1st Quarter Earnings Call May 5, 2011

Transcription

1 1st Quarter Earnings Call May 5, 2011 Bill Johnson Mark Mulhern Chairman, President & CEO Chief Financial Officer

2 Caution Regarding Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 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: our ability to obtain the approvals required to complete the Merger and the impact of compliance with material restrictions or conditions potentially imposed by our regulators; the risk that the Merger is terminated prior to completion and results in significant transaction costs to us;ourability to achieve the anticipated i t results and benefits of the Merger; the impact of business uncertainties ti and contractual t restrictions while the Merger is pending; 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, Inc. holding company (the Parent); 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; and the outcome of any ongoing g 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. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can management assess the effect of each such factor on us. Any forward-looking statement is based on information current as of the date of this presentation 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.

3 CEO Topics Ongoing earnings highlights Status of merger filings Nuclear fleet update Impact of recent EPA proposed rules Major capital projects 3

4 Ongoing Earnings Highlights * (Unaudited) $250 $0.75 $0.80 $200 $213 $202 $0.69 $0.60 ings ($MM) Ongoing Earni $150 $100 $50 $0.40 $0.20 Ongo oing EPS $0 Earnings 1Q-10 1Q-11 EPS $0.00 Affirm 2011 ongoing g EPS guidance of $ $3.20 * See appendix for reconciliation of ongoing EPS to reported GAAP EPS. 4

5 Status of Merger Filings (as of May 3, 2011) Stakeholder Shareholder Department of Justice (DOJ) Federal Communications Commission (FCC) Federal Energy Regulatory Commission (FERC) Nuclear Regulatory Commission (NRC) North Carolina South Carolina Kentucky Progress On Key Milestones Filed initial S-4 for SEC review on March 17, 2011; On April 8, 2011 and April 25, 2011, filed amendments to S-4 Shareholder meetings in 2Q/3Q 2011 The parties have met their obligations under the Hart-Scott-Rodino Act, which is no longer a bar to closing the transaction By early 3Q 2011, file for transfer of Progress Energy licenses Filed merger approval application and related filings on April 4, 2011 Filed for indirect transfer of Progress Energy licenses on March 30, 2011 Filed merger approval application on April 4, 2011 Submitted merger-related filings on April 25, 2011 Filed merger approval application on April 4, 2011 Filed Approved Waiting Period Expired 5

6 Nuclear Fleet Update Brunswick (2 BWR units) 1975, 1977 Crystal River (1 PWR unit) ,858 MW (1) 860 MW (1) 81.67% 91.78% ownership ownership Harris (1 PWR unit) 1987 Robinson (1 PWR unit) MW (1) 83.83% ownership 724 MW 100% ownership (1) Facilities are jointly owned. The capacities shown include joint owners share. Note: License renewals received for RNP, BNP and HNP; CR3 filed for renewal in December

7 Crystal River Unit 3 Nuclear Outage Second delamination discovered mid-march Engineering analysis under way to identify potential repair options Cannot estimate return-to-serviceto date or cost of repair at this time ($M) $200 $182 ($75) Repair Costs Florida PSC regulatory cost recovery Replacement power (net of NEIL proceeds) Approved for 2011 fuel cost recovery Subject to refund, pending a prudence review As of March 31, 2011 ($M) $400 $350 Replacement Power Costs $339 ($144) $150 $300 $100 ($62) $250 $200 ($85) $50 $45 $150 $100 $110 $50 $- $- Spent to Date NEIL Proceeds Received Insurance Receivable Balance for Base Rate Recovery Spent to Date NEIL Proceeds Received Insurance Receivable Balance for Clause Recovery NEIL: Nuclear Electric Insurance Limited, a mutual insurance company Insurance coverage limits per plant are as follows: Property damage - $2.25 billion Replacement power - $490 million 7

8 Progress Energy Generation Fleet Affected by Proposed EPA Rule Air Toxics Rule Cooling Water Intake Rule Progress Energy Coal- & Oil-Fired Capacity (8,902 Net MW) Progress Energy Steam Capacity (14,255 Net MW) 1 27% 18% 20% 11% 15% 30% 55% 24% Announced Retirements Well Controlled Coal (SCR & Scrubbed) Other Coal & Oil Affected by the Rule Announced Retirements Units with Closed-Cycle Cooling 2 Nuclear with Once-Through Cooling Scrubbed Coal with Once-Through Cooling Other Fossil with Once-Through Cooling 1. Includes capacity under construction. 2. Some closed-loop systems may not meet EPA s new definitions for closed-cycle recirculating systems listed in the proposed rule. 8

