Progress Energy announces 2010 third-quarter results;
narrows full-year 2010 earnings guidance to high end of range
Highlights:
Third Quarter 2010
| ¨ | Reports third-quarter GAAP earnings of $1.23 per share, compared to $0.88 for the same period last year, primarily driven higher by a prior-year litigation verdict related to discontinued operations |
| ¨ | Reports third-quarter ongoing earnings of $361 million, or $1.23 per share, compared to $342 million, or $1.22 per share, for the same period last year |
Year-to-Date 2010
| ¨ | Reports GAAP earnings for the first nine months of 2010 of $2.53 per share, compared to $2.16 per share for the same period last year, primarily driven higher by a prior-year litigation verdict related to discontinued operations |
| ¨ | Reports ongoing earnings for the first nine months of 2010 of $756 million, or $2.61 per share, compared to $704 million, or $2.53 per share, for the same period last year |
| ¨ | Narrows 2010 ongoing earnings guidance to $3.00 to $3.05 per share, which is the high end of the previously announced guidance |
RALEIGH, N.C. (October 29, 2010) – Progress Energy [NYSE: PGN] announced third-quarter GAAP earnings of $361 million, or $1.23 per share, compared with GAAP earnings of $247 million, or $0.88 per share, for the same period last year. Prior-year results include a charge of $101 million, net of tax, or $0.36 per share, to discontinued operations related to a litigation verdict. Third-quarter ongoing earnings were $361 million, or $1.23 per share, compared to $342 million, or $1.22 per share, for the same period last year. The significant drivers in ongoing earnings per share were favorable weather in the Southeast and lower depreciation and amortization in Florida, primarily offset by increased O&M, share dilution and interest expense. (See the discussion later in thi s release for a reconciliation of ongoing earnings per share to GAAP earnings per share.)
“We achieved strong financial performance for our shareholders so far this year and successfully met high energy demand during one of the hottest summers on record,” said Bill Johnson, chairman, president and CEO. “The economy in the Carolinas and Florida continues to show modest but steady signs of recovery, and we remain focused on managing costs and improving operations and execution.
“The third quarter was particularly strong in terms of weather, and higher revenues enabled us to increase our focus on investments and improvements in our nuclear program that will position those vital facilities to continue meeting our customers’ energy needs reliably and affordably for decades to come. Due primarily to the continued strength in weather, the company is narrowing its 2010 ongoing earnings range to $3.00 to $3.05 per share, which is the high end of our previously announced guidance.”
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 ongoing 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 third-quarter 2010 financial performance, as well as provide an overall business update. Additional details are provided at the end of this earnings release.
See pages 3-6 for detailed third-quarter and year-to-date 2010 earnings variance analyses for Progress Energy Carolinas (PEC), Progress Energy Florida (PEF) and Corporate and Other Businesses segments.
RECENT DEVELOPMENTS
Financial and Regulatory
| · | Received approval from the Florida Public Service Commission (FPSC) for PEF’s proposed 2011 cost recovery for new nuclear plant construction at Levy County and nuclear uprate at Crystal River Unit 3. |
| · | Filed petitions with the FPSC for proposed 2011 cost recovery in Florida through the following clauses: fuel, capacity, environmental and energy conservation. |
| · | Updated petition with the North Carolina Utilities Commission (NCUC) to decrease the fuel component of customer rates and adjust the components of energy-efficiency programs and renewable energy resources, resulting in a net reduction in customer bills, effective December 1, 2010. |
| · | Executed new three-year, $750 million revolving credit agreements (RCAs) for PEC and PEF with a syndication of 22 financial institutions. The new RCAs, which will expire on October 15, 2013, replace PEC’s and PEF’s $450 million RCAs expiring in 2011. At the same time, the $1.13 billion RCA for Progress Energy, Inc. was reduced to $500 million, resulting in $2 billion of combined capacity across the three entities. |
State-of-the-Art Power Plants
| · | Broke ground on the 950-megawatt (MW) combined-cycle natural gas plant at the H. F. Lee Energy Complex in Wayne County, N.C., expected to come online in early 2013. |
| · | Announced the Cape Fear and Weatherspoon coal plants will be retired by the end of 2014, instead of by the end of 2017, as previously announced. |
Alternative Energy and Energy Efficiency
