Progress Energy Announces 2011 First-Quarter Results; Affirms Full-Year 2011 Earnings Guidance

RALEIGH, N.C., May 5, 2011 /PRNewswire-FirstCall/ -- Progress Energy (NYSE: PGN) announced first-quarter GAAP earnings of $184 million, or $0.62 per share, compared with GAAP earnings of $190 million, or $0.67 per share, for the same period last year. First-quarter ongoing earnings were $202 million, or $0.69 per share, compared to $213 million, or $0.75 per share, for the same period last year. The significant drivers in ongoing earnings per share were extreme weather in the prior year throughout the company's service territories and decreased wholesale revenues in Florida, partially offset by lower depreciation and amortization expense in Florida. (See the discussion later in this release for a reconciliation of ongoing earnings per share to GAAP earnings per share.)

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"We are on track in meeting our financial goals and our shareholder expectations, even as weather returned to a more normal range from the extreme cold of early 2010," said Bill Johnson, Progress Energy chairman, president and CEO. "We continue to see modest growth and signs of recovery in the Carolinas and Florida. Meanwhile, we remain focused on operational excellence, cost discipline and managing the business effectively as we move ahead with approvals and integration planning associated with our pending merger with Duke Energy."

Progress Energy affirms 2011 ongoing earnings guidance of $3.00 to $3.20 per share. The ongoing earnings guidance excludes the impact, if any, from discontinued operations, the effects of certain identified gains and charges and any merger and integration costs from our proposed strategic combination with Duke Energy Corporation (the Merger). Progress Energy is not able to provide a corresponding GAAP equivalent for the 2011 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 first-quarter 2011 financial performance, as well as provide an overall business update. Additional details are provided at the end of this earnings release.

See the first-quarter 2011 business highlights for detailed earnings variance analyses for the Progress Energy Carolinas (PEC), Progress Energy Florida (PEF) and Corporate and Other Businesses segments.

RECENT DEVELOPMENTS

Duke Energy – Progress Energy Merger

• Submitted Merger-related regulatory filings with the following federal and state agencies: Securities and Exchange Commission; Federal Trade Commission; Department of Justice; Federal Energy Regulatory Commission; Nuclear Regulatory Commission (NRC); North Carolina Utilities Commission (NCUC); South Carolina Public Service Commission; and Kentucky Public Service Commission.
• The Merger is targeted to close by the end of 2011.

Financial and Regulatory

• Filed 2012 nuclear cost-recovery estimates with the Florida Public Service Commission (FPSC), which will slightly decrease the amount customers will pay for new nuclear projects.
• Filed annual N.C. Clean Smokestacks Act update with the NCUC, which reported that PEC has successfully met the state's first reduction target for nitrogen oxide (NOx) emissions and continued to meet the reduction target for sulfur dioxide (SO2) emissions by reducing emissions of NOx by 68 percent and SO2 by 71 percent from 2002 levels at the company's coal-fired power plants in North Carolina.

Power System

• Notified the NRC and the FPSC that the Crystal River Nuclear Plant will remain out of service while the company conducts a thorough engineering analysis and review of a new delamination identified in mid-March. Options to return the plant to service will be analyzed after the full evaluation is complete. Our current intent is to return the plant to service, and we believe that retiring and decommissioning the unit without returning it to service is unlikely.  However, the company cannot estimate a return-to-service date or the cost of repairs at this time.
• Announced that PEC will retire its 170-megawatt (MW) Weatherspoon coal-fired power plant this fall, several years ahead of the originally announced retirement schedule. The retirements of the utility's other smaller, older coal-fired units in North Carolina are on track:
  • 391-MW Lee Plant is scheduled to be replaced by a 920-MW natural gas plant in 2013;
  • 316-MW Cape Fear Plant will be retired by the end of 2014; and
  • 590-MW Sutton Plant will be replaced by a 625-MW natural gas plant in 2014.
• Restored service safely and quickly to customers who lost power in major spring 2011 storms:
  • Florida – 346,000 customers lost power due to severe hurricane-like winds in March
  • Carolinas – 340,000 customers lost power due to a wave of powerful tornadoes in April.

