Edison Electric Institute 45 th Financial Conference

Transcription

1 Edison Electric Institute 45 th Financial Conference Palm Desert, California November 1-2, 2010

2 Safe Harbor for Forward- Looking Statements Caution Regarding Forward-Looking Information: 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: 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 t through h 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; 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. 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 t t is based on information current as of the date of this presentation ti 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. For questions or comments contact: Bob Drennan Vice President, Investor Relations Tel: bob.drennan@pgnmail.com Bryan Kimzey Analyst, Investor Relations Tel: bryan.kimzey@pgnmail.com

3 Bill Johnson Chairman, President and CEO EEI 45 th Financial Conference Palm Desert, California November 2, 2010 Major Discussion Topics Company Overview Strategic t Framework and Priorities iti Nuclear Fleet Performance Continuous Business Excellence Balanced Solution Strategy Financial Goals and Performance 2 1

4 Company Overview Two Well-Positioned Electric Utilities North Carolina Florida South Carolina Progress Energy ~22,600 MW capacity ~3.1M customers $10B total revenue $33B total assets 11,000 employees 54,000 sq. mile service area 32 plants, 146 units As of December 31,

5 Strategic Framework and Priorities Strategic Planning Framework Progress Energy Value Chain Integrated Utility SUPPLY GRID DEMAND Generation Wires Meter Customer Push Federal policy State policy Regulatory actions Fuel issues Generation issues Investments / Initiatives Fleet modernization Nuclear Renewable generation Smart Grid Customer initiatives Pull Retail customer needs / desires: Residential Commercial Industrial Governmental Wholesale customer needs Emerging technologies Business/regulatory model changes 6 3

6 Enterprise Priorities: The Fundamentals Excel in safety, operations and customer satisfaction Manage revenue, expenses and capital to achieve financial objectives Promote public, regulatory and political support, and ensure effective regulatory compliance Lead through employee engagement and performance management 7 Enterprise Priorities: Three Focus Areas Improve nuclear fleet performance Accelerate Continuous Business Excellence Optimize Balanced Solution strategy 8 4

7 Nuclear Fleet Performance Nuclear Fleet Performance Strategy Leadership Fleet Alignment Excellence in plant operations, outage planning and execution, and continuous improvement Organizational Capacity Long-range g Planning Safety. Reliability. Value. 10 5

8 Continuous Business Excellence (CBE) Continuous Improvement Framework UNDERSTAND Cost-Driver Di Workforce Methodology Planning IMPROVE Lean Principles/Tools DELIVER RESULTS Improved safety and operational performance Enhanced productivity and employee engagement Increased customer satisfaction Lower costs 12 6

9 Roxboro Plant Success Story: Building a Continuous Improvement Culture 3 Lean improvement events/month >80% employee participation Increase in employee safety Savings in O&M, capital & fuel Reduction in job time for processes Reduction in maintenance backlog Continuous Business Excellence: A disciplined approach to eliminate waste and continuously improve our business 13 Balanced Solution Strategy 7

10 Executing the Balanced Solution ENERGY EFFICIENCY ALTERNATIVE ENERGY STATE OF THE ART POWER SYSTEM Customer energy saving programs Incentives for efficiency improvements Education and outreach Solar energy Biomass Emerging gtechnologies Plug in electric vehicles Smart Grid Fleet modernization Advanced environmental controls New and expanded nuclear OPERATIONAL EXCELLENCE 15 Scrubber & SCR Installation Complete North Carolina Clean Smokestacks Act $1.1 billion Asheville 2 units 376 MW Mayo 1 unit 727 MW Roxboro 4 units 2,422 MW Florida CAIR $1.2 billion 16 Crystal River 4 & 5 1,398 MW 8

11 Carolinas Coal-to-Gas Fleet Modernization Lee Repowering Replacing 397 MW coal-fired Lee Plant with 950 MW CCGT Received CPCN* from NCUC in Oct Expected in-service in January 2013 Estimated capex ~$800M, net of AFUDC Sutton Repowering Replacing 600 MW coal-fired plant with 620 MW CCGT Received CPCN* from NCUC in June 2010 Expected in-service in January 2014 Estimated capex ~$500M, net of AFUDC * CPCN Certificate of public convenience and necessity. 17 Well-Positioned for EPA s Proposed Transport Rule Coal Fleet (MW) * * Includes jointly-owned capacity. Carolinas Florida 3,525 MW SO 2 / NO x Controls 1,398 MW 1,488 MW Announced Retirements MW Future Investment Opportunities 869 MW 5,190 MW Total Coal Fleet 2,267 MW Transport Rule SO 2 Emissions (Tons) 250, ,000 North Carolina 150, ,000 Allocation 50,000 0 Transport Rule SO 2 Emissions (Tons) 180, , Florida 120,000 90,000 60,000 Allocation 30,000 0 Note: Based on EPA s preferred option for SO 2 allowance allocations. Projected emissions based on most recent internal forecasts. 18 9

