Denial of higher Fla. rate clouds Progress' outlook

Staff WriterJanuary 20, 2010 

— The fallout from a failed rate increase in Florida could haunt Progress Energy employees and investors for years to come.

Executives at Progress, one of the Triangle's biggest employers, said Tuesday that the utility will cut operating expenses in Florida and delay two nuclear reactors. Chief Executive Bill Johnson warned that Florida regulators have created a scenario in which Progress will not have sufficient money to maintain service quality for Florida customers.

Raleigh-based Progress outlined the potential consequences, including weaker profit this year, in a special conference call with Wall Street analysts. The company will provide more details on the depth of the cuts when it reports fourth-quarter earnings next month. Another utility, Florida Power & Light, which was also turned down for a rate request, has said it would cut spending on its budget to maintain power plants and transmission lines by more than 50 percent.

The Florida Public Service Commission last week denied Progress a $500 million rate increase above the $132 million that had received provisional approval. Regulators said that they couldn't justify raising customers' rates during a severe recession.

Florida is Progress Energy's biggest service area, but the utility's operations in that state are financially separate from its business in the Carolinas and will have no bearing on rates, services and power plant schedules in this state. Johnson said Progress is not planning a rate increase request in North Carolina for several years.

However, any setback in Florida will affect the company's overall financial performance and affect all shareholders. Johnson said the failed rate case in Florida will likely prevent the company from increasing its dividend to shareholders.

"It's not tragic but it's not good either," said Angie Storozynski, who follows Progress stock for the Macquarie research firm in New York. "If you can't earn a decent return on your investment in Florida then maybe you shouldn't be investing."

The utility, which eliminated 300 Florida positions in 2008, is facing declining revenue in a state that was the epicenter of the real-estate meltdown that triggered the nation's deep recession. Johnson said Progress may be forced to try again by filing for another rate request this year.

"The revenue level approved last week does not cover the necessary costs of reliably serving the customers today and responsibly preparing for their future needs," Johnson said. "There was no consideration given to our declining revenues in a recession economy."

Lower earnings likely

Progress warned Wall Street that its 2010 per share earnings will be $2.85 to $3.05. Wall Street analysts had expected $3.10, Bloomberg News reported.

Still, Progress Energy's stock rose Tuesday.

Investors were relieved by the company's decision to leave its popular dividend untouched, Storozynski said. Progress has offered investors a dividend for 250 consecutive quarters and increased the payment in 50 of the past 56 years.

Progress officials said they will provide more details next month about cost-cutting and other adjustments. Some of the money in the requested rate increase would have been used to pay executive compensation incentives and corporate insurance for officers and board members.

The three-state company employs about 4,300 in Florida and 6,700 in the Carolinas.

Johnson said the future of two planned reactors at the Florida nuclear site is under review.

"At a minimum it will be on a slower schedule and on a much lower spending trajectory," he said. "There are projects that will have to be put on hold, given the circumstances and environment."

john.murawski@newsobserver.com or 919-829-8932

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