Progress Energy Announces 2012 First-Quarter Results; Affirms Full-Year 2012 Earnings Guidance

RALEIGH, N.C., May 3, 2012 /PRNewswire/ -- Progress Energy (NYSE: PGN) announced first-quarter GAAP earnings of $150 million, or $0.51 per share, compared with GAAP earnings of $184 million, or $0.62 per share, for the same period last year. First-quarter ongoing earnings were $143 million, or $0.48 per share, compared to $202 million, or $0.69 per share, for the same period last year. The significant drivers in ongoing earnings per share were unfavorable impact of weather in the Carolinas, higher operation and maintenance (O&M) expense and higher depreciation and amortization expense. The higher O&M expense is primarily due to an additional planned nuclear refueling outage at Progress Energy Carolinas (PEC), partially offset by the reversal of certain regulatory liabilities in accordance with the 2012 settlement agreement at Progress Energy Florida (PEF). (See the discussion later in this release for a reconciliation of ongoing earnings per share to GAAP earnings per share.)

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"The extremely mild weather through the first quarter of 2012 – although certainly a welcome respite for our customers – resulted in significantly lower energy sales in the Carolinas," said Chairman, President and CEO Bill Johnson. "We remain focused on meeting our financial goals and shareholder expectations for the year through operational excellence, cost management and consistent execution, as we await the last regulatory approvals of our pending merger with Duke Energy."

Progress Energy affirms 2012 ongoing earnings guidance of $3.10 to $3.25 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. Progress Energy is not able to provide a corresponding GAAP equivalent for the 2012 ongoing earnings guidance due to the uncertain nature and amount of these adjustments.

Progress Energy will host a conference call and webcast at 11 a.m. ET today to review first-quarter 2012 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 2012 business highlights section for detailed first-quarter 2012 earnings variance analyses for the PEC, PEF and Corporate and Other Businesses segments.

RECENT DEVELOPMENTS

Duke Energy – Progress Energy Merger

• Filed a revised market power mitigation plan with the Federal Energy Regulatory Commission (FERC) on March 26, 2012. The revised plan consists of both interim and permanent components. The interim component consists of several power purchase agreements whereby the companies propose to sell capacity and firm energy during the summer and winter to new market participants. The permanent component consists of seven transmission projects to be constructed, estimated to cost approximately $110 million. The transmission projects significantly increase power import capabilities into the PEC and Duke Energy Carolinas service territories and enhance competitive power supply options for the region. The companies requested that the FERC issue orders approving the revised mitigation plan within 60 days, but no later than June 8, 2012. On April 13, 2012, the companies responded to the FERC's subsequent request for additional information on the transmission-related models provided in the revised mitigation plan.
• Filed two additional filings with the FERC on March 26, 2012. The first filing is a joint dispatch agreement (JDA), pursuant to which PEC and Duke Energy Carolinas will agree to jointly dispatch their generation facilities in order to achieve certain of the operating efficiencies expected to result from the merger. The second filing is a joint open access transmission tariff (OATT) pursuant to which PEC and Duke Energy Carolinas will agree to provide transmission service over their transmission facilities under a single transmission rate.
• The public comment period for the JDA and OATT closed on April 16, 2012. Additionally, the public comment for the revised market power mitigation plan closed on April 25, 2012. The companies have filed responses to these comments with the FERC, and the FERC now has a complete record to proceed with their evaluations.
• On March 22, 2012, the companies submitted a second Hart-Scott-Rodino filing with the U.S. Department of Justice and have met their obligations under the Hart-Scott-Rodino Act. Because the merger did not close before the April 26, 2012, expiration of the original filing, Progress Energy and Duke Energy made a new filing under the Hart-Scott-Rodino Act in order to be able to close the merger and continue to meet their obligations.
• The merger is targeted to close by July 1, 2012.

Financial and Regulatory

• On Feb. 22, 2012, the Florida Public Service Commission (FPSC) unanimously approved the comprehensive settlement agreement reached collaboratively among PEF, the Office of Public Counsel and other consumer advocates.
• Filed 2013 nuclear cost-recovery estimates with the FPSC.

Power System

• Completed scheduled refueling outages at the Robinson Nuclear Plant (RNP) in March and the Brunswick Nuclear Plant in April. Upgrades made to RNP during the outage are expected to result in an approximate 20-megawatt (MW) capacity increase for the plant.
• Entered a scheduled refueling outage at the Harris Nuclear Plant in April, completing a 525-day breaker-to-breaker run for the plant. There were no forced outages and the plant had no unplanned power changes during the 18-month period.
• Announced plans to convert PEF's 1,011-MW Anclote Units 1 and 2 from oil and natural gas- fired to 100 percent natural gas-fired and requested that the FPSC permit recovery of the estimated $79 million conversion cost through the environmental cost recovery clause.
• Implementing post-Fukushima lessons learned by conducting in-depth inspections and analyses of the nuclear fleet, installing equipment to monitor and respond to potential emergencies, and developing plans for additional safety and security initiatives.

Alternative Energy and Energy Efficiency

• Signed contracts to purchase power from the following facilities:
  • 1.26-MW solar photovoltaic (PV) array became operational in April 2012, in New Bern, N.C.
  • 1-MW solar PV array became operational in April 2012 in Raleigh, N.C.
• Completed installation of more than 120 plug-in vehicle charging stations at residential and commercial customer locations in the Carolinas and Florida since Sept. 2011. A total of 250 charging stations are planned as part of this charging station research program.
• Surpassed 275 residential solar PV systems installed in the Carolinas and Florida through the SunSense Solar PV Program.
• Filed prepay program in North Carolina and South Carolina that allows customers in certain areas the option of prepaying for electric service, giving them greater control over their energy use. The program was approved in South Carolina on April 11, 2012. It is still under review at the N.C. Utilities Commission.

