Florida Progress Corporation

1899–1997

Florida Progress Corporation is a diversified holding company whose primary businesses are fuel supply and power. Its primary subsidiary, Florida Power Corporation, the state's second-largest utility, was supplying electricity to 1.3 million customers in 1997. Its service area was primarily in northern and central Florida, including the cities of Clearwater, St. Petersburg, and Winter Park. The electric utility accounted for 90 percent of Florida Progress's earnings; the remaining ten percent was contributed by the subsidiary Electric Fuels, a fuel supply and transportation company. Florida Progress had recently divested itself of its real estate and financial services subsidiaries and was expected to get rid of its failing life insurance company in the late 1990s.

Early History

Florida Progress was formed in 1982 as a holding company for Florida Power, for the purpose of diversifying beyond utility operations. Florida Power itself originated in 1899 as St. Petersburg Electric Light & Power Company. Its name was changed to St. Petersburg Lighting Company in 1915, to Pinellas County Power Company in 1923, and to Florida Power Corporation in 1927. Florida Power's parent company was General Gas & Electric Corporation, part of the Associated Gas & Electric System, one of the large utility holding companies prominent in the early 20th century.

In the 1920s and the 1930s the utility expanded through acquisitions of both investor-owned electric companies and municipal systems in Florida. Among the former purchases were Clearwater Lighting Company in 1923 and both Oklawaha Power Company and West Florida Power Company in 1935. Florida Power acquired several municipal electric systems in 1930, in New Port Richey, Dunnellon, and Branford, and in 1934 added the operations of four other small Florida communities.

The Public Utility Holding Company Act of 1935 eventually broke up the Associated Gas & Electric System, which included utilities in Georgia, New Jersey, New York, and Pennsylvania, as well as Florida. The act limited each holding company's operations to a single contiguous system, rather than the far-flung empires that many such companies had. The Securities and Exchange Commission, which administered the holding companies' divestiture, organized Associated Gas & Electric's Florida and Georgia operations into a single system. Florida Power became an independent, publicly-held company in 1945, with Georgia Power & Light Company as a subsidiary.

Growth in the 1950s and 1960s

In 1951 Florida Power acquired electrical operations in Madison, Monticello, and Perry, Florida, from Florida Power & Light Company. In 1957 it sold Georgia Power & Light to Georgia Power Company for about $11.8 million.

Florida Power's sales and earnings grew steadily during the 1960s, and the company gained a reputation for good management. Electric Light & Power, a trade magazine, named the company electric utility of the year in 1970. The utility, however, had a potential problem in its heavy dependence on imported oil to run its generating plants. Florida Power had researched nuclear energy for several years during the 1960s, and in 1968 it began construction of a nuclear unit at its Crystal River plant, which already had two fossil-fuel units.

In 1957 it sold Georgia Power & Light to Georgia Power Company for about $11.8 million.

1972–1984

Energy Problems in the 1970s

The nuclear unit was scheduled for completion in 1972 but cost far more than expected and also had construction problems that delayed its completion. Meanwhile, the soaring cost of oil after the Middle East oil embargo of the early 1970s plunged Florida Power into financial difficulties, as imported oil accounted for about 80 percent of its fuel consumption. In 1974, when Florida Power's earnings fell 35 percent from the previous year, it temporarily suspended construction of the nuclear unit to conserve cash.

During this period, to reduce its use of foreign oil, Florida Power looked to coal as well as nuclear power. It began converting two oil-burning plants to coal in 1975. In 1976 it formed Electric Fuels Corporation, a company involved in coal mining and the transportation of coal and other commodities via rail and barge, with customers including Florida Power and other utility and industrial companies.

The nuclear unit finally went into operation in March 1977, and saved the utility $46.7 million in fuel costs during the remainder of the year. Florida Power's 1977 earnings were up 38 percent from their 1976 level.

However, problems soon developed. In March 1978, the utility was forced to shut down the nuclear unit after a coolant leakage was detected. Company officials subsequently discovered that a latch had given way, shattering a reactor assembly and flushing pieces through the coolant system. Broken tubes then caused the leaks. The unit was shut down for repairs for seven months in 1978. Florida Power wanted Babcock & Wilcox Company, the firm that had built the unit, to perform the repairs at its own expense, but Babcock & Wilcox refused, citing a limited warranty clause in its contract. It then did the repairs for an additional fee.

