiracy in restraint of trade in violation of Section 1 of the Sherman Act; unlawful discrimination in prices, services or facilities in violation of Section 2 of the Clayton Act; and intentional interference with SFCA's contractual relationship with Metropolitan Dade County in violation of Florida law. The suit seeks damages in excess of $100 million, before trebling under antitrust law, plus other unspecified compensatory and punitive damages. FPL's motion for summary judgment has been denied. FPL is appealing the denial.
In December 1991, the FMPA, an association of municipal electric utilities operating in the state, filed a suit against FPL in the Circuit Court of the Ninth Judicial Circuit in Orange County, Florida. The suit was subsequently removed to the United States District Court for the Middle District of Florida. The FMPA alleges that FPL is in breach of a "contract," consisting of several different documents, by refusing to provide transmission service to the FMPA and its members on the FMPA's terms. The FMPA also alleges that FPL has violated federal and Florida antitrust laws by monopolizing or attempting to monopolize the provision, coordination and transmission of electric power in FPL's area of operation by refusing to provide transmission service or to permit the FMPA to invest in and use FPL's transmission system on the FMPA's terms. The FMPA seeks $140 million in damages, before trebling for the antitrust claim, and asks the court to require FPL: to transmit electric power among the FMPA and its members on "reasonable terms and conditions"; to permit the FMPA to contribute to and use FPL's transmission system on "reasonable terms and conditions"; and to recognize the FMPA transmission investments as part of FPL's transmission system such that the FMPA can obtain transmission on a basis equivalent to FPL or, alternatively, to provide transmission service equivalent to such FMPA transmission ownership. In December 1993, the District Court granted summary judgment in favor of FPL. The FMPA has appealed.
FPL believes that it has meritorious defenses to all of the litigation described above and is vigorously defending these suits. Accordingly, the liabilities, if any, arising from these proceedings are not anticipated to have a material adverse effect on FPL's financial statements. However, in the event that FPL does not prevail in these suits, there may be a material adverse effect on FPL's financial position or results of operations.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
All of FPL's common stock is owned by FPL Group. For information regarding dividends paid to FPL Group, see Management's Discussion and Note 6.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
RESULTS OF OPERATIONS
FPL's operating results reflect management's continuing focus on controlling costs and on reducing the net investment in assets used in electric utility operations. Increased energy sales, combined with cost control efforts, resulted in increased earnings in 1994 despite higher depreciation expense, as well as costs associated with the consolidation of facilities and inventory reductions. Also, reduced operating expenses reflect the benefits of the 1993 cost reduction program which lowered FPL's work force by approximately 1,700 positions. The charge associated with the cost reduction program, primarily consisting of severance pay and employee retirement benefits, adversely affected net income in 1993. See Note 4.
FPL's retail operations, which represent approximately 99% of operating revenues, are regulated by the FPSC. FPL reported a retail regulatory ROE of 12.3%, 9.8% and 12.4% in 1994, 1993 and 1992, respectively. The ROE range authorized by the FPSC for these periods was 11% to 13% with a midpoint of 12%.
Operating revenues from energy sales primarily consist of revenues from base rates and cost recovery clauses. Revenues from base rates were $3.2 billion, $3.0 billion and $2.9 billion in 1994, 1993 and 1992, respectively. There were no changes in base rates during those years. Revenues from cost recovery clauses (including fuel) and franchise fees represent a pass-through of costs and do not significantly affect net income. Such revenues declined in each of the years 1994, 1993 and 1992 primarily due to lower fuel costs.
Retail customer growth was 2.1%, 2.1% and 1.7% in 1994, 1993 and 1992, respectively. Customer growth, together with favorable weather conditions and an improving economy, increased energy sales in 1994 and 1993. The benefits of customer growth in 1992 were largely offset by the effects of Hurricane Andrew.
Other operations and maintenance expense in 1994 reflects management's determination to control costs and a full year of lower employee-related expenses resulting from the 1993 cost reduction program. Partially offsetting these reductions were charges associated with facilities consolidation (including capital lease terminations) and inventory reductions, as well as costs relating to the growth in customer base and placement of additional generating units in service. FPL also incurred costs relating to four planned nuclear refueling outages in 1994 compared to two in 1993. Two of the outages occurred in the fourth quarter of 1994 affecting the comparison of quarterly results. Other operations and maintenance expense in 1993 was adversely affected by the cost of supporting an increasing customer base, as well as the implementation of two new accounting standards relating to postretirement and postemployment benefits. The 1993 benefit of the cost reduction program on other operations and maintenance expense was limited as it was implemented late in the year. Other operations and maintenance expense is expected to decline in 1995, despite projected sales growth, primarily due to two fewer nuclear refueling outages, the absence of the facilities consolidation and inventory reduction charges recorded in 1994 and continuing cost control measures.
