[Federal Register Volume 65, Number 166 (Friday, August 25, 2000)]
[Notices]
[Pages 51869-51874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-21750]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 35-27215]


Filings Under the Public Utility Holding Company Act of 1935, as 
Amended (``Act'')

August 21, 2000.
    Notice is hereby given that the following filing(s) has/have been 
made with the Commission pursuant to provisions of the Act and rules 
promulgated under the Act. All interested persons are referred to the 
application(s) and/or declaration(s) for complete statements of the 
proposed transaction(s) summarized below. The application(s) and/or 
declaration(s) and any amendment(s) is/are available for public 
inspection through the Commission's Branch of Public Reference.
    Interested persons wishing to comment or request a hearing on the 
application(s) and/or declaration(s) should submit their views in 
writing by September 14, 2000, to the Secretary, Securities and 
Exchange Commission, Washington, DC 20549-0609, and serve a copy on the 
relevant applicant(s) and/or declarant(s) at the address(es) specified 
below. Proof of service (by affidavit or, in the case of an attorney at 
law, by certificate) should be filed with the request. Any request for 
hearing should identify specifically the issues of facts or law that 
are disputed. A person who so requests will be notified of any hearing, 
if ordered, and will receive a copy of any notice or order issued in 
the matter. After September 14, 2000, the application(s) and/or 
declaration(s), as filed or as amended, may be granted and/or permitted 
to become effective.
CP&L Energy, Inc., et al. (70-9659)
    CP&L Energy, Inc.(``CP&L Energy''), a public utility holding 
company claiming an exemption under section 3(a)(1) of the Act under 
rule 2 under the Act,

[[Page 51870]]

Carolina Power & Light Company (``CP&L''), an electric public utility 
subsidiary of CP&L Energy, North Carolina Natural Gas Corporation 
(``NCNG''), a gas public utility subsidiary of CP&L Energy, Strategic 
Resource Solutions Corp., a nonutility subsidiary, of CP&L Energy, all 
located at 411 Fayetteville Street Mall, Raleigh, North Carolina 27601, 
and Florida Progress Corporation (``Florida Progress''), a public 
utility holding company claiming an exemption under section 3(a)(1) of 
the Act under rule 2 under the Act, its utility subsidiary Florida 
Power Corporation (``Florida Power''), and its nonutility subsidiaries 
Progress Capital Holdings, Inc., Florida Progress Funding Corporation, 
and FPC Del, Inc. (collectively, ``Applicants''), all located at One 
Progress Plaza, St. Petersburg, Florida 33701, have filed an 
application-declaration under sections 6(a), 7, 9(a), 10, 12(b), 12(c), 
and 13(b) of the Act and rules 43, 45(a), 46, 87, 90, and 91 under the 
Act.

I. Summary and Background

    In a separate proceeding before the Commission in file no. 70-9643, 
CP&L Energy is seeking authority to acquire Florida Progress 
(``Merger''). Following consummation of the Merger, CP&L Energy will 
directly or indirectly own all of the issued and outstanding common 
stock of three public utilities, CP&L, Florida Power and NCNG 
(collectively, ``Utility Subsidiaries'') and will register under 
section 5 of the Act. In connection with the Merger and subsequent 
registration, Applicants request authority to engage in a variety of 
financing and other transactions involving CP&L, the Utility 
Subsidiaries and CP&L's nonutility Subsidiaries (``Nonutility 
Subsidiaries'') \1\ through September 30, 2003 (``Authorization 
Period'').
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    \1\ As used in this notice, the term ``Nonutility Subsidiaries'' 
means each of the direct and indirect nonutility subsidiaries of 
CP&L Energy as of the effective date of the Merger. The term 
``Nonutility Subsidiaries'' also includes any direct or indirect 
nonutility subsidiary acquired or formed by CP&L Energy after the 
effective date of the Merger in a transaction that either has been 
approved by the Commission in this or a separate proceeding or is 
exempt under the Act or the rules under the Act. The Utility 
Subsidiaries and Nonutility Subsidiaries are referred to in this 
notice as the ``Subsidiaries''.
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    The proceeds from the financing proposed by Applicants will be used 
for general corporate purposes, including (i) financing, in part, 
investments by and capital expenditures of CP&L Energy and its 
Subsidiaries, including, without limitation, the funding of future 
investments in exempt wholesale generators (``EWGs''), foreign utility 
companies (``FUCOs''),\2\ and rule 58 subsidiaries, (ii) repayment, 
redemption, refunding or purchase by CP&L Energy or any Subsidiary of 
any of its own securities in accordance with rule 42, and (iii) 
financing working capital requirements of CP&L Energy and its 
Subsidiaries.
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    \2\ Applicants state that the aggregate amount of proceeds of 
financing and guarantees proposed in this matter which are used to 
fund investments in EWGs and FUCOs will not, when added to CP&L 
Energy's ``aggregate investment'' (as defined in rule 53) in all 
such entities at any point in time, exceed 50% of CP&L Energy's 
``consolidated retained earnings'' (also as defined in rule 53).
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II. Financing Transactions