In 1981 Florida Power sued Babcock & Wilcox in an effort in recover its costs. The utility contended that the unit's design and construction had been inadequate in the first place; therefore, Babcock & Wilcox was responsible for the accident. In 1984 Florida Power reached a settlement with Babcock & Wilcox, in which the utility received $11.8 million&mdashout $7.2 million from insurers and $4.6 million directly from the construction firm. The latter was mainly in the form of credits against future bills for equipment and services.

Diversification in the 1980s

During this period, diversification became a priority for Florida Power. Taking advantage of Florida's rapid population growth, in 1981 it formed Talquin Corporation, a real estate developer and building-products manufacturer. Stepping up its move beyond utility operations, it formed Florida Progress Corporation in 1982, and Florida Power became its principal subsidiary. Florida Power's stockholders received one Florida Progress common share for each common share of Florida Power they held. Florida Power's subsidiaries, Electric Fuels and Talquin Corporation, became subsidiaries of Florida Progress.

1909–1990

In 1983 Florida Progress formed Progress Credit Corporation, an equipment-leasing and -financing business concentrating on aircraft. In 1985 the holding company formed Progress Technologies Corporation to develop and market technology-based products and processes for use in a variety of industries. The following year Florida Progress bought Mid-Continent Life Insurance Company, which specialized in low-premium life insurance marketed through independent agents, was based in Oklahoma City, and dated back to 1909. These diversifications, along with the diversification of Florida Power's fuel sources, produced improvements in Florida Progress's sales, earnings, and stock price. Florida's population growth was a factor as well; in 1987 the company's utility customer base increased 4.4 percent, double the U.S. average.

In 1988 Florida Progress formed Progress Capital Holdings, Inc. to handle financing for its nonutility operations. Progress Capital subsequently became the parent of all the nonutility subsidiaries except Electric Fuels. Also formed that year was Progress Energy Corporation, whose purpose was to invest in cogeneration projects and small power plants outside Florida, but Florida Progress discontinued this business just two years later.

Another venture begun in 1988 was Talquin Corp.'s formation of partnerships to construct luxury apartment buildings in Florida cities, including Tampa, Orlando, and Fort Myers. The real estate company was seeking projects that would provide a quick return on investment, but the recession in Florida's real estate market and the national economy hurt results in 1989 and 1990. In 1990 Florida Progress decided to sell Talquin's building-products operations, because they did not fit in with the company's future direction. The establishment of a $14 million reserve to cover the expected loss on sales of these businesses was the principal reason for a 12.5 percent drop in Florida Progress's earnings in 1990.

In 1990 Talquin sold 3,200 acres of south Florida citrus groves it had acquired as an investment six years earlier, for an after-tax profit of about $10 million. That same year Talquin completed and sold its first luxury apartment complex, in Orlando, and finished other projects including Barnett Tower, a 26-story building in downtown St. Petersburg that became the new headquarters for Florida Progress, with portions occupied by several other companies.

Florida Progress's insurance and coal operations both grew in the late 1980s and early 1990s. From 1986, when it was acquired, through 1990, Mid-Continent had a 19 percent annual increase in its insurance in force, topping $8.5 billion in 1990. Its earnings increased an average of 26.5 percent annually during those five years. It added more than 4,000 agents, putting the total at more than 6,000, and doubled its number of regional offices, to 26. Electric Fuels bought a rail-car repair company, Kustom Karr, in 1990. It also added to its coal reserves that year, buying Kentucky mines with a capacity of producing about two million tons of coal annually. During 1990 it sold five million tons of coal to companies other than Florida Power. Its operations also reduced the cost of coal used by Florida Power by 14 percent from 1985 to 1990.

