Progress Energy Announces 2010 First-Quarter Results; Reaffirms Full-Year 2010 Earnings Guidance

RALEIGH, N.C., May 5 /PRNewswire-FirstCall/ -- Progress Energy (NYSE: PGN) announced first-quarter reported GAAP earnings of $190 million, or $0.67 per share, compared with reported GAAP earnings of $182 million, or $0.66 per share, for the same period last year. First-quarter ongoing earnings were $213 million, or $0.75 per share, compared to $182 million, or $0.66 per share, last year. The significant drivers in ongoing earnings were favorable weather and the net impact from the repowered Bartow Plant, partially offset by increased O&M and income tax expense. (See the discussion later in this release for a reconciliation of ongoing earnings per share to reported GAAP earnings per share.)

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"We performed well in the first quarter, and met the high demands of a very cold winter in the Carolinas and Florida," said Bill Johnson, chairman, president and CEO. "We are optimistic about the long-term prospects for our service territories and the value we will create for our customers and shareholders.  We remain focused on managing effectively through these challenging times while working constructively with policymakers and regulators to prepare responsibly for the future."

Progress Energy reaffirms its 2010 ongoing earnings guidance range of $2.85 to $3.05 per share. The ongoing earnings guidance excludes the impact, if any, from discontinued operations and the effects of certain identified gains and charges. (See the discussion later in this release for a reconciliation of ongoing earnings per share to reported GAAP earnings per share.) Progress Energy is not able to provide a corresponding GAAP equivalent for the 2010 earnings guidance due to the uncertain nature and amount of these adjustments.

Progress Energy will host a conference call and webcast at 10 a.m. ET today to review first-quarter 2010 financial performance, as well as provide an overall business update.  Additional details are provided at the end of this earnings release.

See below for detailed first-quarter 2010 earnings variance analyses for Progress Energy Carolinas (PEC), Progress Energy Florida (PEF) and Corporate and Other Businesses segments.

RECENT DEVELOPMENTS

Financial and Regulatory

• Filed with the Florida Public Service Commission (FPSC) a motion for reconsideration to request the correction of mathematical errors made in the FPSC's 2010 rate case order, which would result in a net revenue requirement increase of approximately $36 million.
• Filed with the FPSC an accounting order to reduce the Company's depreciation expense in order to offset the expected revenue shortfall of approximately $76 million.
• Filed 2011 nuclear cost-recovery estimates with the FPSC, which will reduce impact on customers' bills due to slower spending for the next few years.
• Announced plans to postpone major construction activities on the proposed Levy County Nuclear Plant until after the Nuclear Regulatory Commission (NRC) issues the combined operating license (COL).  If the licensing schedule remains on track, the Company expects to receive the COL in late 2012.
• Finalizing the root cause determination of the delamination event at CR3 detected in 2009. Necessary repairs to the containment structure are in progress. Based on the current understanding of the cause of the delamination event and repair strategy, PEF expects that CR3 will return to service in the third quarter of 2010.
• Received notice of rating action from the following credit rating agencies:
  • Standard & Poor's affirmed all ratings of PGN, PEC and PEF with negative outlooks.
  • Moody's Investors Service downgraded the long-term ratings of PEF one notch with a stable outlook and affirmed the short-term rating of PEF and all ratings of PGN and PEC with stable outlooks.
  • Fitch Ratings downgraded the long- and short-term ratings of PEF one notch with a stable outlook and affirmed all ratings of PGN and PEC with stable outlooks.

Alternative Energy and Energy Efficiency

• Filed a proposal with the FPSC outlining the programs and incentives the company plans to implement to achieve the new, aggressive energy-efficiency goals set by the FPSC in March 2010.
• Launched the EnergyWise(SM) smart grid initiative in the Carolinas and Florida, which includes a $200 million grant from the U.S. Department of Energy.
• Announced expansion of plug-in vehicle research partnership with Ford Motor Company to include PEF under a cooperative agreement with the U.S. Department of Energy.
• Placed online the 555-kilowatt Evergreen Solar Farm, owned and operated by FLS Energy, on Evergreen Packaging's former landfill in Haywood County, N.C.
• Signed contracts for two solar photovoltaic (PV) arrays as part of PEC's SunSense(SM) commercial solar PV program:
  • 250-kilowatt array in Kinston, N.C., built by Greenfield Power; and
  • 250-kilowatt array in Holly Springs, N.C., built by ABCZ Solar.
• Received clarity from the NCUC regarding the pro rata mechanism for allocating the statewide aggregate swine and poultry waste set-aside requirements among the state's electric power suppliers based upon a percentage of each company's prior year retail sales.
• Issued a joint request for proposals with North Carolina's electric suppliers for electricity generated from swine waste in the state.
• Received approval from the North Carolina Utilities Commission (NCUC) for PEC's Appliance Recycling Program, through which PEC will provide customers a rebate for recycling less-efficient refrigerators and freezers.