    Applicants request authority to engage in a variety of financing 
transactions through September 30, 2003 (``Authorization Period'').

A. CP&L Energy

    CP&L Energy requests authority to issue and sell from time to time 
its common stock (``Common Stock''), preferred securities (``Preferred 
Securities'') and debentures (``Debentures''). The amount of these 
securities issued will not in an aggregate amount exceed $3.8 billion 
(``Debenture and Stock Limitation''), in addition to outstanding 
amounts owed under credit facilities more particularly described below 
established to fund the Merger (``Acquisition Debt''). In addition, 
CP&L Energy proposes to incur short-term debt (``Short-Term Debt'') in 
amounts not to aggregate more than $1 billion at any one time 
outstanding. CP&L Energy states that the aggregate outstanding 
principal amount of the Acquisition Debt, Debentures, and Short-Term 
Debt will not exceed $5 billion.
1. Acquisition Debt
    CP&L Energy states that the Acquisition Debt will be incurred 
through unsecured borrowings from banks or other institutional lenders 
under credit lines totaling $3.75 billion. Applicants request authority 
for CP&L to maintain these credit arrangements, and to renew or extend 
the maturities of borrowings under these facilities. These borrowings 
will have maturities of up to three years.
2. Common Stock
    Applicants request authority for CP&L Energy to issue and sell up 
to $3.8 billion worth of its common stock (``Common Stock''). The price 
and terms of sales of Common Stock will be negotiated, or will be based 
upon or determined by competitive capital markets. CP&L Energy may also 
issue Common Stock or options, warrants or other stock purchase rights 
exercisable for Common Stock in public or privately-negotiated 
transactions as consideration for the equity securities or assets of 
other companies, provided that the acquisition of any such equity 
securities or assets has been either authorized by the Commission or is 
exempt under the Act or the rules under the Act.\3\
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    \3\ For purposes of the Debenture and Stock Limitation, Common 
Stock will be valued either at its market value on the day before 
closing of the acquisition, or at the average high and low market 
price for a period prior to the closing, as negotiated by the 
parties.
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    CP&L Energy also proposes to issue Common Stock and/or purchase 
shares of Common Stock in the open market for purposes of reissuing 
such shares under plans maintained for stockholders, employees and 
directors. Specifically, CP&L Energy will adopt and maintain for its 
shareholders CP&L's existing Automatic Dividend Reinvestment and 
Customer Stock Purchase Plan (``DRP''), dated January 15, 1993. The DRP 
will provide CP&L Energy's shareholders and other parties with a simple 
and convenient method of purchasing shares of Common Stock. The 
purchase price of shares purchased under the DRP on the open market 
will be the weighted average price (including brokerage commissions) of 
all shares acquired by the managing bank during the relevant investment 
period. The purchase price of original issue shares will be the average 
of the high and low sale prices for Common Stock (on the composite tape 
as reported in The Wall Street Journal) on the day on which such shares 
are purchased.
    CP&L Energy also intends to maintain in effect CP&L's existing 
equity incentive plan (``Incentive Plan''), which authorizes grants of 
common stock, stock options and other stock-based awards to eligible 
executives and other key employees, as well as to directors of the 
company and its subsidiaries. The Incentive Plan is a broad umbrella 
plan that will allow CP&L Energy to adopt various sub-plans under which 
it may issue non-qualified stock options, incentive stock options, 
stock appreciation rights, restricted stock, performance units, 
performance shares and other stock unit awards or stock-based forms of 
awards. For example, CP&L has adopted and issues performance-based 
shares under a performance share sub-plan. It also issues restricted 
stock under restricted stock agreements with individual employees.
    Shares issued under the Incentive Plan and the DRP are subject to 
the Debenture and Stock Limitation. For purposes of this limitation, 
shares