An increase in depreciation rates for generating units, as well as the accelerated write-off of plant overhaul costs from prior years, consistent with FPSC orders, resulted in higher depreciation expense in 1994. Depreciation expense in all periods reflects higher utility plant balances added to meet customer growth. A proposal by FPL to increase its nuclear decommissioning and fossil fuel plant dismantlement accruals is pending FPSC approval. In addition, FPL requested and the FPSC approved, in February 1995, the amortization of approximately $111 million of deferred litigation items over a period not to exceed five years. These actions, together with continued growth in electric utility plant, will result in higher depreciation expense in future years. See Note 1.
AFUDC declined in 1994 due to the completion of new generating capacity placed in service in 1994 and 1993. During the past few years, FPL has refinanced substantially all of its existing debt with lower interest rate instruments. In addition, efforts continued in 1994 to reduce the overall debt level and replace some higher fixed interest rate debt with currently lower cost variable interest rate debt. These activities led to the decline in interest expense in 1994.
Liquidity and Capital Resources
FPL's primary capital requirements consist of expenditures to meet increased electricity usage and customer growth. Total capital expenditures for the period 1995 through 1999, including AFUDC, are expected to be approximately $3.0 billion, including $712 million in 1995. See Note 11. FPL's capital expenditure forecast has declined significantly over the past few years as a result of continuing efforts to reduce costs and the completion of its generation expansion plan. No new generating plants are expected to be constructed before the year 2004.
Debt maturities and minimum sinking fund requirements will require cash outflows of approximately $612 million through 1999, including $86 million in 1995. See Notes 7 and 8. It is anticipated that cash requirements for construction expenditures and debt repayments in 1995 will be financed from internally generated funds. FPL expects no new long-term external financings in 1995; however, refinancing of existing debt or preferred stock with lower interest rate instruments, which could include variable interest rate debt, may occur based on market conditions. Excess internally generated funds and contributions from FPL Group may be used to reduce outstanding debt or preferred stock. Currently, FPL dividends to FPL Group its net income available to FPL Group. Any temporary cash shortages will be met by the issuance of commercial paper. Bank lines of credit currently available to FPL aggregate $820 million.
FPL self-insures for damage to certain transmission and distribution properties and maintains a funded reserve to guard against storm losses. Bank lines of credit of $300 million, included in the $820 million above, are available if needed to provide cash for restoration costs. The FPSC has indicated that it would consider future storm losses in excess of the funded reserve for possible recovery from ratepayers.
FPL's charter and mortgage contain provisions which, under certain conditions, restrict the payment of dividends and other distributions to FPL Group. Given FPL's current financial condition and level of earnings, these restrictions do not currently limit FPL's ability to pay dividends to FPL Group. At December 31, 1994, limits under FPL's charter and mortgage would allow the issuance of approximately $1.4 billion of additional unsecured debt and $5.7 billion of additional first mortgage bonds, respectively. The amount of additional first mortgage bonds that are permitted to be issued will increase as the amount of unfunded property additions increases. FPL's charter also prohibits the issuance of preferred stock unless the preferred stock coverage ratio, as prescribed, is at least 1.5; for the twelve months ended December 31, 1994 it was 2.6.
Item 8.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FLORIDA POWER & LIGHT COMPANY:
We have audited the consolidated financial statements of Florida Power & Light Company and its subsidiaries, listed in the accompanying index as Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and Exchange Commission for the year ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Florida Power & Light Company and its subsidiaries at December 31, 1994 and 1993 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP Certified Public Accountants
Miami, Florida February 10, 1995
FLORIDA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Thousands of Dollars)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FLORIDA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Thousands of Dollars)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FLORIDA POWER & LIGHT COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands of Dollars)
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
FLORIDA POWER & LIGHT COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1994, 1993 and 1992
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - The consolidated financial statements include the accounts of Florida Power & Light Company (FPL) and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. FPL is a wholly-owned subsidiary of FPL Group, Inc. (FPL Group). Certain amounts included in prior years' consolidated financial statements have been reclassified to conform to the current year's presentation.
Regulation - FPL is subject to regulation by the Florida Public Service Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). As a result of such regulation, FPL follows the accounting practices set forth in Statement of Financial Accounting Standard (SFAS) No. 71, "Accounting for the Effects of Certain Types of Regulation." SFAS 71 indicates that regulators can create assets and impose liabilities that would not be recorded by non-regulated entities. Recoverability of these assets is judged the same as for enterprises in general. The principal assets recorded under SFAS 71 are unamortized debt reacquisition costs and deferred litigation items, aggregating $403 million at December 31, 1994, which are presented in the other assets section of the consolidated balance sheets. The principal SFAS 71-related liabilities are deferred regulatory credit-income taxes, unamortized investment tax credits and the storm and property insurance reserve, aggregating $595 million at December 31, 1994, which are presented in the other liabilities and deferred credits section of the consolidated balance sheets. Other accounting practices followed by regulated electric utilities that differ from non-regulated entities are outlined below, including deferral of clause under or over recoveries, nuclear decommissioning and allowance for funds used during construction.
Revenues and Rates - Retail and wholesale utility rate schedules are approved by the FPSC and the FERC, respectively. FPL records the estimated amount of base revenues for energy delivered to customers but not billed. Such unbilled revenues are included in customer receivables and amounted to approximately $117 million and $112 million at December 31, 1994 and 1993, respectively.