Alternative Energy and Energy Efficiency

• Signed contracts to purchase power from the following facilities:
  • 60-MW biomass facility being developed by U.S. EcoGen, LLC in Polk County, Fla;
  • 36-MW poultry waste-to-biogas energy plant being built by Poultry Power USA in Montgomery County, N.C.; and
  • 800-kilowatt solar photovoltaic array being built by ESA Renewables, LLC at the Port of Morehead City, N.C.

EEI Award

• Recognized for exceptional customer service in Edison Electric Institute's (EEI) 2011 National Key Accounts Customer Service Awards program. The National Account teams for both PEC and PEF Commercial, Industrial and Governmental groups were honored.

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

FIRST-QUARTER 2011 BUSINESS HIGHLIGHTS

Below are the first-quarter 2011 earnings variance analyses for the company's segments. See the reconciliation tables in the ongoing earnings adjustments and on table 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 electric revenues, energy sales, energy supply, weather impacts and other topics.

Progress Energy Carolinas

• Reported first-quarter ongoing earnings per share of $0.47, compared with $0.52 for the same period last year; GAAP earnings per share of $0.44, compared with $0.48 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.02 retail growth and usage
  • $0.02 other primarily due to higher income recognized from the balanced billing program resulting from extreme weather in 2010
  • $0.02 AFUDC equity primarily due to increased construction project costs
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.07) weather primarily due to 15 percent lower heating-degree days than 2010; additionally, heating-degree days were 1 percent lower than normal in 2011 and were 19 percent higher than normal in 2010
  • $(0.01) clauses and other margin
  • $(0.01) depreciation and amortization
  • $(0.02) share dilution
• 7,000 net increase in the average number of customers for the three months ended March 31, 2011, compared to the same period in 2010

Progress Energy Florida

• Reported first-quarter ongoing earnings per share of $0.38, compared with $0.40 for the same period last year; GAAP earnings per share of $0.34, compared with $0.36 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.16 depreciation and amortization primarily due to a reduction in the cost of removal component of amortization expense in accordance with the 2010 base rate settlement agreement
  • $0.02 other primarily due to a litigation settlement
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.10) weather primarily due to 56 percent lower heating-degree days than 2010; additionally, heating-degree days were 7 percent higher than normal in 2011 and were 143 percent higher than normal in 2010
  • $(0.04) wholesale primarily due to decreased revenues from wholesale contracts that expired in 2010 and changes to a contract with a major customer
  • $(0.02) retail growth and usage
  • $(0.01) clauses and other margin
  • $(0.01) O&M
  • $(0.01) interest expense
  • $(0.01) share dilution
• 8,000 net increase in the average number of customers for the three months ended March 31, 2011, compared to the same period in 2010

Corporate and Other Businesses (includes primarily Holding Company debt)

• Reported first-quarter ongoing after-tax expenses of $0.16 per share compared with after-tax expenses of $0.17 per share for the same period last year; GAAP after-tax expenses of $0.16 per share, compared with after-tax expenses of $0.17 per share for the same period last year.
• Reported primary quarter-over-quarter ongoing after-tax expenses per share favorability of:
  • $0.01 O&M
  • $0.01 share dilution
• Reported primary quarter-over-quarter ongoing after-tax expenses per share unfavorability of:
  • $(0.01) interest expense

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, 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 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.

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 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.

Progress Energy's conference call with the investment community will be held May 5, 2011, at 10 a.m. ET (7 a.m. PT). Investors, media and the public may listen to the conference call by dialing (913) 312-0644, confirmation code 8585750. If you encounter problems, please contact Investor Relations at (919) 546-6057.

A webcast of the live conference call will be available at www.progress-energy.com/investor. 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/investor.

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 power 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 throughout 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;
• our ability to achieve the anticipated results and benefits of the Merger;
• the impact of business uncertainties and contractual 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;
• 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.

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 that date on which such statement is made.

SOURCE Progress Energy