[[Page 51871]]

issued under all stock-based plans will be valued at the closing price 
on the New York Stock Exchange on the last trading day before the award 
and other securities will be valued using a reasonable and consistent 
method applied at the time of the award.
3. Preferred Securities and Debentures
    CP&L Energy states that it may issue Preferred Securities and 
Debentures directly or through one or more special purpose financing 
subsidiaries more particularly described below. Preferred Securities 
may be issued in one or more series with rights, preferences, and 
priorities as may be designated in the instrument creating each series, 
as determined by CP&L Energy's board of directors. All Preferred 
Securities will be redeemed no later than 50 years after the date of 
issuance thereof.
    The maturity dates, interest rates, redemption and sinking fund 
provisions and conversion features, if any, with respect to the 
Debentures of a particular series, as well as any associated placement, 
underwriting or selling agent fees, commissions and discounts, if any, 
will be established by negotiation or competitive bidding. Debentures 
will have maturities ranging from one to 50 years.
4. Short-Term Debt
    Applicants state that Short-Term Debt may take the form of 
commercial paper, which will be sold to dealers at the annual discount 
rate prevailing at the date of the sale for commercial paper of 
comparable quality and maturities. Short-Term Debt may also include 
lines of credit from banks. Applicants state that Short-Term Debt will 
mature in one year or less from the date of issuance.
5. Guarantees
    Applicants request authority for CP&L Energy to provide guarantees 
and other forms of credit support on behalf of or for the benefit of 
its subsidiaries in an aggregate principal or nominal amount not to 
exceed $750 million at any one time outstanding (``CP&L Energy 
Guarantee Limit''), subject to the limitations of rules 53 and 58. 
Applicants state that CP&L Energy will charge its subsidiary a fee for 
each guarantee that is provide on its behalf that will not exceed the 
cost of obtaining the liquidity necessary to perform the guarantee for 
the period of time that guarantee remains outstanding.

