Add
PGN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| PGN > SEC Filings for PGN > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
Quarterly Report
The following combined Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is separately filed by Progress Energy, Inc. (Progress Energy), Carolina Power & Light Company d/b/a Progress Energy Carolinas, Inc. (PEC) and Florida Power Corporation d/b/a Progress Energy Florida, Inc. (PEF). As used in this report, Progress Energy, which includes Progress Energy, Inc. holding company (the Parent) and its regulated and nonregulated subsidiaries on a consolidated basis, is at times referred to as "we," "us" or "our." When discussing Progress Energy's financial information, it necessarily includes the results of PEC and PEF (collectively, the Utilities). The term "Progress Registrants" refers to each of the three separate registrants: Progress Energy, PEC and PEF. Information contained herein relating to PEC and PEF individually is filed by such company on its own behalf. Neither of the Utilities makes any representation as to information related solely to Progress Energy or the subsidiaries of Progress Energy other than itself.
The following MD&A contains forward-looking statements that 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. Please review "Safe Harbor for Forward-Looking Statements" and Item 1A, "Risk Factors" found within Part II of this Form 10-Q and Item 1A, "Risk Factors" to the Progress Registrant's annual report on Form 10-K for the fiscal year ended December 31, 2008 (2008 Form 10-K) for a discussion of the factors that may impact any such forward-looking statements made herein.
Amounts reported in the interim statements of income are not necessarily indicative of amounts expected for the respective annual or future periods due to the effects of weather variations and the timing of outages of electric generating units, especially nuclear-fueled units, among other factors.
This discussion should be read in conjunction with the accompanying financial statements found elsewhere in this report and in conjunction with the 2008 Form 10-K.
PROGRESS ENERGY
RESULTS OF OPERATIONS
In this section, earnings and the factors affecting earnings for the three months ended March 31, 2009, are compared to the same period in 2008. The discussion begins with a summarized overview of our consolidated earnings, which is followed by a more detailed discussion and analysis by business segment.
Our reportable operating business segments are PEC and PEF, which are primarily engaged in the generation, transmission, distribution and sale of electricity in portions of North Carolina and South Carolina, and Florida, respectively.
Our "Corporate and Other" segment primarily includes the operations of the Parent, Progress Energy Service Company, LLC (PESC) and other miscellaneous nonregulated businesses that do not separately meet the quantitative disclosure requirements as a reportable business segment.
OVERVIEW
For the quarter ended March 31, 2009, our net income attributable to controlling interests was $182 million, or $0.66 per share, compared to net income attributable to controlling interests of $209 million, or $0.80 per share, for the same period in 2008. For the quarter ended March 31, 2009, our income from continuing operations was $183 million compared to $153 million for the same period in 2008. The increase in income from continuing operations as compared to prior year was primarily due to:
· favorable weather at the Utilities;
· favorable allowance for funds used during construction (AFUDC) equity at the Utilities;
· higher wholesale revenues at the Utilities; and
· lower income tax expense resulting from the deduction related to nuclear decommissioning trust funds.
Offsetting these items were:
· higher operation and maintenance (O&M) expenses at the Utilities;
· higher interest expense at PEF; and
· unfavorable net retail customer growth and usage at the Utilities.
Our segments contributed the following profits or losses for the three months ended March 31, 2009 and 2008:
Three Months Ended March 31,
(in millions) 2009 2008
Business Segment
PEC $ 127 $ 122
PEF 88 66
Total segment profit 215 188
Corporate and Other (32 ) (35 )
Income from continuing operations 183 153
Discontinued operations, net of tax - 61
Net income attributable to noncontrolling interests, net of tax (1 ) (5 )
Net income attributable to controlling interests $ 182 $ 209
|
PROGRESS ENERGY CAROLINAS
PEC contributed segment profits of $127 million and $122 million for the three months ended March 31, 2009 and 2008, respectively. The increase in profits for the three months ended March 31, 2009, compared to the same period in 2008, was primarily due to lower North Carolina Clean Smokestacks Act (Clean Smokestacks Act) amortization and the favorable impact of weather, partially offset by higher O&M expenses and the unfavorable impact of tax levelization.