Revenues include amounts resulting from cost recovery clauses, which are designed to permit full recovery of certain costs and provide a return on certain assets utilized by these programs, and franchise fees. Such revenues represent a pass-through of costs and include substantially all fuel, purchased power and interchange expenses, conservation-related expenses, revenue taxes and franchise fees. Revenues from cost recovery clauses are recorded when billed; FPL achieves matching of costs and related revenues by deferring the net under or over recovery.
Electric Utility Plant, Depreciation and Amortization - The cost of additions to units of utility property is added to electric utility plant. The cost of units of property retired, less net salvage, is charged to accumulated depreciation. Maintenance and repairs of property as well as replacements and renewals of items determined to be less than units of property are charged to other operations and maintenance expense. At December 31, 1994, the generating, transmission, distribution and general facilities represented approximately 49%, 12%, 32% and 7%, respectively, of FPL's gross investment in electric utility plant in service. Substantially all electric utility plant is subject to the lien of a mortgage, securing FPL's first mortgage bonds.
Depreciation of utility property is primarily provided on a straight-line average remaining life basis and includes a provision for dismantlement. For substantially all utility property, depreciation and fossil fuel plant dismantlement studies are performed at least every four years. The most recent depreciation studies were filed with the FPSC and approved in 1994; approval of fossil fuel plant dismantlement studies also filed in 1994 is pending. The weighted annual composite depreciation rate was approximately 4.0%, 3.9% and 3.5% for the years 1994, 1993 and 1992, respectively. Excluded from the composite rate for 1994 is the accelerated write-off of certain accumulated plant overhaul costs.
Nuclear fuel costs, including a charge for spent nuclear fuel disposal, is accrued in fuel expense on a unit of production method.
Allowance for Funds Used During Construction (AFUDC) - FPL recognizes AFUDC as a noncash item which represents the allowed cost of capital used to finance a portion of its construction work in progress. AFUDC is capitalized as an additional cost of utility plant and is recorded as an addition to income. The capitalization rate used in computing AFUDC was 8.26% in 1994, 8.67% from January 1993 through June 1993, 8.26% from July 1993 through December 1993 and 8.61% in 1992.
Nuclear Decommissioning - FPL accrues nuclear decommissioning costs over the expected service life of each plant. Nuclear decommissioning studies are performed at least every five years for FPL's four nuclear units and are submitted to the FPSC for approval. The most recent studies were filed in December 1994 and are pending approval. These studies assume prompt dismantlement for the Turkey Point nuclear units commencing in the year 2013 and for St. Lucie Unit No. 2 commencing in 2023. St. Lucie Unit No. 1 will be mothballed in 2016 until St. Lucie Unit No. 2 is ready for dismantlement. Decommissioning expense accruals, included in depreciation and amortization expense in the consolidated statements of income, were $38 million for each of the years 1994, 1993 and 1992, and are projected to be $46 million for 1995 and future years. FPL's portion of the ultimate cost of decommissioning its four units, including dismantlement and reclamation, expressed in 1994 dollars, is currently estimated to aggregate $1.1 billion. At December 31, 1994 and 1993, the accumulated provision for nuclear decommissioning totaled $507 million and $445 million, respectively, and is included in accumulated depreciation.
Amounts equal to decommissioning expense are deposited in funds which may be used only for the payment of the cost of decommissioning FPL's nuclear units. Included in special use funds in the consolidated balance sheets were $373 million and $325 million of decommissioning funds at December 31, 1994 and 1993, respectively. Securities held in the decommissioning funds primarily consist of tax-exempt obligations with a weighted-average maturity of 10 years and, in 1994, are carried at market value. Any market value adjustment results in a corresponding adjustment to the accumulated provision for nuclear decommissioning. See Note 9. Fund earnings, net of taxes, are reinvested in the funds. Both fund earnings and the reinvestment of the earnings are included in other income, resulting in no net impact on FPL's earnings. The related income tax effects are included in accumulated deferred income taxes.
In 1994, the Financial Accounting Standards Board (FASB) added a project to its agenda to review current accounting practices for nuclear decommissioning. The objective of the project is to determine if and when a liability for nuclear decommissioning should be recognized, how the liability should be measured and whether a corresponding asset is created. FPL is unable to predict the outcome of this project; however, these deliberations could result in a significant change to FPL's balance sheet. Some or all of the accumulated provision for nuclear decommissioning could be reclassified out of accumulated depreciation and presented as a liability. Additionally, the amount of the liability could be increased to the total estimated decommissioning cost stated in current dollars, or the present value of projected future dollars, with an offset to a property or other account. FPL expects no significant adverse effect on results of operations from potential changes currently being considered by the FASB.