B. Utility Subsidiaries

1. Debt and Preferred Securities
    Applicants request authority for CP&L and NCNG to issue and reissue 
notes evidencing up to $1 billion and $125 million of indebtedness 
outstanding at any one time, respectively, having maturities of two 
years or less. In addition, Applicants request authority for NCNG to 
sell long-term debt securities and trust preferred securities having 
maturities of up to 50 years. NCNG will not issue more than $750 
million of these securities at any time outstanding.
2. Utility Money Pool
    NCNG and CP&L propose to borrow from CP&L Energy, Florida Power and 
each other, and Florida Power and CP&L Energy propose to lend to the 
other Utility Subsidiaries through a system money pool which Applicants 
propose to establish (``Utility Money Pool'').\4\ CP&L and NCNG 
requests authority to borrow through the Utility Money Pool up to $400 
million and $125 million, respectively, at any time outstanding. Loans 
would be repayable on demand and, in any event, not later than one year 
after the date of the loan.
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    \4\ Applicants state that borrowings by Florida Power under the 
Utility Money Pool are exempt under rule 52(a).
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    Under the proposed terms of the Utility Money Pool, short-term 
funds would be available from surplus funds in the treasuries of the 
Utility Money Pool participants (``Internal Funds'') and proceeds from 
bank borrowings or the sale of commercial paper (``External Funds''). 
Utility Money Pool participants that borrow would borrow pro rata from 
each participant that lends, in the proportion that the total amount 
loaned by each such lending company bears to the total amount then 
loaned through the Utility Money Pool. In addition, when more than one 
fund source is used for Utility Pool loans, each borrower would borrow 
pro rata from each such fund source in the same proportion that the 
amount of funds provided by that fund source bears to the total amount 
of funds available to the Utility Money Pool.
    The interest rate applicable to loans of Internel Funds will be the 
rates for high-grade unsecured 30-day commercial paper sold through 
dealers by major corporations as quoted in The Wall Street Journal. The 
interest rate applicable of loans of External Funds will equal the 
lending company's cost for such External Funds.\5\ The rate applicable 
to loans comprised of both Internal and External Funds will be a 
weighted average of the rates determined as described above.
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    \5\ The applicable interest rate on loans of External Funds 
provided by more than one Utility Money Pool participant will be a 
composite rate equal to the weighted average of the costs incurred 
by those participants.
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    The cost of compensating balances, if any, and fees paid to banks 
to maintain credit lines and accounts by Utility Money Pool 
participants lending External Funds to the Utility Money Pool would 
initially be paid by the participants maintaining such lines. The 
portion of these costs that are allocable to loans in the Utility Money 
Pool will be retroactively allocated every month to the companies 
borrowing those External Funds, in proportion of their respective daily 
outstanding borrowings of those funds.
    Funds not required by the Utility Money Pool to make loans (with 
the exception of funds required to satisfy the Utility Money Pool's 
liquidity requirements) would ordinarily be invested in one or more 
short-term investments, including: (1) Interest-bearing accounts with 
banks; (ii) obligations issued or guaranteed by the U.S. government 
and/or its agencies and instrumentalities, including obligations under 
repurchase agreements; (iii) obligations issued or guaranteed by any 
state or political subdivision of that state, provided that those 
obligations are rated not less than ``A'' by a nationally recognized 
rating agency; (iv) commercial paper rated not less than ``A-1'' or 
``P-1'' or their equivalent by a nationally recognized rating agency; 
(v) money market funds; (vi) bank certificates of deposit; (vii) 
Eurodollar funds; and (viii) such other investments as are permitted by 
section 9(c) of the Act and Rule 40 under the Act.
    CP&L Energy's service company subsidiary, CP&L Service Company LLC, 
will administer the Utility Money Pool on an ``at-cost'' basis.

C. Nonutility Subsidiaries

1. Money Pool
    CP&L Energy intends to lend to and the Nonutility Subsidiaries 
intend to borrow from CP&L Energy and each other money through a system 
money pool (``Nonutility Money Pool''). \6\ Applicants state that the 
Nonutility Money Pool will be operated on the same terms as the Utility 
Money Pool, except that CP&L Energy's funds made available to the two 
Money Pools will be made available to the Utility Money Pool first and 
afterwards to the Nonutility Money Pool.
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    \6\ Applicants state that borrowings by the Nonutility 
Subsidiaries under the Nonutility Money Pool will be exempt under 
rule 52.
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2. Other Borrowings
    Applicants request authority for each Nonutility Subsidiary that is 
not wholly

[[Page 51872]]

owned by CP&L Energy to borrow from CP&L Energy and the other 
Nonutility Subsidiaries at interest rates and maturities designed to 
provide a return of not less than the lending company's effective cost 
of capital. Applicants state that none of these borrowing Nonutility 
Subsidiaries will sell any services to any associated Nonutility 
Subsidiary (unless that company falls within one of the categories, 
described below, of companies to which goods and services may be sold 
on an other than at-cost basis).
3. Existing Guarantees
    Applicants request authority for Florida Progress and its 
nonutility subsidiaries to continue, extend and/or replace all 
guarantees and other forms of credit support outstanding on the date 
the proposed Merger is effected relating to credit facilities, other 
financing arrangements of certain nonutility subsidiaries, and other 
existing obligations, described in Exhibit A to this notice (``Existing 
Guarantees''). The aggregate maximum exposure under the Existing 
Guarantees is approximately $2.2 billion.
4. New Guarantees
    In addition to the Existing Guarantees, the Nonutility Subsidiaries 
request authority to provide guarantees and other forms of credit 
support on behalf of or for the benefit of other Nonutility 
Subsidiaries in an aggregate principal or nominal amount not to exceed 
$500 million at any one time outstanding (``Nonutility Subsidiary 
Guarantee Limit''), subject to the limitations of rule 58. A Nonutility 
Subsidiary will charge its associate company a fee for each guarantee 
that is provided on its behalf that will not exceed the cost of 
obtaining the liquidity necessary to perform the guarantee for the 
period of time the guarantee remains outstanding.

