Progress Energy (PGN)

Q4 2011 Earnings Call

February 16, 2012 2:00 pm 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

Jonathan P. Arnold - Deutsche Bank AG, Research Division

Dan Eggers - Crédit Suisse AG, Research Division

Ashar Khan

Paul Patterson - Glenrock Associates LLC

Brian Chin - Citigroup Inc, Research Division

Greg Gordon - ISI Group Inc., Research Division

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

Raymond M. Leung - Goldman Sachs Group Inc., Research Division

Unknown Analyst

Presentation

Operator

Good afternoon, and welcome to Progress Energy's Fourth Quarter and Year-End 2011 Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I now turn the conference over to Beau Pratt of Progress Energy. Please go ahead.

Beau Pratt

Thank you, Roxanne. Good afternoon, and welcome, everyone. Joining me today 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 this afternoon.

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-K by the end of the month.

This afternoon, 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, and good afternoon, everyone. Thanks for being on the call. This morning, we released our fourth quarter and year-end financial results for 2011 and also provided a stand-alone ongoing guidance range for 2012.

As you can see on Slide 3, I will open with a few comments on earnings and then update you on our merger status, Crystal River 3 and the Florida settlement agreement. I'll also point out our priority focus areas for 2012, and then Mark Mulhern will provide more details on our financial results and 2012 guidance.

We thought it appropriate to give stand-alone guidance here, given that the targeted closing date for the merger is not until May or June at the earliest.

Now if you turn to Slide 4 for the fourth quarter and year-end results. For the fourth quarter, we reported ongoing earnings of $114 million, compared to $133 million for the same quarter a year ago. Our earnings were down $0.06 per share. For the full year 2011, we reported ongoing earnings of $871 million, down $18 million from 2010. Our ongoing earnings per share were $2.95 compared to $3.06 per share for 2010.

There were a number of moving parts and unusual items in the financials this year. You might recall our third quarter 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 fuel. And we're confident that our results did not fully reflect the true earnings power of this company or the solid groundwork our employees are laying for our strong future. And to that point, we're announcing a 2012 stand-alone guidance range of $3.10 to $3.25 per share of ongoing earnings. And in a moment, Mark will provide more perspective on our drivers for both 2011 and 2012.

Turning to Slide 5. You'll see where we stand in terms of securing all the approvals for the Duke Progress merger announced early last year. Later this quarter, we expect to file our joint response to the Federal Energy Regulatory Commission addressing the issues in its mid-December ruling. We will file a summary of the mitigation plan first with the North Carolina Utilities Commission because of its 30-day notification requirement before we formally file with FERC.

We expect to make the notice filing with the North Carolina Commission next week. And the merger closing date will ultimately depend on the timing of these regulatory approvals.

The proposed FERC mitigation plan consists of permanent mitigation involving the construction of new transmission and the upgrade of existing transmission to improve the import capability into both the Duke and Progress control areas. We expect to file the details on this specific transmission projects, which will take approximately 3 years to build and, in total, cost up to about $100 million.

In addition, we will propose a short-term bridge mitigation plan to cover the period while the transmission projects are being completed. This bridge mitigation plan will involve firm power sales to new market participants in sufficient size to address the screen failures FERC identified in its response to our last mitigation plan. We expect the cost to the combined company of these power sales will be determined as part of the FERC and state regulatory approval process. We believe this proposed mitigation plan is a response to the FERC's concerns, and we still believe in the value the merger will create for customers and shareholders.

As noted on this slide, we also will make new Hart-Scott-Rodino filings with the Department of Justice, given that the initial filings expire in April, which is before we expect to close the merger.

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