Storm and Property Insurance Reserve Fund - A storm and property insurance reserve fund (storm fund) provides coverage toward storm damage costs and possible retrospective premium assessments stemming from a nuclear incident under the various insurance programs covering FPL's nuclear generating plants. Securities held in the fund are carried at market value in 1994 and are included in special use funds in the consolidated balance sheets. The related income tax effects are included in accumulated deferred income taxes. These securities primarily consist of tax-exempt obligations with a weighted-average maturity of 7 years. Any market value adjustment results in a corresponding adjustment to the storm and property insurance reserve. See Note 9. Included in special use funds in the consolidated balance sheets were $62 million and $54 million of storm funds at December 31, 1994 and 1993, respectively.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.
Commercial Paper - The year end weighted-average interest rate on commercial paper at December 31, 1994 and 1993 was 5.9% and 3.4%, respectively. The average annual rate for 1994 and 1993 was 4.4% and 3.2%, respectively. In 1994, $200 million of commercial paper was classified as long-term debt as FPL expects to maintain this level of commercial paper usage for the foreseeable future.
Retirement of Long-Term Debt - The excess of reacquisition cost over the book value of long-term debt is deferred and amortized to expense ratably over the remaining life of the original issue, which is consistent with its treatment in the ratemaking process.
Rate Matters - Deferred litigation items primarily consist of deferred costs associated with the replacement of steam generators at the Turkey Point nuclear units. In 1986, the FPSC approved recovery of these costs over five years commencing with FPL's next general rate proceeding. In February 1995, the FPSC approved FPL's request to amortize these costs over a period of no more than five years, commencing in 1995.
Income Taxes - Deferred income taxes are provided on all significant temporary differences between the financial statement and tax bases of assets and liabilities. Investment tax credits are used to reduce current federal income taxes and are deferred and amortized to income over the approximate lives of the related property in accordance with the regulatory treatment. FPL is included in the consolidated federal income tax return filed by FPL Group. FPL determines its income tax provision on the "separate return method." See Note 2.
2. Income Taxes
The components of income taxes are as follows:
A reconciliation between income tax expense and the income tax expense calculated at the applicable statutory rates is as follows:
The income tax effects of temporary differences giving rise to FPL's deferred income tax liabilities and assets are as follows:
Prior to 1993, an adjustment was made to reflect in the results of operations the pension cost calculated under the actuarial cost method used for ratemaking purposes. In 1993, FPL adopted consistent pension measurements for ratemaking and financial reporting. The accumulated regulatory adjustment is being amortized to income over five years. At December 31, 1994 and 1993, the unamortized balance of this regulatory adjustment included in other liabilities was approximately $12 million and $16 million, respectively.
FPL funds the pension cost calculated under the entry age normal level percentage of pay actuarial cost method, provided that this amount satisfies the minimum funding standards of the Employee Retirement Income Security Act of 1974, as amended, and is not greater than the maximum tax deductible amount for the year. No contributions to the plan were required for 1994, 1993 or 1992.
At December 31, 1994, the portion of prepaid pension cost recognized in FPL's consolidated balance sheets was an asset of approximately $12 million and at December 31, 1993, a liability of approximately $.3 million. A reconciliation of the funded status of the combined FPL Group Plan is presented below:
At December 31, 1994 and 1993, the portion of accrued postretirement benefit liability recognized in FPL's consolidated balance sheets was approximately $63 million and $44 million, respectively. A reconciliation of the funded status of the combined FPL Group Plan is presented below:
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) for 1994 is 9.0% for retirees under age 65 and 8.0% for retirees over age 65. These rates are assumed to decrease gradually to 5.0% by the year 2003, which is when it is anticipated that benefit costs will reach the defined level at which FPL Group's contributions will be capped. The cap on FPL Group's contributions mitigates the potential significant increase in costs resulting from an increase in the health care cost trend rate. Increasing the assumed health care cost trend rate by one percentage point would increase the plan's accumulated postretirement benefit obligation as of December 31, 1994 by $7 million, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost of the plan for 1994 by approximately $1 million.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.75% and 7.0% for 1994 and 1993, respectively. The expected long-term rate of return on plan assets used in determining postretirement benefit cost was 7.75% for 1994 and 1993.
4. Cost Reduction Program Charge
In 1993, FPL implemented a cost reduction program which resulted in a $138 million ($85 million after-tax) charge, primarily consisting of severance payments and employee retirement benefits. The impact on pension cost and postretirement benefits was approximately $34 million and $29 million, respectively, and was included as part of the total charge of $138 million. See Note 3. A total of 1,700 positions throughout FPL were eliminated.
5. Jointly-Owned Facilities
FPL owns approximately 85% of the St. Lucie Nuclear Unit No. 2, 20% of the St. Johns River Power Park (SJRPP) units and coal terminal and an approximately 66% undivided interest in Scherer Unit No. 4. FPL expects to purchase an additional 11% undivided ownership interest in Scherer Unit No. 4 in 1995. At December 31, 1994, FPL's investment in St. Lucie Unit No. 2 was $719 million, net of accumulated depreciation of $448 million; the investment in the SJRPP units and coal terminal was $209 million, net of accumulated depreciation of $121 million; the investment in Scherer Unit No. 4 was $384 million, net of accumulated depreciation of $85 million.
FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1994, there was no significant balance of construction work in progress on these facilities.