D. Hedging Transactions

    CP&L Energy and the Subsidiaries request authority to enter into 
hedging transactions (``Interest Rate Hedges'') with respect to their 
existing indebtedness. Interest Rate Hedges will involve the use of 
financial instruments commonly used in capital markets, such as 
interest rate swaps, caps, collars, floors, and structured notes (i.e., 
a debt instrument in which the principal and/or interest payments are 
indirectly linked to the value of an underlying asset or index), or 
transactions involving the purchase or sale, including short sales, of 
U.S. Treasury obligations. Applicants state that the transactions will 
be for fixed periods and stated notional amounts that in no case will 
the notional principal amount of any interest rate swap exceed that of 
the underlying debt instrument and related interest rate exposure.
    In addition, Applicants request authority for CP&L Energy and the 
Subsidiaries to enter into Anticipatory Hedges. The Anticipatory Hedges 
would be utilized to fix and/or limit the interest rate risk associated 
with any new issuance through: (1) A forward sale of exchange-traded 
U.S. Treasury futures contracts, U.S. Treasury obligations and/or a 
forward swap; (ii) the purchase of put options on U.S. Treasury 
obligations (``Put Options Purchase''); (iii) a Put Options Purchase in 
combination with the sale of call options on U.S. Treasury obligations; 
and (iv) transactions involving the purchase or sale, including short 
sales, of U.S. Treasury obligations; and/or other derivative or cash 
transactions, including, but not limited to structured notes, caps and 
collars.

E. Energy-Related Activities

    Nonutility Subsidiaries request authority to invest up to $500 
million (``Investment Limitation'') in the acquisition or construction 
of certain types of nonutility energy-related assets that are 
incidental to their energy marketing brokering or trading activities 
(``Energy-Related Assets'') or in the equity securities of existing or 
new companies substantially all of whose physical properties consist or 
will consist of those Energy-Related Assets.\7\ Applicants state that, 
if common stock is issued in connection with these acquisitions, the 
market value of that stock on the date of its issuance will be used for 
purposes of the Investment Limitation.
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    \7\ Energy-Related Assets include natural gas production, 
gathering, processing, storage and transportation facilities and 
equipment, liquid oil reserves and storage facilities, and 
associated facilities.
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F. Financing Subsidiaries

    CP&L Energy and the Subsidiaries request authority to acquire the 
equity securities of one or more special-purpose subsidiaries 
(``Financing Subsidiaries''), each of which will be organized solely to 
issue securities to support the businesses of CP&L Energy and the 
Subsidiaries. Applicants state that financing Subsidiaries may 
dividend, loan or otherwise transfer the proceeds of such financings to 
or as directed by the financing Subsidiary's parent company; provided, 
however, that a Financing Subsidiary of a Utility Subsidiary will 
dividend, loan or otherwise transfer proceeds of a financing only to 
that Utility Subsidiary.
    Applicants state that the amount of long-term debt or preferred 
securities issued by a Financing Subsidiary will be counted against the 
limitation on amounts of similar types of securities applicable to the 
Financing Subsidiary's parent company, to the extent the parent company 
is a guarantor of the securities. Applicants propose that guarantees by 
a Financing Subsidiary's parent company not be counted toward the 
guaranty limit applicable to it described above, if any.