The revenue table that follows presents the total amount and percentage change of revenues excluding fuel and other pass-through revenues. Revenues excluding fuel and other pass-through revenues is defined as total electric revenues less fuel and other pass-through revenues. We and PEC consider revenues excluding fuel and other pass-through revenues a useful measure to evaluate PEC's electric operations because fuel and other pass-through revenues primarily represent the recovery of fuel and a portion of purchased power expenses and other pass-through expenses through cost-recovery clauses and, therefore, do not have a material impact on earnings. We and PEC have included the analysis below as a complement to the financial information we provide in accordance with accounting principles generally accepted in the United States of America (GAAP). However, revenues excluding fuel and other pass-through revenues is not defined under GAAP, and the presentation may not be comparable to other companies' presentation or more useful than the GAAP information provided elsewhere in this report.
REVENUES PEC's electric revenues for the three months ended March 31, 2009 and 2008, and the amount and percentage change by customer class were as follows: (in millions) Three Months Ended March 31, Customer Class 2009 Change % Change 2008 Residential $ 512 $ 86 20.2 $ 426 Commercial 290 28 10.7 262 Industrial 164 (4 ) (2.4 ) 168 Governmental 26 3 13.0 23 Total retail revenues 992 113 12.9 879 Wholesale 193 12 6.6 181 Unbilled (38 ) (21 ) - (17 ) Miscellaneous 31 7 29.2 24 Total electric revenues 1,178 111 10.4 1,067 Less: Fuel and other pass-through revenues (479 ) (92 ) - (387 ) Revenues excluding fuel and other pass-through revenues $ 699 $ 19 2.8 $ 680 |
PEC's revenues, excluding fuel and other pass-through revenues of $479 million and $387 million for the three months ended March 31, 2009 and 2008, respectively, increased $19 million. The increase in revenues was primarily due to $13 million favorable impact of weather, $7 million higher miscellaneous revenues and $4 million higher wholesale revenues, excluding fuel and other pass-through revenues, partially offset by $5 million unfavorable impact of net retail customer growth and usage. The favorable impact of weather was primarily driven by 8 percent higher heating degree days than 2008. Heating degree days were comparable to normal in 2009 and 7 percent lower than normal in 2008. Higher miscellaneous revenues were primarily due to higher transmission revenues resulting from the Open Access Transmission Tariff rates that went into effect on July 1, 2008. Higher wholesale revenues were primarily due to contracts with two major customers driven by weather-related capacity increases, partially offset by lower excess generation sales due to unfavorable market dynamics resulting from normal weather in 2009 and higher relative fuel costs. The unfavorable impact of net retail customer growth and usage was driven by a decrease in the average usage per retail customer, partially offset by a net 18,000 increase in the average number of customers for the three months ended March 31, 2009, compared to the same period in 2008.
PEC's electric energy sales for the three months ended March 31, 2009 and 2008, and the amount and percentage change by customer class were as follows:
(in millions of kWh) Three Months Ended March 31, Customer Class 2009 Change % Change 2008 Residential 5,138 460 9.8 4,678 Commercial 3,315 37 1.1 3,278 Industrial 2,420 (352 ) (12.7 ) 2,772 Governmental 343 10 3.0 333 Total retail energy sales 11,216 155 1.4 11,061 Wholesale 3,676 (96 ) (2.5 ) 3,772 Unbilled (464 ) (223 ) - (241 ) Total kWh sales 14,428 (164 ) (1.1 ) 14,592 |
Wholesale revenues increased for the three months ended March 31, 2009, despite a decrease in wholesale kilowatt-hours (kWh) sales for the same period primarily due to the impact of increased fuel revenues as a result of higher energy costs. Wholesale kWh sales decreased for the three months ended March 31, 2009, primarily due to decreased excess generation sales resulting from unfavorable market dynamics.