6. Common Shareholder's Equity
The changes in common shareholder's equity accounts are as follows:
FPL's charter and a mortgage securing its first mortgage bonds contain provisions that, under certain conditions, restrict the payment of dividends and other distributions to FPL Group. Given FPL's current financial condition and level of earnings, these restrictions do not currently limit FPL's ability to pay dividends to FPL Group.
In 1994, 1993 and 1992 FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.
7. Preferred Stock (1)
Preferred stock consists of the following:
8. Long-Term Debt (1)(2)
Long-term debt consists of the following:
9. Financial Instruments
The following estimates of the fair value of financial instruments have been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values.
The carrying amounts of cash equivalents and commercial paper approximate their fair values.
Special Use Funds - The cost of securities sold is determined on the specific identification method. Realized gains and losses on the nuclear decommissioning and storm funds were not material. The gross unrealized loss and the gross unrealized gain at December 31, 1994 on nuclear decommissioning reserve funds was $9 million and $2 million, respectively; the cost basis of the funds was $380 million. The estimated fair value of the storm fund approximates its cost and there were no significant gross unrealized gains or losses.
10. Leases
FPL leases its nuclear fuel for all four of its nuclear units. Nuclear fuel lease payments, which are based on energy production and are charged to fuel expense, were $115 million, $122 million and $120 million for the years ended December 31, 1994,
1993 and 1992, respectively. Included in these payments was an interest component of $11 million, $11 million and $13 million in 1994, 1993 and 1992, respectively. Under certain circumstances of lease termination, FPL is required to purchase all nuclear fuel in whatever form at a purchase price designed to allow the lessor to recover its net investment cost in the fuel, which totaled $186 million at December 31, 1994. For ratemaking, these leases are classified as operating leases. For financial reporting, the capital lease obligation is recorded at the amount due in the event of lease termination.
FPL leases automotive, computer, office and other equipment through rental agreements with various terms and expiration dates. Rental expense totaled $24 million, $31 million and $53 million for 1994, 1993 and 1992, respectively. Minimum annual rental commitments for noncancellable operating leases are $22 million for 1995, $15 million for 1996, $6 million for 1997, $5 million for 1998, $4 million for 1999 and $9 million thereafter.
11. Commitments and Contingencies
Capital Commitments - FPL has made commitments in connection with a portion of its projected capital expenditures. Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to aggregate $3.0 billion, including AFUDC, for the years 1995 through 1999.
Insurance - Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of the insurance available from private sources and under an industry retrospective payment plan. In accordance with this Act, FPL maintains $200 million of private liability insurance, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $317 million per incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $40 million per incident per year.
FPL participates in insurance pools and other arrangements that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL also participates in an insurance program that provides limited coverage for replacement power costs if a plant is out of service because of an accident. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $77 million in retrospective premiums, and in the event of a subsequent accident at such nuclear plants during the policy period, the maximum aggregate assessment is $93 million under the programs in effect at December 31, 1994. This contingent liability would be partially offset by a portion of FPL's storm and property insurance reserve, which totaled $96 million at that date.
In the event of a catastrophic loss at one of FPL's nuclear plants, the amount of insurance available may not be adequate to cover property damage and other expenses incurred. Uninsured losses, to the extent not recovered through rates, would be borne by FPL and could have a material adverse effect on FPL's financial condition.
FPL self-insures certain of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third-party insurers. Costs incurred under the self-insurance program will be charged against FPL's storm fund. Recovery from ratepayers of any losses in excess of the storm fund will require the approval of the FPSC. FPL's available lines of credit include $300 million to provide additional liquidity in the event of a T&D property loss.
Contracts - FPL has entered into certain long-term purchased power and fuel contracts. Take-or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of the Southern Company provide approximately 1,300 megawatts (mw) of power through mid-2010 and 374 mw through 2022. FPL also has various firm pay-for-performance contracts to purchase approximately 1,000 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract obligations. The fuel contracts provide for the transportation and supply of natural gas and the supply and use of Orimulsion. Orimulsion is a new fuel which FPL expects to begin using in 1998, subject to environmental approvals. In no year are the obligations under the fuel contracts expected to exceed usage requirements.
The required payments through 1999 under these contracts are estimated to be as follows:
Capacity and energy charges under these contracts were as follows:
Natural gas payments, which were recovered through the fuel clause, were $232 million, $270 million and $269 million for 1994, 1993 and 1992, respectively.
Litigation - Union Carbide Corporation sued FPL and Florida Power Corporation alleging that, through a territorial agreement approved by the FPSC, they conspired to eliminate competition in violation of federal antitrust laws. Praxair, Inc., an entity that was formerly a unit of Union Carbide, has been substituted as the plaintiff. The suit seeks treble damages of an unspecified amount based on alleged higher prices paid for electricity and for product sales lost. Cross motions for summary judgment were denied. Both parties are appealing the denials.