G. Payment of Dividends by Nonutility Subsidiaries

    Applicants note that there may be situations in which it or one or 
more Nonutility Subsidiaries will have unrestricted cash available for 
distribution in excess of the company's current and retained earnings. 
Accordingly, Applicants also request authority for each Nonutility 
Subsidiary to pay dividends with respect to its securities, and/or 
acquire, retire or redeem any of its securities held by associate 
companies from time to time out of capital and unearned surplus 
(including revaluation reserve), to the extent permitted under 
applicable corporate law.

III. Other Transactions

A. Intermediate Subsidiaries

    Applicants request authority for CP&L Energy to acquire, directly 
or indirectly, the one or more intermediate subsidiaries 
(``Intermediate Holding Companies'') to be organized exclusively for 
the purpose of acquiring, financing, and holding the securities of 
existing or future Nonutility Subsidiaries. The Intermediate 
Subsidiaries may also engage in certain development and administrative 
activities during the Authorization Period relating to the Nonutility 
Subsidiaries.\8\ Applicants request authority for the Intermediate 
Subsidiaries to expend up to $250

[[Page 51873]]

million during the Authorization Period on these activities.
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    \8\ Applicants state that development activities include: Due 
diligence and design review; market studies; preliminary 
engineering; site inspection; preparation of bid proposals, 
including posting of bid bonds; application for required permits 
and/or regulatory approvals; acquisition of site options and options 
on other necessary rights; negotiation and execution of contractual 
commitments; negotiation of financing commitments; and other 
preliminary activities as may be required in connection with the 
purchase, acquisition, financing or construction of facilities or 
the acquisition of securities of or interests in new businesses. 
Applicants also state that administrative activities include ongoing 
personnel, accounting, engineering, legal, financial, and other 
support activities necessary to manage CP&L Energy's investments in 
Nonutility Subsidiaries.
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B. Changes in Capital Structure

    Applicants request that each of the wholly-owned Subsidiaries be 
authorized to change the terms of its authorized stock capitalization 
by an amount deemed appropriate by CP&L Energy or its direct parent 
company. As examples, Applicants state that a Subsidiary may choose to 
change the par value of a capital security or engage in a reverse stock 
split. Any change in capitalization will be subject to the approval of 
the State commission in the State in which the Subsidiary is 
incorporated and doing business.

C. Rule 58 Subsidiaries Operation Outside the United States

    Applicants also request authority for Subsidiaries engaged or 
formed in engage in activities permitted by rule 58 to engage in those 
activities, including energy marketing, energy management services and 
consulting services, anywhere outside the United States.\9\
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    \9\ Energy marketing activities include the brokering and 
marketing of electricity, natural gas and other energy commodities. 
Energy management services include the marketing, sale, 
installation, operation and maintenance of various products and 
services related to energy management and demand-side management, 
including energy and efficiency audits; facility design and process 
control and enhancements; construction, installation, testing, sales 
and maintenance of (and training client personnel to operate) energy 
conservation equipment; design, implementation, monitoring and 
evaluation of energy conservation programs; development and review 
of architectural, structural and engineering drawings for energy 
efficiencies, design and specification of energy consuming 
equipment; general advice on programs; the design, construction, 
installation, testing, sales and maintenance of new and retrofit 
heating, ventilating, air conditioning, electrical and power 
systems, alarm and warning systems, motors, pumps, lighting, water, 
water-purification and plumbing systems, and related structures, in 
connection with energy-related needs; and the provision of services 
and products designed to prevent, control, or mitigate adverse 
effects of power disturbances on a customer's electrical systems. 
Consulting services include engineering, consulting and other 
technical support services with respect to energy-related 
businesses, as well as for individuals. These services include 
technology assessments, power factor correction and harmonics 
mitigation analysis, meter reading and repair, rate schedule design 
and analysis, environmental services, engineering services, billing 
services (including consolidation billing and bill disaggregation 
tools), risk management services, communications systems, 
information systems/data processing, system planning, strategic 
planning, finance, feasibility studies, and other similar services.
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D. Payment of Dividends by CP&L Energy and NCNG