PEC has experienced some decline in the rate of residential and commercial sales growth due to the current recession in the United States. Additionally, PEC's industrial kWh sales have decreased 12.4 percent from 2008, but industrial revenues have only decreased 12.7 percent due in part to the demand charges component of industrial
revenues. Many of the manufacturers in PEC's service territory have been adversely impacted by the recession, and we expect continued industrial sales weakness until the broader economy recovers. We cannot predict how long the recession may last or the extent to which it may impact revenues. In the future, PEC's customer usage could be impacted by customer response to energy-efficiency programs and to increased rates.
EXPENSES
Fuel and Purchased Power
Fuel and purchased power costs represent the costs of generation, which include fuel purchases for generation, as well as energy purchased in the market to meet customer load. Fuel and a portion of purchased power expenses are recovered primarily through cost-recovery clauses, and as such, changes in these expenses do not have a material impact on earnings. The difference between fuel and purchased power costs incurred and associated fuel revenues that are subject to recovery is deferred for future collection from or refund to customers.
Fuel and purchased power expenses were $499 million for the three months ended March 31, 2009, which represents a $94 million increase compared to the same period in 2008. Fuel used in electric generation increased $86 million to $442 million primarily due to the $65 million impact of higher coal prices and $16 million higher deferred fuel expense. The increase in deferred fuel expense was primarily due to the implementation of new fuel rates in North Carolina. Purchased power expense increased $8 million to $57 million compared to the same period in 2008 primarily due to an increase in interchange purchases of $13 million and purchases from renewable energy sources of $3 million, partially offset by lower cogeneration of $7 million. The increase in interchange purchases was primarily due to timing of plant outages in 2009.
Operation and Maintenance
O&M expense was $259 million for the three months ended March 31, 2009, which represents an $11 million increase compared to the same period in 2008. This increase is primarily due to $14 million higher nuclear plant outage and maintenance costs driven by the timing of outages and $5 million lower nuclear insurance refund, partially offset by $8 million lower emission expense primarily due to sales of nitrogen oxides (NOx) emission allowances.
Depreciation, Amortization and Accretion
Depreciation, amortization and accretion expense was $117 million for the three months ended March 31, 2009, which represents a $9 million decrease compared to the same period in 2008. Depreciation, amortization and accretion expense decreased primarily due to $15 million lower Clean Smokestacks Act amortization, partially offset by the $4 million impact of depreciable asset base increases. In accordance with a regulatory order, PEC ceased to amortize Clean Smokestacks Act compliance costs, but will record depreciation over the useful life of the assets.
Taxes Other Than on Income
Taxes other than on income was $54 million for the three months ended March 31, 2009, which represents a $4 million increase compared to the same period in 2008. This increase is primarily due to a $2 million increase in gross receipts taxes due to higher retail revenues. Gross receipts taxes are collected from customers and recorded as revenues and then remitted to the applicable taxing authority. Therefore, these taxes have no material impact on earnings.
Total Other Income, Net
Total other income, net was $4 million for the three months ended March 31, 2009, which represents a $5 million decrease compared to the same period in 2008. This decrease is primarily due to seasonal losses on a balanced billing program of $4 million, lower interest income of $3 million and investment losses of $2 million, partially offset by favorable AFUDC equity of $5 million. The favorable AFUDC equity is related to increased eligible construction project costs, which we expect to continue for the remainder of 2009.
Income Tax Expense
Income tax expense increased $1 million for the three months ended March 31, 2009, as compared to the same period in 2008, primarily due to the $5 million impact of tax levelization, discussed below, offset by the $5 million favorable tax benefit related to a deduction triggered by the transfer of previously funded amounts from nonqualified nuclear decommissioning trusts to qualified nuclear decommissioning trusts. GAAP requires companies to apply a levelized effective tax rate to interim periods that is consistent with the estimated annual effective tax rate. PEC's income tax expense was increased by $2 million for the three months ended March 31, 2009 compared to a decrease of $3 million for the three months ended March 31, 2008, in order to maintain an effective tax rate consistent with the estimated annual rate. Fluctuations in estimated annual earnings and the timing of various permanent items of income or deduction can cause fluctuations in the effective tax rate for interim periods. Therefore, this adjustment will vary each quarter, but will have no effect on net income for the year.