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

FIRST-QUARTER 2012 BUSINESS HIGHLIGHTS

Below are the first-quarter 2012 earnings variance analyses for the company's segments. See the reconciliation tables in the ongoing earnings adjustments section 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 electric revenues, energy sales, energy supply, weather impacts and other topics.

Progress Energy Carolinas

• Reported first-quarter ongoing earnings per share of $0.20, compared with $0.47 for the same period last year; GAAP earnings per share of $0.17, compared with $0.44 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 clauses and other margin primarily due to increased spending on new and existing demand-side management (DSM) programs
  • $0.01 other
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.17) O&M primarily due to higher nuclear plant outage costs resulting from an additional planned nuclear refueling outage in the first quarter of 2012
  • $(0.10) weather primarily due to 28 percent lower heating-degree days
  • $(0.02) depreciation and amortization primarily due to higher depreciable asset base driven by the newly constructed combined-cycle unit at the Smith Energy Complex, which was placed in service in June 2011
  • $(0.01) wholesale
  • $(0.01) allowance for funds used during construction equity
  • $(0.01) interest expense
• 9,000 net increase in the average number of customers for the three months ended
  March 31, 2012, compared to the same period in 2011

Progress Energy Florida

• Reported first-quarter ongoing earnings per share of $0.44, compared with $0.38 for the same period last year; GAAP earnings per share of $0.43, compared with $0.34 for the same period last year.
• Reported primary quarter-over-quarter ongoing earnings per share favorability of:
  • $0.08 O&M primarily due to the reversal of certain regulatory liabilities associated with Crystal River Nuclear Plant Unit 3 (CR3) in accordance with the 2012 settlement agreement
  • $0.04 clauses and other margin primarily due to a prior-year indemnification charge for the joint owner replacement power costs related to the continued outage at CR3
  • $0.02 wholesale primarily due to a new contract with a major customer
• Reported primary quarter-over-quarter ongoing earnings per share unfavorability of:
  • $(0.05) depreciation and amortization primarily due to the smaller reduction in the cost of removal component of amortization expense as allowed under the 2010 settlement agreement
  • $(0.02) other primarily due to a prior-year favorable litigation settlement
  • $(0.01) weather
• 11,000 net increase in the average number of customers for the three months ended
  March 31, 2012, compared to the same period in 2011

Corporate and Other Businesses (includes primarily Holding Company debt)

• Reported first-quarter ongoing after-tax expenses of $0.16 per share for this year and for the same period last year; GAAP after-tax expenses of $0.09 per share, compared with after-tax expenses of $0.16 per share for the same period last year.
• Reported primary quarter-over-quarter ongoing after-tax expenses per share favorability of:
  • $0.01 interest expense
• Reported primary quarter-over-quarter ongoing after-tax expenses per share unfavorability of:
  • $(0.01) income taxes

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. Ongoing earnings is computed as GAAP net income attributable to controlling interests (or GAAP earnings) less discontinued operations and the effects of certain identified gains and charges.  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. Because this adjustment varies by quarter but has no impact on annual earnings, management does not consider this item to be representative of the company's fundamental core earnings.

Discontinued Operations

The company has completed its business strategy of divesting nonregulated businesses to reduce its business risk and focus on core operations of the Utilities. Resolution of guarantees and indemnifications providing for certain legal, tax and environmental matters could result in additional adjustments. In 2012, the company recorded the reversal of certain environmental indemnification liabilities for which the indemnification period has expired. Management does not consider this item to be representative of the company's fundamental core earnings.

Contingent Value Obligations (CVO) Mark-to-Market

In connection with the acquisition of Florida Progress Corporation, Progress Energy issued CVOs that represent 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 gains and losses from changes in fair value of CVOs not held by Progress Energy are recognized in earnings. Progress Energy is unable to predict the changes in the fair value of the CVOs, and management does not consider this item to be representative of the company's fundamental core earnings.

Merger and Integration Costs

The company recorded charges for merger and integration costs related to the merger. Management does not consider this item to be representative of the company's fundamental core earnings.

Progress Energy's conference call with the investment community will be held May 3, 2012, at 11 a.m. ET (8 a.m. PT). Investors, media and the public may listen to the conference call by dialing 1.913.312.1448, confirmation code 4637848. If you encounter problems, please contact Investor Relations at 1.919.546.6057.

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 10:30 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 23,000 MW of generation capacity and approximately $9 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 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 scope of necessary repairs of the delamination of PEF's CR3 could prove more extensive than is currently identified, such repairs could prove not to be feasible, the cost of repair and/or replacement power could exceed our estimates and insurance coverage or may not be recoverable through the regulatory process;
• 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;
• our ability to successfully operate electric generating facilities and deliver electricity to customers;
• the impact on our facilities and businesses from a terrorist attack, cyber security threats and other catastrophic events;
• our 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;
• our 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 O&M expense and large construction projects;
• our subsidiaries' ability to pay upstream dividends or distributions to Progress Energy, Inc. holding company;
• current economic conditions;
• our 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 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