| · | Placed online new solar photovoltaic (PV) arrays as part of PEC’s SunSenseSM commercial solar PV program, bringing the total amount of solar-generated electricity under contract by PEC to more than 11 MW, with approximately half of that in service. |
| · | Signed agreement with Methane Power to purchase the energy produced from a 3-MW landfill gas-to-energy facility on the Wayne County Landfill in Wayne County, N.C. The facility is scheduled to begin operation by the end of 2010 and will bring the amount of landfill gas-to-energy electricity purchased by PEC to more than 14 MW. |
| · | Received approval from the FPSC for three new renewable energy programs: SunSense Residential and Commercial Solar PV Program, SunSense Schools Program and SunSense Solar Water Heating. |
Awards, Honors & Recognitions
| · | Named to the Dow Jones Sustainability North America Index for the sixth year in a row as an industry leader in managing economic, environmental and social issues. |
| · | Named to Newsweek’s List of Top 500 Green Companies in the U.S. |
Press releases regarding various announcements are available on the company’s website at www.progress-energy.com/aboutus/news.
THIRD-QUARTER 2010 BUSINESS HIGHLIGHTS
Below are the third-quarter and year-to-date 2010 earnings variance analyses for the company’s segments. See the reconciliation tables on pages 6-8 and on pages S-1 and S-2 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 electric revenues, energy sales, energy supply, weather impacts and other topics.
QUARTER-OVER-QUARTER ONGOING EPS VARIANCE ANALYSIS
Progress Energy Carolinas
| · | Reported third-quarter ongoing earnings per share of $0.79, compared with $0.76 for the same period last year; GAAP earnings per share of $0.78, compared with $0.74 for the same period last year. |
| · | Reported primary quarter-over-quarter ongoing earnings per share favorability of: |
| § | $0.11 weather primarily due to cooling degree days 26 percent higher than 2009 and 28 percent higher than normal |
| § | $0.03 AFUDC equity primarily due to increased eligible construction project costs |
| § | $0.02 retail growth and usage |
| § | $0.02 clauses, wholesale and other margin due primarily to higher miscellaneous revenues largely resulting from higher transmission rates |
| · | Reported primary quarter-over-quarter ongoing earnings per share unfavorability of: |
| § | $(0.07) O&M primarily due to higher nuclear plant outage and maintenance costs driven by extended outages and more emergent work in 2010 compared to 2009, higher employee benefits expense and the prior-year reduction in a litigation judgment |
| § | $(0.03) income taxes primarily due to the impact of changes in tax estimates |
| · | 10,000 net increase in the average number of customers for the three months ended September 30, 2010, compared to the same period in 2009 |
Progress Energy Florida
| · | Reported third-quarter ongoing earnings per share of $0.60, which is equal to the same period last year; GAAP earnings per share of $0.61, compared with $0.63 for the same period last year. |
| · | Reported primary quarter-over-quarter ongoing earnings per share favorability of: |
| § | $0.11 depreciation and amortization primarily due to the reduction in the cost of removal component of the depreciation reserve in accordance with the base rate settlement agreement |
| § | $0.04 weather primarily due to cooling degree days 8 percent higher than 2009 and 9 percent higher than normal |
| § | $0.02 clauses, wholesale and other margin primarily due to higher clause recoverable regulatory revenues and returns and miscellaneous revenues, partially offset by lower wholesale revenues related to an amended contract |
| · | Reported primary quarter-over-quarter ongoing earnings per share unfavorability of: |
| § | $(0.07) O&M primarily due to the prior-year pension deferral in accordance with a FPSC order, higher employee benefits expense and the prior-year impact of a change in the vacation benefits policy |
| § | $(0.03) AFUDC equity primarily due to placing CAIR assets in service |
| § | $(0.02) other primarily due to higher property taxes resulting from placing the repowered Bartow Plant in service |
| § | $(0.01) interest expense |
| · | 7,000 net increase in the average number of customers for the three months ended September 30, 2010, compared to the same period in 2009 |
Corporate and Other Businesses (includes primarily Holding Company debt)
| · | Reported third-quarter ongoing after-tax expenses of $0.16 per share compared with after-tax expenses of $0.14 per share for the same period last year; GAAP after-tax expenses of $0.16 per share, compared with after-tax expenses of $0.49 per share for the same period last year. |
| · | Reported primary quarter-over-quarter ongoing after-tax expenses per share favorability of: |