A suit brought by the partners in a cogeneration project located in Dade County, Florida, alleges that FPL and certain affiliated companies engaged in anti-competitive conduct intended to eliminate competition from cogenerators generally, and from their facility in particular, in violation of federal antitrust laws and wrongfully interfered with the cogeneration project's contractual relationship with Metropolitan Dade County. The suit seeks damages in excess of $100 million, before trebling under antitrust laws, plus other unspecified compensatory and punitive damages. FPL's motion for summary judgment was denied. FPL is appealing the denial.
The Florida Municipal Power Agency (FMPA), an organization comprised of municipal electric utilities, has sued FPL for allegedly breaching a "contract" to provide transmission service to the FMPA and its members and for breaching antitrust laws by monopolizing or attempting to monopolize the provision, coordination and transmission of electric power in refusing to provide transmission service, or to permit the FMPA to invest in and use FPL's transmission system, on the FMPA's proposed terms. FMPA seeks $140 million in damages, before trebling for the antitrust claim, and court orders requiring FPL to permit the FMPA to invest in and use FPL's transmission system on "reasonable terms and conditions" and on a basis equal to FPL. In December 1993, a district court granted summary judgment in favor of FPL. The FMPA has appealed.
FPL believes that it has meritorious defenses to all of the litigation described above and is vigorously defending these suits. Accordingly, the liabilities, if any, arising from these proceedings are not anticipated to have a material adverse effect on FPL's financial statements.
12. Transactions with Related Parties
FPL provides certain services to and receives services from FPL Group, or other subsidiaries of FPL Group. The full cost of such services is charged to the entity benefitting from the service. In addition, certain common costs of FPL Group are
allocated to all subsidiaries, including FPL, primarily based on each subsidiary's equity. Neither current period amounts charged or allocated, nor balances outstanding, were material for any year. See Note 1 - Income Taxes.
13. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1994 and 1993 is as follows:
14. Subsequent Event (Unaudited)
In March 1995, FPL issued notices to call 400,000 shares of its 8.625% Preferred Stock, Series R and $66.2 million principal amount of First Mortgage Bonds, 9 3/8% Series due July 1, 2019.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
DIRECTORS(1)
James L. Broadhead. Mr. Broadhead, 59, is chairman and chief executive officer of FPL and chairman, president and chief executive officer of FPL Group. He served as president and chief executive officer of FPL Group from January 1989 to May 1990. Mr. Broadhead has been a director of FPL and FPL Group since January 1989. Mr. Broadhead is a former president of the Telephone Operating Group of GTE Corporation and is also a former president of St. Joe Minerals Corporation. Mr. Broadhead is a director of Barnett Banks, Inc., Delta Air Lines, Inc. and The Pittston Company. He is also a board fellow of Cornell University.
Dennis P. Coyle. Mr. Coyle, 56, has been general counsel and secretary of FPL since July 1991 and of FPL Group since June 1991. From March 1990 to July 1991 he was general counsel of FPL and from June 1989 to June 1991 he was general counsel and vice president of FPL Group. Mr. Coyle has been a director of FPL since January 1990.
Paul J. Evanson. Mr. Evanson, 53, became president of FPL in January 1995 and was senior vice president, finance and chief financial officer of FPL and vice president, finance and chief financial officer of FPL Group from December 1992 to January 1995. Mr. Evanson has been a director of FPL since December 1992 and became a director of FPL Group in January 1995. Mr. Evanson was formerly president and chief operating officer of the Lynch Corporation, a diversified holding company. He is a director of Lynch Corporation and Southern Energy Homes, Inc.
Jerome H. Goldberg. Mr. Goldberg, 63, is president of FPL's nuclear division. He was executive vice president of FPL from August 1989 to July 1991. Mr. Goldberg has been a director of FPL since December 1989.
Lawrence J. Kelleher. Mr. Kelleher, 47, is senior vice president, human resources of FPL and vice president, human resources of FPL Group. From May 1990 to July 1991 Mr. Kelleher was chief human resources officer of FPL. From June 1989 to May 1991 Mr. Kelleher was vice president of FPL Group. Mr. Kelleher has been a director of FPL since May 1990.
J. Thomas Petillo. Mr. Petillo, 50, is senior vice president, external affairs of FPL. From November 1988 to July 1991 he was group vice president of FPL. Mr. Petillo has been a director of FPL since July 1991.
C. O. Woody. Mr. Woody, 56, is senior vice president, power generation of FPL. From November 1987 to July 1991 he was executive vice president of FPL. Mr. Woody has been a director of FPL since December 1989.
Michael W. Yackira. Mr. Yackira, 43, became senior vice president, finance and chief financial officer of FPL and vice president, finance and chief financial officer of FPL Group in January 1995 and was senior vice president, market and regulatory services of FPL from May 1991 to January 1995. From May 1990 to May 1991 Mr. Yackira was chief planning officer of FPL. From April 1989 to May 1991 he was vice president of FPL Group. Mr. Yackira has been a director of FPL since May 1990.
(1) Directors are elected annually and serve until their resignation, removal or until their respective successors are elected. Each director's business experience during the past five years is noted either here or in the Executive Officers table below.
