Carolina Power and Light Company.

Carolina Power and Light Company serves over one million customers in North and South Carolina, yet is overshadowed by other major southeastern utilities. Our author discusses the current strategic initiatives of CP&L and the steps they are taking to position their utility for the future.

Originally chartered in 1908, Carolina Power and Light (CP&L) was formed by the merger of three existing utilities - Raleigh Electric Company, Central Carolina Power Company and Consumers Light and Power Company. The merged company was owned by Electric Bond and Share Company.

In 1926, Electric Bond and Share Company merged with Yadkin River Power Company in South Carolina, Ashville Power and Light, Pigeon River Power Company and Carolina Power Company. It was this 1926 merger which defines CP&L as it is comprised today. There was also a 1952 merger with Tide Water Power Company.

Today, CP&L serves over 1 million electric customers in North and South Carolina, and is headquartered in Raleigh, North Carolina. CP&L employs approximately 7,200. Of their approximately 66,200 shareholders, 27,000 live in North Carolina and 5,000 in South Carolina.

CP&L owns 9,613 MW of installed generation capacity, of which 55% is coal, 32% is nuclear, 2% hydro and 11% oil, gas and propane fired. Both their summer and winter record peak demands are slightly over 10,000 MW.

While CP&L may not be the strongest utility in the Carolinas, and must compete with a much larger Duke Power, they are implementing what they believe to be the necessary strategies to ensure their future.

CP&L VISION AND STRATEGIC PLAN

CP&L's corporate vision is to be a leader in four critical areas:

1. Cost, reliability and quality of operations 2. Services to customers 3. Success for employees 4. Returns for investors

This vision is to be carried out through the implementation of a five-part strategic plan.

To Aggressively Lower Costs While Emphasizing High Levels of Performance, Safety and Environmental Stewardship 

Success in this strategic area during 1995 was highlighted by the establishment of a world record for continuous operations of a boiling water nuclear reactor - 581 days at the Brunswick Unit 2 plant. They also received a "Return on Environment" Partnership award from Betz Laboratories recognizing the Harris nuclear plant's success in solving environmental challenges. In 1989, downsizing efforts began when the workforce totalled 9,000. Today, the total is 7,200 and by the year 2000, the goal is to reduce the workforce to 5,000. Many of these positions have been eliminated by closing offices in some of the smaller towns which CP&L serves, raising questions about customer service and employee loyalty.

Further cost reduction opportunities have been found through shared services, rotation of employees to different locations for planned outages and repairs, and the use of information technology projects in transmission, marketing, customer service and human resources. These changes are taking place during a time in which an industry record of 13.5 million man-hours were worked without a lost time accident.

Please refer to table one for CP&L rate comparison to the average rates of the cooperatives which compete with CP&L, Duke Power and North Carolina Power, which is a wholly owned subsidiary of Virginia Electric Power Company.

To Aggressively Market Electricity to Significantly Increase Profitable Sales

Total energy sales in 1995 increased by 9.5%, partly due to the increased sales to power marketers and sales to other utilities. Much of the remainder of the increase was attributed to the emphasis on water heater, heat pump and outdoor lighting sales goals. Direct marketing was used to promote the use of electric equipment rather than mass media, and a TeleSupport center was opened to promote marketing programs and answer sales related calls.

To Create Superior Value for our Shareholders

CP&L shareholders experienced a 30% increase in the price per share of common stock during 1995, and saw their earnings per share increase to $2.48 over a 1994 amount of $2.03. These results were due to several factors, including efficiency improvement efforts by all departments, reduced fuel costs, and increases in operating revenues. CP&L has also repurchased 8.6 million share of common stock over the last two years.

To Control Our Own Destiny by Defining Our Industry

Three important tenets outline the CP&L position regarding the restructuring of the electric utility industry. First, CP&L supports both regulatory and competitive rules that are fair to all customer classes and investors. Second, they believe that retail wheeling could disassemble a utility system that has worked well for decades. "Cherry picking" of large industrial customers would result in cost increases for residential and small commercial customers. Third, CP&L supports gradual, carefully studied changes that would benefit all customers.

To date, there has been no official legislative consideration of utility restructuring. However, the issue is expected to be pursued in the 1997 "long" session of the N.C. Legislature by 85 industries seeking electricity choices. They have formed a coalition and held meetings to coordinate their positions and promotional activities. Similarly, the N.C. utility industry has discussed their various positions on restructuring efforts at the Federal level.

The NC Utilities Commission is reviewing the changes in the industry, but has not shown any inclination to move forward at this time. Commissioner Duncan said in Washington and to the NCEMC Annual Meeting in April 1996, the state of North Carolina "enjoys a reliable supply of competitively priced electricity" and that a number of equity issues need to be assured prior to enactment of retail competition.

The NCUC has solicited comments from ten regulated electric utilities regarding implementation of FERC Orders 888 and 889. The deadline for filing initial comments was July 16, 1996. They support the concept of greater wholesale competition because of potential benefits to consumers. However, the nature of the benefits and any offsetting costs remains unclear.

To Emphasize a Performance-Oriented Culture

Three primary initiatives of their CP&L human resources plan are empowerment, diversity and performance management. They want employees to think like owners of the company. Their performance management program encompasses the establishment of results-oriented performance expectations each year by managers and employees, expectations are tied to the company's business goals, and performance is evaluated against those expectations. CP&L encourages the use of teams of employees with diverse experiences and [TABULAR DATA FOR FIGURE ONE OMITTED] qualifications. They also conduct annual employee opinion surveys to determine how CP&L may become a more effective organization.

CP&L POSITIONING FOR THE FUTURE

CP&L has taken several steps to better positions themselves for the uncertain industry future. They have reached agreements with NCEMC and several large industries that will have a positive effect on retaining loads in the future. Long term power purchase agreements have been reached with Duke Power and Indiana-Michigan Power Company to meet future load growth and influence costs.

CP&L has also been pursuing long-term contracts with wholesale customers which represent 16% of their 1995 revenues.

Diversification efforts have been made into the telecommunications business in both North and South Carolina. They established a wholly-owned subsidiary, Caro-Net, Inc. which owns 10% interest in Bell South Carolinas PCS. This provides CP&L with a license to provide wireless communications. This places them in a position to possibly provide for profitable wireless communications to others as markets develop. Also, I expect them to provide these services for themselves in the operations of their company. They also own a fiber optic loop and are a service provider by leasing space.

CONCLUSIONS

CP&L's strategic plan will guide the company through 1999, and they will be successful in reaching their goals. Over the next several years they will concentrate on protecting and increasing their market share, continuing to enhance shareholder value, executing contracts with other utilities and industries, spurring economic development, increasing marketing efforts, pursuing more subsidiary ownership and controlling costs. They will have no rate increases and will aggressively seek ways to lower rates.

CP&L will position themselves to acquire other utility territory. However, they will be non-aggressive until they have their "house" in better order. CP&L will be a threat to other utilities and cooperatives before the year 2000.

Ervin Taylor has been employed as a district manager with Four County Electric Membership Corp. since 1992. Prior to that he was with CP&L for 27 years, serving as lineman, serviceman, crewleader and service representative. As service representative from 1979 to 1992, he was responsible for all aspects of customer service including community and local government relations.

Taylor is co-founder and past president of the Burgaw Area Chamber of Commerce, past president of the Burgaw Rotary Club, and former chairman of the NC Prison Department Community Resource Council. He and his wife of 27 years have three daughters, three sons-in-law, one grandchild and two more on the way.