PROGRESS ENERGY FLORIDA
PEF contributed segment profits of $88 million and $66 million for the three months ended March 31, 2009 and 2008, respectively. The increase in profits for the three months ended March 31, 2009, compared to the same period in 2008, was primarily due to favorable AFUDC equity, lower income tax expense resulting from the deduction related to nuclear decommissioning trust funds, higher wholesale revenues and the favorable impact of weather, partially offset by higher interest expense, the unfavorable impact of net retail customer growth and usage, and higher O&M expenses.
The revenue table that follows presents the total amount and percentage change of revenues excluding fuel and other pass-through revenues. Revenues excluding fuel and other pass-through revenues is defined as total electric revenues less fuel and other pass-through revenues. We and PEF consider revenues excluding fuel and other pass-through revenues a useful measure to evaluate PEF's electric operations because fuel and other pass-through revenues primarily represent the recovery of fuel, purchased power and other pass-through expenses through cost-recovery clauses and, therefore, do not have a material impact on earnings. We and PEF have included the analysis below as a complement to the financial information we provide in accordance with GAAP. However, revenues excluding fuel and other pass-through revenues is not defined under GAAP, and the presentation may not be comparable to other companies' presentation or more useful than the GAAP information provided elsewhere in this report.
REVENUES PEF's electric revenues for the three months ended March 31, 2009 and 2008, and the amount and percentage change by customer class were as follows: (in millions) Three Months Ended March 31, Customer Class 2009 Change % Change 2008 Residential $ 625 $ 161 34.7 $ 464 Commercial 304 62 25.6 242 Industrial 84 15 21.7 69 Governmental 83 16 23.9 67 Total retail revenues 1,096 254 30.2 842 Wholesale 117 14 13.6 103 Unbilled 5 (1 ) - 6 Miscellaneous 44 (1 ) (2.2 ) 45 Total electric revenues 1,262 266 26.7 996 Less: Fuel and other pass-through revenues (853 ) (245 ) - (608 ) Revenues excluding fuel and other pass-through revenues $ 409 $ 21 5.4 $ 388 |
PEF's revenues, excluding fuel and other pass-through revenues of $853 million and $608 million for the three months ended March 31, 2009 and 2008, respectively, increased $21 million. The increase in revenues was primarily due to the $17 million favorable impact of weather and $17 million higher wholesale revenues, excluding fuel and other pass-through revenues, partially offset by the $11 million unfavorable impact of net retail customer growth and usage. The favorable impact of weather was primarily driven by 41 percent higher heating degree days
than 2008. Heating degree days were comparable to normal in 2009 and 27 percent lower than normal in 2008. Wholesale revenues increased primarily due to new and amended contracts that were not in effect in the same period in 2008.
The current recession in the United States has contributed to a slowdown in customer growth and usage in PEF's service territory. In addition to lower average usage per customer, PEF's average number of customer for the three months ended March 31, 2009, compared to the same period in 2008, decreased a net 8,000 customers. In comparison, PEF's average number of customers for the three months ended March 31, 2008, compared to the same period in 2007, increased a net 7,000 customers. We cannot predict how long the recession may last or the extent to which it may impact revenues. In the future, PEF's customer usage could be impacted by customer response to energy-efficiency programs and to increased rates.
PEF's electric energy sales for the three months ended March 31, 2009 and 2008, and the amount and percentage change by customer class were as follows:
(in millions of kWh) Three Months Ended March 31, Customer Class 2009 Change % Change 2008 Residential 4,287 282 7.0 4,005 Commercial 2,554 (107 ) (4.0 ) 2,661 Industrial 791 (74 ) (8.6 ) 865 Governmental 732 (35 ) (4.6 ) 767 Total retail energy sales 8,364 66 0.8 8,298 Wholesale 1,207 (183 ) (13.2 ) 1,390 Unbilled (170 ) (390 ) - 220 Total kWh sales 9,401 (507 ) (5.1 ) 9,908 |
Commercial, industrial and governmental revenues increased for the three months ended March 31, 2009, despite a decrease in kWh sales for the same period primarily due to the impact of increased fuel revenues as a result of higher fuel rates and the recovery of nuclear costs in accordance with a regulatory order issued in late 2008.