Press releases regarding various announcements are available on the company's website at www.progress-energy.com/aboutus/news.

FIRST-QUARTER 2010 BUSINESS HIGHLIGHTS

Below are the first-quarter 2010 earnings variance analyses for the company's segments. See the reconciliation tables on pages 4-5 and on page S-1 of the supplemental data for a reconciliation of ongoing earnings per share to GAAP earnings per share. Also see the attached supplemental data schedules for additional information on PEC and PEF operating revenues, energy sales, energy supply, weather impacts and other topics.

Progress Energy Carolinas

• Reported first-quarter ongoing earnings per share of $0.52, compared with $0.47 for the same period last year; GAAP earnings per share of $0.48, compared with $0.46 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.06 weather primarily due to heating degree days 18 percent higher than 2009 and 19 percent higher than normal
  • $0.02 growth and usage
  • $0.02 wholesale and other margin
  • $0.02 interest expense primarily due to lower average debt outstanding
  • $0.01 AFUDC equity
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.04) O&M primarily due to the lower nuclear insurance refund and current year storm costs
  • $(0.01) other
  • $(0.01) depreciation and amortization
  • $(0.01) income taxes
  • $(0.01) share dilution
• 12,000 net increase in the average number of customers for the three months ended
  March 31, 2010, compared to the same period in 2009

Progress Energy Florida

• Reported first-quarter ongoing earnings per share of $0.40, compared with $0.33 for the same period last year; GAAP earnings per share of $0.36, compared with $0.32 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.08 weather primarily due to heating degree days 80 percent higher than 2009 and 143 percent higher than normal
  • $0.07 retail rates primarily due to the increase in base rates for the repowered Bartow Plant
  • $0.02 net growth and usage
  • $0.01 interest expense
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.04) AFUDC equity primarily due to placing the repowered Bartow Plant in service
  • $(0.03) income taxes primarily due to the prior-year deduction related to nuclear decommissioning trust funds
  • $(0.01) wholesale and other margin
  • $(0.01) O&M
  • $(0.01) depreciation and amortization
  • $(0.01) share dilution
• 1,000 net decrease in the average number of customers for the three months ended
  March 31, 2010, compared to the same period in 2009

Corporate and Other Businesses (includes primarily Holding Company Debt, Small Subsidiaries and Discontinued Operations)

• Reported first-quarter ongoing after-tax expenses of $0.17 per share, compared with after-tax expenses of $0.14 per share for the same period last year; GAAP after-tax expenses of $0.17 per share, compared with after-tax expenses of $0.12 per share for the same period last year.
• Reported primary quarter-over-quarter ongoing after-tax expenses per share favorability of:
  • $0.01 income taxes
• Reported primary quarter-over-quarter ongoing after-tax expenses per share unfavorability of:
  • $(0.04) interest expense primarily due to higher average debt outstanding at the Parent

ONGOING EARNINGS ADJUSTMENTS

Progress Energy's management uses ongoing earnings per share to evaluate the operations of the company and to establish goals for management and employees. Management believes this non-GAAP measure is appropriate for understanding the business and assessing our potential future performance, because excluded items are limited to those that we believe are not representative of our fundamental core earnings.  Ongoing earnings as presented here may not be comparable to similarly titled measures used by other companies. The following table provides a reconciliation of ongoing earnings per share to reported GAAP earnings per share.

Reconciling adjustments from ongoing earnings to GAAP earnings are as follows:

Tax Levelization

Generally accepted accounting principles require companies to apply an effective tax rate to interim periods that is consistent with a company's estimated annual tax rate. The company projects the effective tax rate for the year and then, based upon projected operating income for each quarter, raises or lowers the tax expense recorded in that quarter to reflect the projected tax rate. The resulting tax adjustment had no impact for the quarter and decreased earnings per share by $0.02 for the same period last year, but has no impact on the company's annual earnings. Because this adjustment varies by quarter but has no impact on annual earnings, management does not consider this adjustment to be representative of the company's fundamental core earnings.

Contingent Value Obligation (CVO) Mark-to-Market

In connection with the acquisition of Florida Progress Corporation, Progress Energy issued 98.6 million CVOs. Each CVO represents the right of the holder to receive contingent payments based on net after-tax cash flows above certain levels of four synthetic fuels facilities purchased by subsidiaries of Florida Progress Corporation in October 1999. The CVO liability is valued at fair value, and unrealized gains and losses from changes in fair value are recognized in earnings each quarter. The CVO mark-to-market had no impact for the quarter and increased earnings per share by $0.02 for the same period last year. Progress Energy is unable to predict the changes in the fair value of the CVOs, and management does not consider this adjustment to be representative of the company's fundamental core earnings.

