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Mark Mulhern Senior Vice President and CFO
Merrill Lynch Power & Gas Leaders Conference
September 24, 2008
Mark Mark MulhernMulhern Senior Vice President and CFOSenior Vice President and CFO
Merrill LynchMerrill Lynch Power & Gas Leaders ConferencePower & Gas Leaders Conference
September 24, 2008September 24, 2008
Securing our Energy FutureSecuring our Energy Future
Caution Regarding Forward-Looking Statements
This presentation includes information that is forward-looking in nature. Many factors could cause the actual results to be materially different than the forward-looking information provided. These factors are discussed in more detail in the Company’s most recent Form 10-K and Form 10-Qs.
Major Discussion Topics1. Company overview
2. Growth strategy
3. Nuclear expansion
4. Regulatory update
5. Financial update
Company Overview
Profile of who we are: Two High-Performing Electric Utilities
•• 12,400 MW capacity12,400 MW capacity•• Over 1.4M customersOver 1.4M customers•• 2.2% 2.2% custcust. growth (7. growth (7--yr CGR)yr CGR)•• $4.4B total revenue$4.4B total revenue•• $12B total assets$12B total assets•• 5,000 employees5,000 employees•• 34,000 sq. mile service area34,000 sq. mile service area•• 18 plants, 82 units18 plants, 82 units
Progress Energy CarolinasProgress Energy Carolinas
•• 9,400 MW capacity9,400 MW capacity•• ~1.7M customers~1.7M customers•• 2.2% 2.2% custcust. growth (7. growth (7--yr CGR)yr CGR)•• $4.7B total revenue$4.7B total revenue•• $13B total assets$13B total assets•• 4,000 employees4,000 employees•• 20,000 sq. mile service area20,000 sq. mile service area•• 14 plants, 65 units14 plants, 65 units
Progress Energy FloridaProgress Energy Florida
South South CarolinaCarolina
FloridaFlorida
North CarolinaNorth Carolina
Service Area
PGN Overarching Strategy
Growth Strategy
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
2001 2002 2003 2004 2005 2006 2007 2008E 2009E 2010E
Retail rate base Clause-related
Ret
ail R
ate
Bas
e (x
1M
) 2001-2007 CAGR5.0%
2008-2010E CAGR
5%
2001-2007 CAGR4.1%
Ret
ail R
ate
Bas
e (x
1M
)
Progress Energy Florida²Progress Energy Carolinas¹2008-2010E
CAGR
18%
Significant Rate Base Growth Even Prior to New Nuclear
(1) PEC rate base includes Clean Smokestacks Act expenditures in excess of $584M.(2) PEF rate base excludes Levy County nuclear capital expenditures.
Major Near-Term Capital Projects
(1) Capital expenditures exclude AFUDC.(2) Replacing 444 MW of oil steam units for a net increase of 715 MW.(3) On September 5, 2008, NCUC authorized PEC to rate-base expenditures above $584M.
Allowance for Funds Used During Construction (AFUDC)
Carolinas
Florida
PEC capital projects lasting more than PEC capital projects lasting more than one month are forecast to earn 8one month are forecast to earn 8--9% 9% AFUDC rate.AFUDC rate.($15M in 2007 growing to ~$35M in 2008)($15M in 2007 growing to ~$35M in 2008)
PEF capital projects greater than $45 PEF capital projects greater than $45 million and lasting more than one year million and lasting more than one year earn an 8.848% AFUDC rate. *earn an 8.848% AFUDC rate. * ($53M in 2007 growing to ~$125M in 2008)($53M in 2007 growing to ~$125M in 2008)
* PEF has a base level of CWIP embedded in its rate base.
Key Investments Drive Earnings Growth *
* For illustrative purposes only.
Nuclear Expansion
A WellA Well--Established, HighEstablished, High--Performing Performing Nuclear Generation Fleet: 4,323 MWNuclear Generation Fleet: 4,323 MW
Brunswick (2 BWR units) 1975-1977
Harris (1 PWR unit)1987
Crystal River (1 PWR unit) 1977
Robinson (1 PWR unit)1971
1,875 MW (1)
81.67% ownership
900 MW (1)
83.83% ownership
838 MW (1)
91.78% ownership
710 MW100%
ownership
(1) Facilities are jointly owned. The capacities shown include joint owners’ share.
Strong Case for New Nuclear in U.S.