| § | $0.02 O&M primarily due to the allocation to the Utilities of the corporate tax impact of withdrawals from an employee benefit trust |
| · | Reported primary quarter-over-quarter ongoing after-tax expenses per share unfavorability of: |
| § | $(0.03) interest expense primarily due to higher average debt outstanding at the Parent |
| § | $(0.02) income taxes primarily due to the impact of withdrawals from an employee benefit trust |
YEAR-OVER-YEAR ONGOING EPS VARIANCE ANALYSIS
Progress Energy Carolinas
| · | Reported year-to-date ongoing earnings per share of $1.70, compared with $1.56 for the same period last year; GAAP earnings per share of $1.65, compared with $1.54 for the same period last year. |
| · | Reported primary year-over-year ongoing earnings per share favorability of: |
| § | $0.21 weather primarily due to 23 percent higher cooling degree days and 14 percent higher heating degree days than 2009. Additionally, cooling degree days were 32 percent higher than normal and heating degree days were 11 percent higher than normal |
| § | $0.08 AFUDC equity primarily due to increased eligible construction project costs |
| § | $0.04 retail growth and usage |
| § | $0.04 clauses, wholesale and other margin primarily due to higher miscellaneous revenues largely resulting from higher transmission rates |
| § | $0.02 interest expense primarily due to lower average debt outstanding |
| · | Reported primary year-over-year ongoing earnings per share unfavorability of: |
| § | $(0.13) O&M primarily due to higher nuclear plant outage and maintenance costs driven by extended outages and more emergent work in 2010 compared to 2009, lower nuclear insurance refund and higher storm costs |
| § | $(0.03) income taxes primarily due to the prior-year deduction related to nuclear decommissioning trust funds |
| § | $(0.01) depreciation and amortization |
| · | 11,000 net increase in the average number of customers for the nine months ended September 30, 2010, compared to the same period in 2009 |
Progress Energy Florida
| · | Reported year-to-date ongoing earnings per share of $1.41, compared with $1.37 for the same period last year; GAAP earnings per share of $1.38, which is equal to the same period last year. |
| · | Reported primary year-over-year ongoing earnings per share favorability of: |
| § | $0.14 weather primarily due to heating degree days 74 percent higher than 2009 and 127 percent higher than normal |
| § | $0.12 retail rates primarily due to the increase in base rates for the repowered Bartow Plant |
| § | $0.12 depreciation and amortization primarily due to the reduction in the cost of removal component of the depreciation reserve in accordance with the base rate settlement agreement |
| § | $0.09 clauses, wholesale and other margin primarily due to higher clause recoverable regulatory revenues and returns and higher transmission revenues, partially offset by lower wholesale revenues related to amended and expired contracts and estimated CR3 joint owner replacement power costs |
| § | $0.01 retail growth and usage |
| · | Reported primary year-over-year ongoing earnings per share unfavorability of: |
| § | $(0.18) AFUDC equity primarily due to placing CAIR assets and the repowered Bartow Plant in service |
| § | $(0.11) O&M primarily due to the prior-year pension deferral in accordance with a FPSC order and the prior-year impact of a change in the vacation benefits policy |
| § | $(0.04) interest expense primarily due to higher average debt outstanding and unfavorable AFUDC debt resulting from placing CAIR assets and the repowered Bartow Plant in service |
| § | $(0.03) other primarily due to higher property taxes resulting from placing the repowered Bartow Plant in service |
| § | $(0.03) income taxes primarily due to the prior-year deduction related to nuclear decommissioning trust funds |
| · | 3,000 net increase in the average number of customers for the nine months ended September 30, 2010, compared to the same period in 2009 |
Corporate and Other Businesses (includes primarily Holding Company debt)
| · | Reported year-to-date ongoing after-tax expenses of $0.50 per share compared with after-tax expenses of $0.40 per share for the same period last year; GAAP after-tax expenses of $0.50 per share, compared with after-tax expenses of $0.76 per share for the same period last year. |
| · | Reported primary year-over-year ongoing after-tax expenses per share favorability of: |
| § | $0.02 O&M primarily due to the allocation to the Utilities of the corporate tax impact of withdrawals from an employee benefit trust |
| · | Reported primary year-over-year ongoing after-tax expenses per share unfavorability of: |
| § | $(0.10) interest expense primarily due to higher average debt outstanding at the Parent |
| § | $(0.03) income taxes primarily due to the impact of withdrawals from an employee benefit trust |
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.
