Progress Energy (PGN)
Q2 2010 Earnings Call
August 6, 2010 10:00 a.m. ET
Megan Wisz - Financial Specialist
William Johnson - Chairman, President, and Chief Executive Officer
Mark Mulhern - Chief Financial Officer
Vincent Dolan - Chief Executive Officer and President, Progress Energy Florida
Jeffrey Stone – Controller
Lloyd Yates - President and Chief Executive Officer, Progress Energy Carolinas
Greg Gordon – Morgan Stanley
Andrew Levy - Tudor, Pickering, Holt & Co.
Jonathan Arnold - Deutsche Bank
Paul Patterson - Glenrock Associates
Paul Ridzon - Key Bank
Marc de Croisset - FBR Capital Markets & Co.
Ashar Khan - Visium Asset Management
Ted Hein - Catapult
Previous Statements by PGN
» Progress Energy Q1 2010 Earnings Call Transcript
» Progress Energy Q4 2009 Earnings Call Transcript
» Progress Energy, Inc. 3Q09 (Qtr End 9/30/09) Earnings Call Transcript
Good morning and welcome to Progress Energy's second quarter 2010 earnings conference call. [Operator Instructions] For opening remarks and introductions, I would now like to turn the conference over to Megan Wisz of Progress Energy. Please go ahead.
Thank you Operator. Good morning, and welcome to everyone. Joining me this morning are Bill Johnson, Chairman, President, and Chief Executive Officer; Mark Mulhern, Chief Financial Officer; and other members of our senior management team. As a reminder, this call will be archived on our web site for the next two weeks. We are currently being webcast from our Investor Relations page at progress-energy.com. We are also offering an audio replay of this call in Windows Media format, available from our web site. I direct your attention to our web site, where we have included a set of slides which accompany our speaker's prepared remarks this morning. These slides can be found at progress-energy.com/webcast.
Today, we will be making forward-looking statements as well as reviewing historical information. There are numerous factors that may cause future actual results to differ materially from these statements, and we outlined these in our earnings release, Forms 10-K, and 10-Q and other SEC filings, as well as the risk factor discussion also found in our Forms 10-K and 10-Q, which will be filed later today. This morning, following opening comments from Bill and Mark, we will open the phone lines to address your questions. Now I'll turn the call over to Bill Johnson.
Thanks Megan. Good morning everyone. We’re glad you’ve joined our call this morning. I suspect you’re all suffering from earnings call fatigue at this point in the cycle, so we’ll get right down to business here.
Slide 3 shows – I’ll provide a few highlights for the quarter as well as speak to our Florida rate settlement, our Crystal River outage, and the EPA’s recently proposed transport rule. Then Mark Mulhern will provide more detail on the numbers.
So let’s start with ongoing earnings on slide 4. We again achieved solid financial results, ongoing earnings of $181 million for the second quarter, which was the same as the second quarter a year ago. On a per-share basis, we’re down $0.01 quarter over quarter. For the first six months of this year, ongoing earnings were $395 million, compared to $363 million for the same period in 2009. On a per-share basis we’re up $0.07.
Clearly, weather is a significant part of this story. It was one of the hotter Junes on record. We also continued to see modest signs of economic recovery in the Carolinas and Florida, a little better than what was in our forecast. But unemployment remains high in our state. It’s above the national average in all three of the states that we serve, and this is going to take a little time to return to more normal levels.
Also, we aren’t seeing the higher percentage recovery in industrial sales that some areas and companies are seeing. But that’s primarily because our industrial sales didn’t fall quite as far during the recession. We are encouraged that our Florida residential customer growth turned positive in the second quarter. So primarily on favorable weather so far this year, we’re narrowing our ongoing earnings guidance range for 2010 to $2.95 to $3.05 per share, the top end of our previously announced range.
In addition to weather, we’ve got some flexibility in Florida because of our rate settlement, which I’ll discuss in a moment. Operationally, our workforce and system are meeting our customers’ needs very well during extended periods of extreme heat and high demand, as we did last quarter during some very cold weather. Our employees deserve a lot of credit for their focus and hard work, and I’ll take this opportunity to thank them publically.
Now one thing we are disappointed in is the O&M expense increase in the first half of the year. The increase was primarily because of longer and broader scope outages than we had planned at our Brunswick and Robinson nuclear plants.
You should not expect this to be a trend. In fact, aside from the nuclear outages this year, we’ve been very successful in keeping O&M expenses flat. We’ve increased management focus on our nuclear program with some organizational changes in the second quarter, and we’re taking aggressive steps to strengthen nuclear operations and outage execution while keeping safety the number one priority.
Next, let’s turn to slide five and we’ll talk about the Florida rate settlement. As many of you know, the Florida Public Service Commission, on June 1, unanimously approved a settlement agreement that will keep our Florida base rate stable through the end of 2012. This rate freeze does not apply to the cost-recovery clauses, which are reviewed annually.
The settlement provides us some flexibility to reduce depreciation expense and amortize certain regulator assets as long as we stay within our allowed ROE range. It provides regulatory certainty without impacting base rates, and allows time for the economy to improve over the next year or two. The settlement also substantially mitigates the depreciation reserve issue in future rate cases. So we’re pleased that the base rate issues are settled for now, and that regulatory risk is mitigated in the near term.