    Applicants request authority: (1) For CP&L Energy to pay dividends 
out of capital and unearned surplus in an amount equal to the sum of 
(a) CP&L's consolidated retained earnings prior to the establishment of 
CP&L Energy as the holding company over CP&L (``Reorganization''),\10\ 
(b) Florida Progress's retained earnings prior to the Merger,\11\ and 
(c) NCNG's retained earnings prior to the acquisition of NCNG by 
CP&L,\12\ and (2) for NCNG to pay dividends out of capital and unearned 
surplus in an amount equal to its retained earnings just prior to its 
acquisition by CP&L in July 1999.
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    \10\ The Commission recently authorized the establishment of 
CP&L Energy as the holding company over CP&L. See Holding Co. Act 
Release No. 27188 (June 15, 2000).
    \11\ Applicants state that, as of June 30, 2000, the retained 
earnings of Florida Progress was approximately $819 million.
    \12\ Applicants state that NCNG's had approximately $63.3 
million retained earnings prior to its acquisition.
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    Applicants state that NCNG seeks authority to pay dividends to CP&L 
Energy out of capital and unearned surplus in an amount equal to NCNG's 
retained earnings prior to its acquisition because its retained 
earnings were recharacterized as capital due to ``push down'' 
accounting when the company was acquired. Applicants state that 
authority is sought for CP&L Energy to pay dividends out of capital and 
unearned surplus in amounts equal to the sum of CP&L's pre-
Reorganization consolidated retained earnings, Florida Progress' pre-
Merger retained earnings, and NCNG's retained earnings prior to the 
acquisition of NCNG by CP&L because dividends by CP&L and Florida 
Progress out of their retained earnings, and by NCNG out of its capital 
and unearned surplus in amounts equal to its preexisting retained 
earnings, will be reflected on CP&L Energy's books as returns of 
capital, not as increases in earnings.\13\
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    \13\ Over time, CP&L Energy will record its share of the 
earnings of its subsidiaries under the equity method of accounting 
as prescribed in rule 26(c) under the Act.
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    Applicants also request authority for CP&L Energy to pay dividends 
out of earnings before the amortization of goodwill resulting from the 
Merger\14\ and the acquisition of NCNG, and for NCNG to pay dividends 
out of earnings before the amortization of goodwill resulting from its 
acquisition by CP&L.\15\ CP&L Energy states that its request to pay 
dividends of amounts reflecting NCNG's exclusion of its amortization of 
goodwill from earnings is based on the fact that dividend payments by 
NCNG of those amounts may be recorded as a return of capital of CP&L 
Energy, not an increase in its earnings. Applicants state that this 
goodwill will be amortized over a period of up to 40 years.\16\
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    \14\ Applicants state that CP&L Energy will record the 
amortization of goodwill arising from the Merger on its own books 
because ``push down'' accounting will not be used to account for the 
Merger, under an exception provided by accounting guidelines for 
companies with significant amounts of publicly-held debt and 
preferred stock.
    \15\ As noted above, NCNG is recording the amortization of 
goodwill resulting from its acquisition by CP&L because ``push 
down'' accounting was used to account for the acquisition.
    \16\ Applicants state that approximately $240 million was 
recorded as goodwill on NCNG's books as a result of the company 
being acquired in July of 1999, and approximately $3 billion could 
be allocated to goodwill on CP&L Energy's books as a result of the 
Merger.
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E. Tax Allocation Agreement

    Applicants request authority for an agreement that does not fully 
comply with the requirements of rule 45(c) for the allocation between 
CP&L Energy and the Subsidiaries of consolidated taxes. Applicants 
state that, under the proposed agreement, CP&L Energy would retain the 
benefit of tax losses created by CP&L Energy's interest expense on the 
Acquisition Debt.