12 Levy Nuclear Project Deferred major construction on Levy project in Florida until licensing is complete Reduces near-term price impact on customers Allows time for economic recovery and greater clarity on federal and state policies Assess project and determine schedule after COL is received, which is expected in late 2012 New nuclear plants are increasingly important to reduce emissions, support growing population/economy and strengthen energy security. 19 Financial Goals and Performance 10

13 Financial Goals Achieve long-term annual EPS growth 4% to 5% Sustain dividend id d yield to support total t shareholder h return Preserve investment grade credit ratings Sustain financial strength and flexibility 21 Delivering on our EPS Commitments (Unaudited) $2.96 $3.03 $ $3.05 $2.71 $ Ongoing EPS * 2007 Ongoing EPS * 2008 Ongoing EPS * 2009 Ongoing EPS * 2010 Ongoing EPS Guidance * See appendix for reconciliation of ongoing EPS to reported GAAP EPS

14 Total Shareholder Return 25% 21.1% PGN UTY S&P % 15% 10% 11.6% 10.2% 5% 4.4% 5.8% 6.2% 2.6% 5.3% 0.6% 0% -0.4% -5% -3.4% -10% -7.2% 1-year 3-year 5-year 10-year Source: Bloomberg as of September 30, Conclusion 12

15 Attractive, Sustainable Dividend $3.00 $ consecutive quarters of dividend payments since 1946 $2.00 $1.50 * $1.00 $0.50 $0.00 * * * Split-adjusted for 2-for-1 stock splits in 1954, 1964 and Progress Energy Value Drivers Continuous improvement focus System modernization strategy t Future growth prospects Financial flexibility Attractive, sustainable dividend Manage the present. Create the future

16 Appendix Attractive Rate Base Growth te Base (x 1M) Retail Rat $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Progress Energy Carolinas CAGR 3.3% E CAGR 7% Retail Rate Base (x 1M) $9,000 $8,000 $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 Progress Energy Florida CAGR 7.6% E CAGR 10% $ E 2011E 2012E $ E 2011E 2012E Retail rate base Clause-related (1) (1) Represents ECRC (CAIR at CR 4 & 5), Levy Nuclear, CR3 Nuclear Uprate and ECCR

17 Major Capital Projects on Target ($ in millions) Carolinas Total Project CapEx Cumulative Spent through 9/30/10 Expected Completion Date Recovery Methodology Clean Smokestacks $ 1,100M $ 1,050M 2013 Amortized $584M; balance in rate base Richmond County CCGT (incl transmission) 600M 450M June 2011 Rate Base SGIG Program* 205M 70M Spring 2013 DSM/EE rider Lee CCGT (incl transmission) ~800M 150M Jan 2013 Rate Base Sutton CCGT (incl transmission) ~600M 75M Jan 2014 Rate Base Florida Environmental $ 1,130M $ 1,125M May 2010 CR3 steam generator replacement CR3 nuclear uprate 390M 240M Spring 2012 Environmental Cost Recovery Clause TBD 410M 4Q Rate Base SGIG Program* 115M 10M Spring 2013 Note: Total project capital expenditures based on current estimates and exclude AFUDC. * Smart Grid capital excludes requested $200M of matching stimulus funds. ** Pending expected filing/approval. 29 Nuclear Cost Recovery legislation Energy Conservation Cost Recovery ** Projected Capital Expenditures (1) ($ in millions) 2008A 2009A 2010E 2011E 2012E Maintenance Capex Generation $298 $463 $510 $440 $430 PEC Environmental Transmission Distribution Other Total Maintenance Capex Growth Capex Generation PEF Environmental Transmission Distribution Total Growth Capex 1,313 1,013 1,160 1, Corporate/other Total Capital before Potential New Nuclear 2,126 1,965 2,160 2,110 1,800 Potential nuclear construction Total Capital Spending $2,294 $2,256 $2,260 2,310 $2,170-2,180 $1,860-1,870 Total PEC (excluding new nuclear) ,330 1,350 1,170 Total PEF (excluding new nuclear) 1,368 1, (1) Excludes AFUDC, nuclear fuel and nuclear decommissioning trust funding