Change in the Tax Treatment of the Medicare Part D Subsidy

The federal Patient Protection and Affordable Care Act (PPACA) and the related Health Care and Education Reconciliation Act, which made various amendments to the PPACA, were enacted in March 2010. Under prior law, employers could claim a deduction for the entire cost of providing retiree prescription drug coverage even though a portion of the cost was offset by the retiree drug subsidy received. As a result of the PPACA as amended, retiree drug subsidy payments will effectively become taxable in tax years beginning after December 31, 2012, by requiring the amount of the subsidy received to be offset against the employer's deduction. Under GAAP, changes in tax law are accounted for in the period of enactment. The change in the tax treatment of the Medicare Part D subsidy decreased earnings by $0.08 for the quarter and had no impact for the same period last year. Management does not consider this change in tax treatment to be representative of the company's fundamental core earnings. Progress Energy is still evaluating the additional impacts of the PPACA as amended. We do not anticipate additional significant impact.

Progress Energy's conference call with the investment community will be held today at 10 a.m. ET (7 a.m. PT). Investors, media and the public may listen to the conference call by dialing 913-312-0413, confirmation code 2540034. If you encounter problems, please contact Investor Relations at (919) 546-6057. A playback of the call will be available from 1 p.m. ET May 5 through midnight May 19.  To listen to the recorded call, dial 719-457-0820 and enter confirmation code 2540034.

A webcast of the live conference call will be available at www.progress-energy.com/webcast. The webcast will be archived on the site for at least 30 days following the call for those unable to listen in real time. The webcast will include audio of the conference call and a slide presentation referred to by management during the call. The slide presentation will be available for download beginning at 9:30 a.m. ET today at www.progress-energy.com/webcast.

Progress Energy (NYSE: PGN), headquartered in Raleigh, N.C., is a Fortune 500 energy company with more than 22,000 megawatts of generation capacity and approximately $10 billion in annual revenues. Progress Energy includes two major electric utilities that serve approximately 3.1 million customers in the Carolinas and Florida. The company has earned the Edison Electric Institute's Edison Award, the industry's highest honor, in recognition of its operational excellence, and was the first utility to receive the prestigious J.D. Power and Associates Founder's Award for customer service. The company is pursuing a balanced strategy for a secure energy future, which includes aggressive energy-efficiency programs, investments in renewable energy technologies and a state-of-the-art electricity system.  Progress Energy celebrated a century of service in 2008. Visit the company's website at www.progress-energy.com.

Caution Regarding Forward-Looking Information:

This release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The matters discussed in this document involve estimates, projections, goals, forecasts, assumptions, risks and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements.

Examples of factors that you should consider with respect to any forward-looking statements made throughout this document include, but are not limited to, the following: the impact of fluid and complex laws and regulations, including those relating to the environment and energy policy; our ability to recover eligible costs and earn an adequate return on investment through the regulatory process; the ability to successfully operate electric generating facilities and deliver electricity to customers; the impact on our facilities and businesses from a terrorist attack; the ability to meet the anticipated future need for additional baseload generation and associated transmission facilities in our regulated service territories and the accompanying regulatory and financial risks; our ability to meet current and future renewable energy requirements; the inherent risks associated with the operation and potential construction of nuclear facilities, including environmental, health, safety, regulatory and financial risks; the financial resources and capital needed to comply with environmental laws and regulations; risks associated with climate change; weather and drought conditions that directly influence the production, delivery and demand for electricity; recurring seasonal fluctuations in demand for electricity; the ability to recover in a timely manner, if at all, costs associated with future significant weather events through the regulatory process; fluctuations in the price of energy commodities and purchased power and our ability to recover such costs through the regulatory process; our ability to control costs, including operations and maintenance expense (O&M) and large construction projects; the ability of our subsidiaries to pay upstream dividends or distributions to Progress Energy; current economic conditions; the ability to successfully access capital markets on favorable terms; the stability of commercial credit markets and our access to short- and long-term credit; the impact that increases in leverage or reductions in cash flow may have on us; our ability to maintain our current credit ratings and the impacts in the event our credit ratings are downgraded; the investment performance of our nuclear decommissioning trust (NDT) funds; the investment performance of the assets of our pension and benefit plans and resulting impact on future funding requirements; the impact of potential goodwill impairments; our ability to fully utilize tax credits generated from the previous production and sale of qualifying synthetic fuels under Internal Revenue Code Section 29/45K (Section 29/45K); and the outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements. Many of these risks similarly impact our nonreporting subsidiaries. These and other risk factors are detailed from time to time in our filings with the SEC. All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control.

Any forward-looking statement is based on information current as of the date of this document and speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made.

SOURCE Progress Energy

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