New Directions and Leadership in the 1990s

By 1990 Florida Power had greatly decreased its use of foreign-produced oil. In fact, its fuel mix was 54 percent coal, 22 percent oil, 13 percent nuclear energy, ten percent purchased power, and one percent natural gas. In 1990 Florida Power signed a 20-year contract to purchase power from The Southern Company and made plans to build a transmission line to connect it with Southern's operations in south Georgia. The nuclear unit at Crystal River, despite experiencing a variety of outages in 1988 and 1989, received its highest performance rating ever from the Nuclear Regulatory Commission in 1990. The nuclear unit was one of five electricity-generating units at the Crystal River site, the others being fossil-fueled; Florida Power explored sites for another complex of a similar size.

As it entered the 1990s, Florida Power was a relatively energy-efficient utility, able to offer its customers low rates. About 90 percent of its customers were residential, leaving the company less vulnerable to the vagaries of the economy than utilities that depend more on industrial and commercial customers. Its customer base had grown 3.8 percent annually from 1985 to 1990, almost twice the national average, thanks to the influx of people into Florida.

1991–1997

Florida Progress's efforts at diversification, however, showed mixed results in the early 1990s. Electric Fuels was maintaining a constant level of coal sales to Florida Power, while increasing sales to other companies, and was contributing 4.5 percent of Florida Progress's earnings. Mid-Continent Life Insurance Co. and Progress Credit Corp., contributing four and five percent respectively to the parent company's earnings, were faring respectably. Talquin, however, was facing a weak real estate market, reporting losses in 1991 that represented four percent of Florida Progress's earnings. Other investments in businesses unrelated to the company's core industries, such as its 80 percent interest in the chemicals research company Advanced Separation Technologies Inc., were making dubious contributions to the company's health.

In 1991 Jack B. Critchfield took over the reins from chairman Andrew Hines. With the change in leadership came a change in direction for Florida Progress. Critchfield narrowed the company's focus to electricity generation, fuel supply, and financial services. Unrelated investments or wholly owned subsidiaries were sold off. Critchfield also began a gradual process of divesting its real estate and financial services holdings, starting in 1991 with the sale of Talquin's building products operations and certain assets of Progress Credit.

Problems with the Crystal River nuclear plant also plagued Florida Power in the mid-1990s. Although the plant achieved a capacity factor of 100 percent in 1995, it was shut down for much of 1996 and perhaps all of 1997 because of a scheduled refueling, repairs, and concerns about the design of the backup safety system. The plant was expected to return to service near the end of 1997. The problems cost the company not only financially but also in customer goodwill. Florida Power attempted to regain some of its repair costs by raising rates, but customer outrage led the company to rescind the rate hike.

Florida Progress continued its process of divesting its real estate and financial services holdings in the mid-1990s. In 1996 the company spun off the remaining assets of Talquin and Progress Credit, creating the independent company Echelon International Corporation. In May 1997 Mid-Continent Life Insurance Co. was placed in receivership by the insurance commissioner of Oklahoma. Florida Progress was expected to lose some or all of its 85.6 million investment in the company.

Deregulation in the Late 1990s

Nuclear plant problems and diversification woes were not Florida Progress's only concerns in the late 1990s. Looming deregulation demanded a transition plan. Florida Power enjoyed certain advantages over other utilities in the nation as deregulation neared. Rapid population growth in Florida and slow movement by state legislators to institute competition gave Florida Power a stable customer base for the near future. In addition, as a peninsula, Florida was relatively isolated from power lines stretching across state lines. However, Florida Power suffered from a poor public image, caused by high rates, frequent outages, and the lengthy shutdown of its nuclear plant. As a medium-sized utility, it could not compete with the largest utilities in the nation, which were already positioning themselves to cherry pick the choicest commercial customers when deregulation took effect.

Growth was seen as the surest route to success in a competitive environment. To that end, in September 1997 Florida Progress announced a joint venture with Cinergy and New Century Energies to market energy services to large commercial customers. The alliance, called Cadence, had a two-step plan: first, offer advice on lowering energy costs and help consolidate customer's energy bills, and second, provide electricity to these customers once deregulation took effect. Late in 1997 the joint venture had attracted one major customer, Service Merchandise. Analysts speculated that a merger could result from this alliance.