18 Projected Cash Flow ($ in millions) 2009A 2010E Operating cash flow $2, $2,440 Nuclear fuel and decommissioning trust (250) (280) Maintenance & corporate/other capex (952) (1,000) AFUDC debt (39) (30) Common dividends (693) (710) Free cash flow before growth capex Growth capex (1,013) (1,160) Potential nuclear construction (1) (291) (125) Free cash flow $(967) $(865) 1) 2010 potential nuclear construction is midpoint of range 31 Strong Liquidity Position with Manageable Near-Term Debt Maturities Strong liquidity position (as of September 30, 2010) Manageable near-term debt maturities ($ in millions) ($ in millions) PGN PEC PEF $691 $2,659 $2,000 $0 $0 $32 $1,000 $300 $950 $825 $500 $425 $700 $450 $400 Total credit 1 facilities Draw n CP outstanding Letters of Credit Cash & cash equivalents Total liquidity Pro forma for the renewed credit facilities on October 15,

19 Revolving Credit Agreements Renewed PEC and PEF RCAs on October 15, 2010 Each RCA = $750 million 3-year agreements No changes to financial covenant; no MAC language Diverse group of 22 banks participating in each RCA Reduced Progress Energy, Inc. RCA size to $500 million Agreement expires May 3, 2012 Maintains capacity of $2 billion across all three entities Previous RCAs New RCAs Credit Facility Expiration Amount ($000s) Credit Facility Expiration Amount ($000s) PEC 6/28/2011 $450 PEC 10/15/2013 $750 PEF 3/28/2011 $450 PEF 10/15/2013 $750 PGN 5/3/2012 $1,130 PGN 5/3/2012 $500 * $2,030 $2,000 * Approximately $22M of the $500M will expire May 3, Credit Ratings As of October 31, Progress Energy Moody s (1) S&P (2) Fitch (3) Outlook Stable Negative Stable Corporate Credit Rating -- BBB+ BBB Senior Unsecured Debt Baa2 BBB BBB Commercial Paper P-2 A-2 F2 Progress Energy Carolinas Outlook Stable Negative 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 Negative 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 April 9, 2010, Moody s downgraded the long-term ratings of PEF with a stable outlook and affirmed all ratings of PGN and PEC and the short-term ratings of PEF with stable outlooks. (2) On March 11, 2010, S&P removed PGN and its subsidiaries from CreditWatch Negative, affirmed all ratings and changed the outlook for each entity to negative. (3) On April 29, 2010, Fitch downgraded the long- and short-term ratings of PEF with a stable outlook and affirmed all ratings of PGN and PEC with stable outlooks

20 Reconciliation of Ongoing to GAAP Earnings * (Unaudited) Progress Energy, Inc. Reconciliation of Ongoing Earnings per Share to Reported GAAP Earnings per Share Years Ended December * 2007* 2006* Ongoing earnings per share $3.03 $2.96 $2.71 $2.43 CVO mark-to-market (0.01) (0.10) Impairment (0.01) Plant retirement charges (0.06) Cumulative prior period adjustment related to certain employee life insurance benefits (0.04) Valuation allowance and related net operating loss carry forward - (0.01) 01) - - Loss on debt redemptions (0.14) Discontinued operations (0.28) 0.22 (0.74) 0.08 Reported GAAP earnings per share $2.71 $3.17 $1.96 $2.27 Shares outstanding (millions) * * Previously reported 2008, 2007 and 2006 earnings per share have been restated to reflect the adoption of new accounting guidance that changed the calculation of the number of average common shares outstanding. 35 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. Reconciling adjustments from ongoing earnings to GAAP earnings are as follows: 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 The CVO liability is valued at fair value, and unrealized gains and losses from changes in fair value are recognized in earnings each quarter. 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. Impairment The company has recorded impairments of certain investments and other assets. Management does not consider this adjustment to be representative of the company s fundamental core earnings. Plant retirement charges The company recognized charges 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. Since the coal-fired generating units will be retired prior to their estimated useful lives, management does not consider these charges to be representative of the company s fundamental core earnings. Cumulative prior period adjustment related to certain employee life insurance benefits In the fourth quarter of 2009, PEC recorded a cumulative prior period adjustment related to certain employee life insurance benefits. Management does not consider this adjustment to be representative of the company s fundamental core earnings. Valuation Allowance and Related Net Operating Loss Carry Forward Progress Energy previously recorded a deferred tax asset for a state net operating loss carry forward upon the sale of Progress Energy Ventures Inc. s nonregulated generation facilities and energy marketing and trading operations. In the fourth quarter of 2008, the company recorded an additional deferred tax asset related to the state net operating loss carry forward due to a change in estimate based on 2007 tax return filings. The company also evaluated the total state net operating loss carry forward for potential impairment and partially impaired it by recording a valuation allowance, which more than offset the change in estimate. Management does not consider this net valuation allowance to be representative of the company s fundamental core earnings. Loss on Redemptions of Debt In the fourth quarter of 2006, Progress Energy redeemed $1.3 billion of Senior Notes prior to their maturity dates. Management does not consider this loss 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. Due to disposition of these assets, management does not consider this activity to be representative of the company s fundamental core earnings

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