F. Intrasystem Transactions

    Applicants propose that certain Nonutility Subsidiaries provide 
services and/or sell goods to each other at fair market prices 
determined without regard to cost under certain circumstances. 
Specifically, Applicants request an exemption where the purchasing 
Nonutility Subsidiary is:
    (1) a FUCO or foreign EWG which derives no part of its income, 
directly or indirectly, from the generation, transmission, or 
distribution of electric energy for sale within the United States;
    (2) an EWG which sells electricity at market-based rates which have 
been approved by the Federal Energy Regulatory Commission (``FERC''), 
provided that the purchaser is not one of the Utility Subsidiaries;
    (3) a qualifying facility (``QF'') within the meaning of the Public 
Utility Regulatory Policies Act of 1978, as amended (``PURPA'') that 
sells electricity exclusively (a) at rates negotiated at arms-length to 
one or more industrial or commercial customers purchasing such 
electricity for their own use and not for resale, and/or (b) to an 
electric utility company (other than one of the Utility Subsidiaries) 
at the purchaser's ``avoided cost'' as determined in accordance with 
the regulations under PURPA;
    (4) a domestic EWG or QF that sells electricity at rates based upon 
its cost of service, as approved by FERC or any state public utility 
commission having jurisdiction, provided that the purchaser thereof is 
not one of the Utility Subsidiaries; or

[[Page 51874]]

    (5) either (a) partially-owned by CP&L Energy, provided that the 
ultimate purchaser of such goods or services is not a Utility 
Subsidiary or CP&L Services (or any other entity that CP&L Energy may 
form whose activities and operations are primarily related to the 
provision of goods and services to the Utility Subsidiaries or CP&L 
Services), (b) engaged solely in the business of developing, owning, 
operating and/or providing services or goods to Nonutility Subsidiaries 
described in clauses (1) through (4) above, or (c) not a public utility 
operating within the United States and does not derive any material 
part of its income from sources within the United States.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.

Exhibit A

Existing Guarantees

    Florida Progress has unconditionally guaranteed all indebtedness of 
Progress Capital Holdings, Inc. (``Progress Capital''), one of its 
direct subsidiaries. Progress Capital currently has in place a $600 
million commercial paper facility supported by three revolving bank 
credit facilities: one $100 million facility and one $200 million 
facility under each of which Progress Capital may make borrowings with 
a term of up to 364 days, and a $300 million facility under which it 
may make borrowings with a term of up to five years. The $100 million 
facility and the $200 million facility have a current expiration date 
of November 16, 2000 and July 16, 2000, respectively, and the 5-year 
facility expires November 30, 2003. As of March 31, 1999, Progress 
Capital had issued an outstanding $366.6 million in commercial paper. 
These lines of credit were not drawn upon. In addition, Progress 
Capital has uncommitted bank bid facilities authorizing it to borrow 
and re-borrow, and has outstanding at any one time, up to $300 million 
principal amount of indebtedness with maturities of up to one year. As 
of March 31, 2000, there were $35 million in loans outstanding under 
these bid facilities. Progress Capital also has a private medium-term 
note program providing for the issuance of up to $844 million of fixed 
or floating interest rate notes with maturities ranging from nine 
months to 30 years. As of March 31, 2000, there were $444 million of 
notes outstanding under this program.
    Progress Capital has itself guaranteed an aggregate of $198.6 
million of payment obligations of an indirect subsidiary, MEMCO Barge 
Line, Inc. (``MEMCO''), under a synthetic lease covering barges and 
towboats. Florida Progress, Progress Capital, Electric Fuels and other 
subsidiaries of Progress Capital have guaranteed obligations and/or 
provided other forms of credit support in an aggregate amount of $133 
million on behalf of subsidiaries, including the obligations of MEMCO 
under various operating leases covering barges, obligations of Progress 
Capital and Electric Fuels under stand-by letters of credit covering 
workers' compensation, black lung and similar liabilities, and a 
guarantee of tax-exempt bonds issued by an industrial development 
authority in Louisiana to finance port facilities.
    Further, Florida Progress has also unconditionally guaranteed the 
sale of $300 million of quarterly income preferred securities 
indirectly issued by Progress Funding Corporation, one of its direct 
subsidiaries. Quarterly distributions are payable at the annual rate of 
7.10%.

[FR Doc. 00-21750 Filed 8-24-00; 8:45 am]
BILLING CODE 8010-01-M