Wholesale revenues increased for the three months ended March 31, 2009, despite a decrease in kWh sales for the same period primarily due to peak demand charges and increased fixed capacity.
EXPENSES
Fuel and Purchased Power
Fuel and purchased power costs represent the costs of generation, which include fuel purchases for generation, as well as energy purchased in the market to meet customer load. Fuel and purchased power expenses are recovered primarily through cost-recovery clauses and, as such, changes in these expenses do not have a material impact on earnings. The difference between fuel and purchased power costs incurred and associated fuel revenues that are subject to recovery is deferred for future collection from or refund to customers.
Fuel and purchased power expenses were $672 million for the three months ended March 31, 2009, which represents a $148 million increase compared to the same period in 2008. Fuel used in electric generation increased $171 million to $512 million compared to the same period in 2008. This increase was primarily due to higher deferred fuel expense of $93 million driven by the implementation of new fuel rates to collect fuel costs from customers that had been previously under-recovered and increased current year fuel costs of $78 million. The increase in current year fuel costs was primarily due to increased fuel prices and a change in generation mix. Purchased power expense decreased $23 million to $160 million compared to the same period in 2008. This decrease was primarily due to a decrease in interchange purchases of $19 million resulting from lower system requirements.
Operation and Maintenance
O&M expense was $202 million for the three months ended March 31, 2009, which represents a $1 million decrease when compared to the same period in 2008. O&M expense decreased $26 million due to the storm damage reserve replenishment surcharge that ended in July 2008, partially offset by $16 million higher environmental cost recovery
(ECRC) costs due to increased rates resulting primarily from the recovery of emission allowances and higher pension costs of $9 million resulting from revised actuarial estimates. The replenishment of storm damage reserves and ECRC expenses are recovered through cost-recovery clauses and, therefore, have no material impact on earnings. In aggregate, O&M expenses recoverable through base rates increased $6 million compared to the same period in 2008.
Depreciation, Amortization and Accretion
Depreciation, amortization and accretion expense was $160 million for the three months ended March 31, 2009, which represents an $84 million increase compared to the same period in 2008. Depreciation, amortization and accretion expense increased primarily due to $80 million higher nuclear cost-recovery amortization which began in January 2009 in accordance with a 2008 regulatory order. The nuclear cost-recovery amortization is recovered through a cost-recovery clause and, therefore, has no material impact on earnings. In aggregate, depreciation, amortization and accretion expenses recoverable through base rates increased $2 million compared to the same period in 2008.
Taxes Other Than on Income
Taxes other than on income was $88 million for the three months ended March 31, 2009, which represents a $17 million increase compared to the same period in 2008. This increase is primarily due to a $13 million increase in gross receipts and franchise taxes due to higher retail revenues. Gross receipts and franchise taxes are collected from customers and recorded as revenues and then remitted to the applicable taxing authority. Therefore, these taxes have no material impact on earnings.
Total Other Income, Net
Total other income, net was $31 million for the three months ended March 31, 2009, which represents a $13 million increase compared to the same period in 2008. This increase was primarily due to $11 million favorable AFUDC equity related to eligible construction project costs.
Total Interest Charges, net
Total interest charges, net was $58 million for the three months ended March 31, 2009, which represents a $14 million increase compared to the same period in 2008. This increase was primarily due to $15 million higher interest as a result of higher average debt outstanding, partially offset by $3 million favorable AFUDC debt related to eligible construction project costs.
Income Tax Expense
Income tax expense decreased $5 million for the three months ended March 31, 2009, compared to the same period in 2008, primarily due to the $11 million impact of the favorable tax benefit related to a deduction triggered by the transfer of previously funded amounts from the nonqualified nuclear decommissioning trust to the qualified nuclear decommissioning trust, and the $4 million impact of the increase in AFUDC equity discussed above, partially offset by the $6 million tax impact of higher pre-tax earnings and the $2 million . . .
|
|