9 Major Capital Projects Richmond County CCGT North Carolina 635 MW combined-cycle gas-fired plant Expected in-service in June 2011 Major Construction Projects¹ ($M) Spent as of 3/31/11 Estimated expenditures to complete project Lee CCGT North Carolina 920 MW combined-cycle gas-fired plant Project broke ground in September 2010 Expected in-service in January 2013 $50 $460 Sutton CCGT North Carolina 625 MW combined-cycle cycle gas-fired plant Construction is expected to begin in 2H-2011 Expected in-service in December 2013 $525 $445 $185 Smart Grid Carolinas & Florida Accepted $200M grant from the DOE in April 2010 ($100M each for PEC and PEF) Leverages already-planned investments of $320M ($200M for PEC and $120M for PEF) $315 $155 $135 Richmond Lee Sutton Smart Grid County 1 Project costs include direct capital, AFUDC and the cost of all transmission additions and upgrades necessary to integrate the generator into the system. 9

10 CFO Topics 1Q-2011 ongoing earnings review Retail sales Customer growth and usage Additional financial consideration 10

11 2011 Ongoing EPS * (Unaudited) 1st Quarter $0.75 $0.69 $0.52 $0.47 $0.40 $0.38 Corporate & Other Carolinas Florida Consolidated ($0.17) ($0.16) * See appendix for reconciliation of ongoing EPS to reported GAAP EPS. 11

12 1Q-2011 Ongoing EPS Drivers $1.00 $0.95 $0.04 $0.02 ($0.17) Weather: PEC: ($0.07) PEF: ($0.10) $0.16 $0.90 EPS $0.85 $0.80 $0.75 $0.70 $0.65 $0.75 $80M amortization of cost of removal obligation Other: $0.02 PEF litigation judgment $0.01 PEC balanced billing program $0.01 other ($0.04) ($0.02) Includes ($0.02) of CR3 joint owner replacement power costs. ($0.02) ($0.02) ($0.01) $0.69 $0.60 $0.55 $0.50 1Q-2010 PEF Other AFUDC Weather Wholesale Clauses Interest Share Deprec. 1Q-2011 Ongoing Cost of Equity & Expense Dilution & Ongoing EPS * Removal Other Margin Amort. EPS * * See appendix for reconciliation of ongoing EPS to reported GAAP EPS. 12

13 1Q-2011 Retail Sales Progress Energy Carolinas Progress Energy Florida Residential -7.6% -0.6% Residential -16.5% -2.3% Commercial -3.9% -1.1% Commercial -1.9% -1.5% Industrial 1.8% 1.8% Industrial 0.5% 0.5% Total Retail -4.9% -0.2% Total Retail -12.9% -0.8% -10% -8% -6% -4% -2% 0% 2% 4% Actual Weather-normalized -20% -15% -10% -5% 0% 2011 Carolinas Retail kwh Sales 2011 Florida Retail kwh Sales Growth & Usage (0.2%) Weather (4.7%) Total Retail Sales (4.9%) Growth & Usage ( 0.8%) Weather (12.1%) Total Retail Sales (12.9%) 2011 Total Retail Sales Forecast + 0.8% 2011 Total Retail Sales Forecast + 0.7% 13

14 Customer Growth & Usage 35,000 Average Customer Growth * (000s) 95 Residential Customers using less than 200 kwh per month 7.0% 30, , % 20,000 15, % 10, % 5, ,000 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 60 Dec-05 Apr-06 Aug-06 Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec % 10,000 PEC * Approximate average net increase in number of customers for respective three-month periods compared to prior year. PEF 14 PEF # of low usage accounts PEF % low usage customers PEC # of low usage accounts PEC % low usage customers

15 Additional Financial Considerations Earnings drivers PEF s remaining cost of removal reserve - $369M PEC has completed planned nuclear outages for 2011 Spring storms will result in 1-2 charge in 2Q-11 Merger and integration costs excluded from ongoing EPS Cash flow implications Bonus depreciation - $200M incremental benefit in 2011 Minimal equity issuance in 2011 Pension contributions ti - $210M during 1Q-1111 Affirm 2011 ongoing g EPS guidance of $ $