Progress Energy, Inc.
Reconciliation of Ongoing Earnings per Share to Reported GAAP Earnings per Share
| | | Three months ended September 30 | | | Nine months ended September 30 | |
| | | 2010 | | | 2009 | | | 2010 | | | 2009 | |
| Ongoing earnings per share | | $ | 1.23 | | | $ | 1.22 | | | $ | 2.61 | | | $ | 2.53 | |
| Tax levelization | | | 0.01 | | | | 0.02 | | | | 0.01 | | | | (0.02 | ) |
| CVO mark-to-market | | | - | | | | 0.01 | | | | - | | | | 0.04 | |
| Change in the tax treatment of the Medicare Part D subsidy | | | - | | | | - | | | | (0.08 | ) | | | - | |
| Impairment | | | (0.01 | ) | | | - | | | | (0.01 | ) | | | (0.01 | ) |
| Plant retirement charge | | | - | | | | (0.01 | ) | | | - | | | | (0.01 | ) |
| Discontinued operations | | | - | | | | (0.36 | ) | | | - | | | | (0.37 | ) |
| Reported GAAP earnings per share | | $ | 1.23 | | | $ | 0.88 | | | $ | 2.53 | | | $ | 2.16 | |
| | | | | | | | | | | | | | | | | |
| Shares outstanding (millions) | | | 294 | | | | 280 | | | | 289 | | | | 279 | |
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, increases or decreases the tax expense recorded in that quarter to reflect the projected tax rate. The resulting tax adjustment increased earnings per share by $0.01 for the quarter and increased 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 $0.01 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 year to date and ha d 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.
Impairment
The company recorded an impairment of investments and other assets which decreased earnings per share by $0.01 for the quarter and had no impact for the same period last year. Management does not consider this adjustment to be representative of the company’s fundamental core earnings.
Plant Retirement Charge
The company recognized a charge for the impact of PEC’s decision to retire certain coal-fired generating units, with resulting reduced emissions for compliance with the Clean Smokestacks Act’s 2013 emission targets. The charge had no impact for the quarter and decreased earnings per share by $0.01 for the same period last year. Since the coal-fired generating units will be retired prior to their estimated useful lives, management does not consider this charge to be representative of the company’s fundamental core earnings.
Discontinued Operations
The company has reduced its business risk by exiting nonregulated businesses to focus on the core operations of the utilities. The company recorded the impact of a judgment to pay damages in a breach-of-contract lawsuit related to ownership interests in certain of our synthetic fuels facilities, which had no impact on the company’s earnings for the quarter, but decreased earnings per share by $0.36 for the same period last year. Due to the disposition of these assets, management does not consider this activity to be representative of the company’s fundamental core earnings.
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Progress Energy’s conference call with the investment community will be held October 29, 2010, at 10 a.m. ET (7 a.m. PT). Investors, media and the public may listen to the conference call by dialing (913) 312-0396, confirmation code 5698470. 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 October 29 through midnight November 12. To listen to the recorded call, dial (719) 457-0820 and enter confirmation code 5698470.
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 futur e 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 condition s; 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 d etailed 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.
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Contacts: Corporate Communications – (919) 546-6189 or toll-free (877) 641-NEWS (6397)
Progress Energy, Inc.