EXECUTIVE OFFICERS (1)(2)
Long Term Incentive Plan Awards
In 1994, awards of performance shares under FPL Group's Long Term Incentive Plan were made to the executive officers named in the Summary Compensation Table as set forth in the following table.
LONG TERM INCENTIVE PLAN AWARDS
The performance share awards shown above are payable at the end of the four-year performance periods. The amount of the payout is determined by multiplying the participant's target number of shares by his average level of attainment, expressed as a percentage, which may not exceed 160%, of his targeted awards under the Annual Incentive Plans for each of the years encompassed by the award period. The incentive performance measures were financial indicators (weighted 50%) and operating quality and project indicators (weighted 50%). The financial indicators were operations and maintenance costs, capital expenditure levels, book and regulatory return on equity and net income. The operating quality and project indicators were customer satisfaction survey results, service reliability as measured by the frequency and duration of service interruptions, system performance as measured by the availability factors for the fossil and nuclear power plants, unplanned trips of nuclear power plants, full-time equivalent workforce, number of significant environmental violations, employee safety, load management installed capability and conservation programs' annual installed capacity. Payouts under the Long Term Incentive Plan can range from zero to 100% of the target amount for the 1994 awards.
Retirement Plans
FPL Group maintains a non-contributory defined benefit pension plan and a supplemental executive retirement plan which covers FPL employees. The following table shows the estimated annual benefits, calculated on a straight-line annuity basis, payable upon retirement in 1994 at age 65 after the indicated years of service.
PENSION PLAN TABLE
The compensation covered by the plans includes annual salaries and bonuses of officers of FPL Group and annual salaries of officers of FPL, as shown in the Summary Compensation Table, but no other amounts shown in the Table. The estimated credited years of service for the executive officers named in the Summary Compensation Table are: Mr. Broadhead, 6 years; Mr. Frank, 4 years; Mr. Goldberg, 5 years; Mr. Coyle, 5 years; and Mr. Evanson, 2 years.
A supplemental retirement plan for Mr. Broadhead provides for a lump-sum retirement benefit equal to the then present value of a joint and survivor annuity providing annual payments to him equal to 61% to 65% of his average annual compensation for the three years prior to his retirement between age 62 (1998) and age 65 (2001) and to his surviving beneficiary of 37.5% of such average annual compensation, reduced by the then present value of the annual amount of payments to which he is entitled under all other pension and retirement plans of FPL Group and former employers. This benefit is further reduced by the then value of 96,800 shares of restricted common stock which vest as to 77,000 shares in 1998 and as to 19,800 shares in 2001. Upon a change of control of FPL Group, (as defined below under Employment Agreements), the restrictions on the
restricted stock lapse and the full retirement benefit becomes payable. Upon termination of Mr. Broadhead's employment agreement (also described below) without cause, the restrictions on the restricted stock lapse and he becomes fully vested under the supplemental retirement plan. Absent any such change of control or termination of employment, Mr. Broadhead will have no right to such shares of restricted stock, and there will be no payments under the supplemental retirement plan, unless he remains with the Corporation until at least age 62.
Mr. Goldberg's employment agreement with FPL provides for a retirement benefit which, together with the amount received by him pursuant to his former employer's deferred compensation program and retirement plan, equals the total postretirement benefits he would have received if he had remained employed by such employer until age 65. A supplemental retirement plan for Mr. Coyle provides for benefits, upon retirement at age 62 or more, based on two times his credited years of service.
FPL Group sponsors a split-dollar life insurance plan for certain of FPL and FPL Group's senior officers. Benefits under the split-dollar plan are provided by universal life insurance policies purchased by FPL Group. If the officer dies prior to retirement, the officer's beneficiaries generally receive two and one-half times the officer's annual salary at the time of death. If the officer dies after retirement, the officer's beneficiaries receive between 50% to 100% of the officer's final annual salary. Each officer is taxable on the insurance carrier's one year term rate for his or her life insurance coverage.
Employment Agreements
FPL Group has entered into an employment agreement with Mr. Broadhead for an initial term ending December 1997, with automatic one-year extensions thereafter unless either party elects not to extend. The agreement provides for a base salary of $823,700 plus annual and long-term incentive compensation opportunities at least equal to those currently in effect. If FPL Group terminates Mr. Broadhead's employment without cause, he is entitled to receive a lump sum payment of two years' compensation. Compensation is measured by the then current base salary plus the average of the preceding two years' annual incentive awards. He would also be entitled to receive all amounts accrued under all performance share grants in progress, prorated for the year of termination and assuming achievement of the targeted award, and to full vesting of his benefits under his supplemental retirement plan.
An employment agreement between Mr. Goldberg and FPL, which expires in March 1996, provides for a base salary of at least $478,700 per year, Annual Incentive Plan awards with a target amount equal to 35% of his base salary, Long-Term Incentive Plan awards with a target amount equal to 60% of his base salary, and either the retirement benefit described above under Retirement Plans or, if he dies before his contract expires, a death benefit to his beneficiary equal to 450% of his base salary, payable over 9 years.
