Duke Energy reported this morning that Progress Energy’s second-quarter earnings were weak as rising operating costs and idled nuclear plants took their toll on the electric utility’s bottom line.
The underwhelming Progress earnings could be a drag on Duke’s overall performance and are expected to raise questions later this morning from Wall Street analysts concerned about Duke’s troubled merger integration with Raleigh-based Progress. However, Duke maintained its earnings forecast for the year, as the Charlotte-based power company expects to begin reaping significant financial benefits from the departure of hundreds of senior employees this year.
The disappointing earnings closely track public testimony Duke officials made last month before the N.C. Utilities Commission to justify the forced resignation of CEO Bill Johnson because of allegedly poor financial and nuclear performance at Progress. Johnson, who had run Progress since 2007, was to be CEO of the combined Duke, but the company’s board decided to remove him just hours after the merger was completed, citing a lack of leadership skills as the overall reason.
Duke issued separate earnings for Progress because the corporate merger between the two companies did not close until July 2, in the third quarter. This will be the last separate earnings statement for Progress in the company’s history.
Duke chief financial officer Lynn Good said in an interview this morning that more than half the 1,150 employees who opted for voluntary buyouts are expected to leave the company this year. The rest will leave over the next three years. Duke expects to pay between $225 million and $275 million in severance payments to these employees and to any who are laid off as a result of the merger.
In all, 1,860 jobs – mostly from Progress – will be eliminated as part of the merger, which will also result in the closure of Progress’s Raleigh headquarters.
Progress’ ongoing earnings in the second quarter were $80 million, or 27 cents a share. That’s significantly down from $211 million, or 71 cents a share, for the same quarter a year earlier.
The Carolinas accounted for the biggest chunk of the earnings drop. Duke attributed the decline to higher nuclear plant outage costs resulting from an additional extended nuclear refueling outage, higher substation and line maintenance costs related to a reliability initiative, and higher employee benefit expenses.
Good said Progress had three planned nuclear outages this time versus just one last year. Outages can last more than a month and require the purchase of replacement power as well as bringing in hundreds of contractors to work on the plants.