16 Appendix Item Slides Fixed Income Support Reconciliation of Ongoing Earnings 21 23

17 Fixed Income Support

18 Strong Liquidity Position with Manageable Near-Term Debt Maturities ($ in millions) Strong liquidity position (adjusted as of March 31, 2011 (a) ) Manageable near-term debt maturities PGN PEC PEF $1,978 (a) ($79) $0 ($32) $172 $2,039 $950 $830 $500 $425 $300 $450 $405 Total credit facilities Drawn CP outstanding Letters of Credit Cash & cash equivalents Total liquidity (a) On May 3, 2011, $22 million of the Parent s $500 million revolving credit agreement expired, reducing PGN s total credit facilities from $2.0 billion to $1.978 billion. 18

19 Capitalization and Short-Term Debt ($ in millions) As of March 31, 2011 PGN Consol. % PEC % PEF % Short term Debt $ % $ 0.0% $ 7 0.1% Current Portion of Long term Debt % 0.0% % Capital Lease Obligations % % % Long term Debt Long term Debt, affiliate (a) % 0.0% 0.0% Long term Debt, net 11, % 3, % 4, % Total Debt $ 12, % $ 3, % $ 4, % Preferred dstock of Subsidiaries i 93 04% 0.4% 59 07% 0.7% 34 04% 0.4% Noncontrolling Interests 3 0.0% 0.0% 0.0% Common Stock Equity 10, % 5, % 4, % Total Capitalization and Short term Debt $ 22, % $ 8, % $ 9, % (a) Represents 7.10% Junior Subordinated Deferrable Interest Notes due 2039 issued by Florida Progress Funding Corporation, a wholly owned subsidiary, to FPC Capital I, a wholly owned trust, in connection with the issuance of 7.10% Cumulative Quarterly Income Preferred Securities due 2039, Series A by FPC Capital I. 19

20 Credit Ratings As of May 5,2011. Progress Energy Moody s (1) S&P (1) Fitch (1) Outlook Stable Watch Positive Stable Corporate Credit Rating -- BBB+ BBB Senior Unsecured Debt Baa2 BBB BBB Commercial Paper P-2 A-2 F2 Progress Energy Carolinas Outlook Stable Watch Positive Stable Corporate Credit Rating A3 BBB+ A- Commercial Paper P-2 A-2 F1 Senior Secured Debt A1 A A+ Senior Unsecured Debt A3 BBB+ A Preferred Stock Baa2 BBB- BBB+ Progress Energy Florida Outlook Stable Watch Positive Stable Corporate Credit Rating Baa1 BBB+ BBB+ Commercial Paper P-2 A-2 F2 Senior Secured Debt A2 A A Senior Unsecured Debt Baa1 BBB+ A- Preferred Stock Baa3 BBB- BBB (1) On January 10, 2011, S&P placed the corporate credit and issue ratings of Progress Energy and its subsidiaries on CreditWatch with positive implications, while Fitch and Moody s affirmed the ratings of Progress Energy and its subsidiaries with stable outlooks. 20

21 Reconciliation of Ongoing Earnings

22 Reconciliation of Ongoing to GAAP Earnings (Unaudited) Progress Energy, Inc. Reconciliation of Ongoing Earnings per Share to Reported GAAP Earnings per Share Three months ended d March 31, Ongoing earnings per share $0.69 $0.75 Tax levelization (0.01) Change in the tax treatment of the Medicare Part D subsidy (0.08) Discontinued operations (0.01) Merger and integration costs (0.05) 05) Reported GAAP earnings per share $0.62 $0.67 Shares outstanding (millions)

23 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 di 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. Progress Energy is not able to provide a corresponding GAAP equivalent for the 2011 earnings guidance figures due to the uncertain nature and amount of these adjustments. 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 decreased earnings per share by $0.01 for the quarter compared to no impact for the same period last year, but has no impact on the company s annual earnings. Because this adjustment t varies by quarter but has no impact on annual earnings, management does not consider this adjustment t 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 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 same period last year. Management does not consider this change in tax treatment to be representative of the company s fundamental core earnings. Discontinued Operations The company has completed its business strategy of divesting of nonregulated businesses to reduce its business risk and focus on core operations of the Utilities. The discontinued operations of these nonregulated businesses decreased earnings per share by $0.01 for the quarter compared to no impact for the same period last year. Management does not consider operating results of discontinued operations to be representative of the company s fundamental core earnings. Merger and Integration Costs The company recorded a charge for merger and integration costs related to the Merger. These costs decreased earnings per share by $0.05 for the quarter and had no impact for the same period last year. Management does not consider this charge to be representative of the company s fundamental core earnings. 23

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