Progress Energy (PGN)

Q3 2011 Earnings Call

November 03, 2011 10:00 am ET

Executives

Beau Pratt -

William D. Johnson - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Mark F. Mulhern - Chief Financial Officer and Senior Vice President of Finance

Analysts

Michael J. Lapides - Goldman Sachs Group Inc., Research Division

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Greg Gordon - ISI Group Inc., Research Division

Paul T. Ridzon - KeyBanc Capital Markets Inc., Research Division

Unknown Analyst -

Presentation

Operator

Good morning, and welcome the Progress Energy's Third Quarter 2011 Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I'd like the turn the conference over to Mr. Beau Pratt from Progress Energy. Please go ahead, sir.

Beau Pratt

Thank you, Charlotte. 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. We are currently being webcast from our Investor Relations page at progress-energy.com/webcast where we've also included a set of slides which accompany our speakers' prepared remarks.

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, Form 10-K, 10-Q and other SEC filings, as well as the risk factor discussion also found in our Forms 10-K and 10-Q. For your information, we plan to file our Form 10-Q early next week.

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.

William D. Johnson

Thanks, Beau. Good morning, everyone. I know it's another busy day on the earnings calendar, so we appreciate your participation this morning. I've managed to acquire a cold just in time for this call, so I'll apologize in advance for any sniffing, sneezing or coughing that you might hear.

So Slide 3 indicates -- I'll provide highlights of the third quarter and year-to-date financial results, along with updates on our proposed merger with Duke Energy, the Crystal River 3 containment building repair and a couple of other items of interest. Then Mark will provide more details on our financial results.

So let's start with ongoing earnings on Slide 4. For the third quarter, we reported ongoing earnings of $344 million, compared to $361 million for the same quarter a year ago. On a per share basis, we're down $0.07 from the third quarter in 2010. As Mark will review later, the results require a little explanation here.

This quarter's ongoing earnings including a negative $0.08 for the impact of storm costs and replacement power disallowances in the Carolinas. Net of a positive litigation award related to spent nuclear fuel. This favorable litigation was our successful claim against the U.S. Department of Energy for failure to abide by a contract for federal disposition of nuclear spent fuel. As a result, during the third quarter, we recorded a $92 million award as an offset for past spent fuel storage costs, including $27 million in O&M expense.

So when you consider these various one-time items, both positive and negative, we're in line with last year's results for the third quarter and slightly ahead of last year's results on a year-to-date basis. Based on our performance for the first 3 quarters and our expectations for the remainder of the year, we are reaffirming our previously announced 2011 ongoing earnings guidance range of $3 to $3.20 per share.

Now let's turn to where we stand on the regulatory approvals of the Duke-Progress merger. There have been several developments in recent months, and you can see the updated merger scorecard on Slide 5. Both companies have made all the required filings. We're still targeting a closing by the end of this year, and both companies are working hard to have the necessary infrastructure in place. The actual closing date, of course, will ultimately be determined by the timing of regulatory approvals, including by the FERC and the state commissions in North and South Carolina.

I'll comment on a couple of noteworthy events in the approval process. Both companies held shareholder meetings on August 23 to vote on the merger. And the shareholders overwhelmingly approved the merger, more than 90% for each company. We're very pleased with this strong response. It's a sign that Duke and Progress shareholders recognize the value of this strategic combination.

In late September, we appeared before the North Carolina Utilities Commission and reviewed the advantages of this combination for customers. The commission is expected to rule later this year.

Then on September 30, the FERC conditionally approved our merger application, expressing what they perceive to be adverse affects on wholesale competition in the Carolinas. In its order, the FERC described a number of different ways we could address their market power concerns. And final approval is subject to FERC's acceptance of our mitigation plan.

On October 17, our 2 companies filed a plan to address FERC's concerns. We proposed a virtual divestiture, whereby Progress Energy and Duke Energy will offer up to a specified amount of power in the wholesale markets during the summer and winter peak periods. Progress Energy Carolinas will offer up to 500 megawatts during each summer hour, and Duke Energy Carolinas will offer 300 megawatts during each summer hour and 225 megawatts during each winter hour. The FERC set a 30-day comment period on our mitigation plan, and that clock will run out in mid-November, then FERC will rule on our mitigation plan some time after that.

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