FPL Group and FPL have entered into employment agreements with certain officers, including the individuals named in the Summary Compensation Table (other than Mr. Goldberg), to become effective in the event of a change of control of FPL Group, which is defined as the acquisition of beneficial ownership of 20% of the voting power of FPL Group, certain changes in FPL Group's Board, or approval by the shareholders of the liquidation of FPL Group or of certain mergers or consolidations or of certain transfers of FPL Group's assets. These agreements are intended to assure FPL of the continued services of key officers. The agreements provide that each officer shall be employed by FPL Group or one of its subsidiaries in his or her then current position, with compensation and benefits at least equal to the then current base and incentive compensation and benefit levels, for an employment period of four, and in certain cases five, years after a change of control occurs.
In the event that the officer's employment is terminated (except for death, disability or cause) or if the officer terminates his or her employment for good reason, as defined in the agreement, the officer is entitled to severance benefits in the form of a lump sum payment equal to the compensation due for the remainder of the employment period or for two years, whichever is longer. Such benefits would be based on the officer's then base salary plus an annual bonus at least equal to the average bonus for the two years preceding the change of control. The officer is also entitled to the maximum amount payable under all long-term incentive compensation grants outstanding, continued coverage under all employee benefit plans, supplemental retirement benefits and reimbursement for any tax penalties incurred as a result of the severance payments.
Director Compensation
All of the directors of FPL are salaried employees of FPL and do not receive any additional compensation for serving as a director.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
FPL Group owns 100% of FPL's common stock. FPL's directors and executive officers beneficially own shares of common stock as follows:
Item 13.
Item 13. Certain Relationships and Related Transactions
None
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 10 Consolidated Statements of Income 11 Consolidated Balance Sheets 12 Consolidated Statements of Cash Flows 13 Notes to Consolidated Financial Statements 14-24
2. Financial Statement Schedules
Schedules are omitted as not applicable or not required.
3. Exhibits including those Incorporated by Reference
Exhibit Number Description
1(a) Underwriting Agreement between St. Lucie County, Florida and Citicorp Securities, Inc. dated March 6, 1995
1(b) Underwriting Agreement between Dade County Industrial Development Authority and Citicorp Securities, Inc., AIBC Investment Services Corp., Artemis Capital Group, Inc. and FAIC Securities, Inc. dated March 6, 1995
*3(i)a Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)b Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992 (filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)c Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992 (filed as Exhibit 3(i)c to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)d Amendment to FPL's Restated Articles of Incorporation dated March 12, 1993 (filed as Exhibit 3(i)d to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)e Amendment to FPL's Restated Articles of Incorporation dated June 16, 1993 (filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)f Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993 (filed as Exhibit 3(i)f to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(i)g Amendment to FPL's Restated Articles of Incorporation dated November 30, 1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31, 1993, File No. 1-3545)
*3(ii) Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated May 1, 1992, File No. 1-3545)
*4(a) Mortgage and Deed of Trust dated as of January 1, 1944, and Ninety-five Supplements thereto between FPL and Bankers Trust Company and The Florida National Bank of Jacksonville (now First Union National Bank of Florida), Trustees (as of September 2, 1992, the sole trustee is Bankers Trust Company) (filed as Exhibit B-3, File No. 2-4845; Exhibit 7(a), File No. 2-7126; Exhibit 7(a), File No. 2-7523; Exhibit 7(a), File No. 2-7990; Exhibit 7(a), File No. 2-9217; Exhibit 4(a)-5, File No. 2-10093; Exhibit 4(c), File No. 2-11491; Exhibit 4(b)-1, File No. 2-12900; Exhibit 4(b)-1, File No. 2-13255; Exhibit 4(b)-1, File No. 2-13705; Exhibit 4(b)-1, File No. 2-13925; Exhibit 4(b)-1, File No. 2-15088; Exhibit 4(b)-1, File No. 2-15677; Exhibit 4(b)-1, File No. 2-20501; Exhibit 4(b)-1, File No. 2-22104; Exhibit 2(c), File No. 2-23142; Exhibit 2(c), File No. 2-24195; Exhibit 4(b)-1, File No. 2-25677; Exhibit 2(c), File No. 2-27612; Exhibit 2(c), File No. 2-29001; Exhibit 2(c), File No. 2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c), File No. 2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File No. 2-41312; Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-6502; Exhibit 2(c), File No. 2-48679; Exhibit 2(c), File No.
2-49726; Exhibit 2(c), File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No. 2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228; Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No. 2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767; Exhibit 4(b), File No. 2-71542; Exhibit 4(b), File No. 2-73799; Exhibits 4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c), File No. 2-77629; Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669; Exhibit 99(a) to Post-Effective Amendment No. 1 to Form S-3, File No. 33-46076; Exhibit 4(b) to Form 10-K for the year ended December 31, 1993, File No. 1-3545; and Exhibit 4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545)
12 Computation of Ratios
23 Independent Auditors' Consent
27 Financial Data Schedule
* Incorporated herein by reference
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 Power & Light Company
PAUL J. EVANSON Paul J. Evanson President and Director
Date: March 20, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.