Federal climate policy expected in 2009-2010
Need for new baseload generating capacity
Need for fuel diversity and energy security
Nuclear is the only proven carbon-free, baseload option that can be delivered at scale
Even Stronger Nuclear Case in FloridaProgress Energy FloridaProgress Energy Florida
Nuclear 14%
Oil/Gas 32%
Coal 31%
Purchased 23%
Generation Output Mix in 2007Generation Output Mix in 2007
Increasing nuclear share: • reduces fuel costs• reduces price volatility• helps address carbon challenge• strengthens fuel supply security
Supportive Florida Legislation 2006: Nuclear Investment Recovery
Pre-construction and licensingCapacity cost recovery clause (CCRC)Costs are recovered dollar for dollar
During constructionAFUDC is recovered through CCRC8.848% AFUDC rate is locked until commercial operationAnnual prudence reviews
CompletionBase rate adjustment at in-service for capital costsROE and capital structure based on last approved(currently 11.75% ROE on 57.83% common equity)
Project cancellation cost recovery
Levy Nuclear Project in FloridaLevy Nuclear Project in FloridaLocation Technology # of units Capacity (MW) In ServiceLevy County, Florida
Westinghouse AP1000 2 ~2,200 total Unit 1: 2016
Unit 2: 2017
•
8 miles NE of our Crystal River Energy Complex
•
Negotiating joint ownership with multiple parties (1)
•
Negotiating engineering, procurement & construction (EPC) agreement with Westinghouse and Shaw
•
Site prep & pre-construction begin ~2010/11; safety- related construction begins 2012/13
(1) Confidentiality obligations preclude us from discussing this further until the negotiations are completed.
Regulatory Timeline for Levy ProjectRegulatory Timeline for Levy Project
Filed Hearing Order
Issued
IssuedFiled (3 - 4 year review)
Filed (18 month review)
Mar. May July Sept. Oct. 2010June 2012/132008 Aug.
Filed Hearing Vote OrderNeed Case
Cost Recovery
Site Certification
Combined License
April
Regulatory Update
Carolinas Cost Recovery FilingsSouth Carolina fuel filing
PSC approved $39M increaseEffective July 1, 2008
North Carolina fuel filingReached a proposed settlement with interveners for $275M increaseRepresents a 3-year recovery (with interest) of ~$200M deferred fuel balance at July 31, 2008, plus projected fuel costsHearing held Sept 16; awaiting order; rates effective Dec 1, 2008
North Carolina REPS cost recoveryFiled for ~$12M actual and projected incremental cost of complianceAvoided costs will flow through fuel clause proceedingsHearing held Sept 17; awaiting order; rates effective Dec 1, 2008
North Carolina DSM/EE rider and DSDR* programFiled for ~$42M actual and projected cost recoveryRates effective Dec 1, 2008 (hearing scheduled for Dec 17, 2008)
* Distribution System Demand Response.
NC Clean Smokestacks Update
$569M – 70% of original estimate amortized by
12/31/07
$15M amortization in Q1-08
$229M balance into rate base
$584M: cumulative amortization to date
$813M: original estimate of compliance costs
$1.5B-$1.6B: current estimate of total costs
~$700M remaining expenditures
Received favorable order from NCUC on Sept 5: PEC allowed to accrue AFUDC above $813M; eliminates any further accelerated amortization
Florida Cost Recovery FilingsStorm damage reserve ended July 312008 mid-year fuel cost adjustment
$213M request for full recovery from Aug-Dec ’08FPSC approved half for recovery Aug-Dec ’08; remaining half in ’09
2009 cost recovery filings on Aug 29FuelCapacityEnvironmentalEnergy conservationLevy nuclearCR3 uprate
Current rate settlement expires at end of 2009
Hearings scheduled for Nov 4-6; rates effective Jan 1, 2009
Hearings held Sept 11-12; rates effective Jan 1, 2009
Florida Environmental Cost RecoveryEnvironmental Cost Recovery Clause (ECRC)
Annual ECRC filingAccrue AFUDC based on existing rate settlementReturn-of and return-on capital invested when placed-in serviceDollar-for-dollar recovery of
Related O&M expensesEmission allowances
Estimated total spend of $1.2B through 2010Crystal River 4 & 5$625M spent through June 30, 2008
Financial Update
Our Long-Term Financial Objectives
Achieve our 4-5% EPS growth objective
Preserve an investment grade credit rating
Maintain dividend growth
Keep rate increases reasonable to customers
Fund Levy and capital investments in the rest of the business
Financial Update: Challenges/Opportunities
Weaker than expected Florida revenues mitigated byWholesaleCost management
Regulatory depreciation/amortization at PECReceived Clean Smokestacks order from NCUC on 9/5/2008$75M of Harris depreciation by end of 2009
Capital expenditure program for 2008 on track
Progress Energy Average Customer Growth *
* Approximate average net increase in number of customers for respective three-month periods compared to prior year.
Long-term Demographics for Florida are Strong
Source: U.S. Census Bureau
• Economists say that in spite of a severe housing slowdown, Florida should continue growing and creating new jobs at a faster rate than the U.S. economy as a whole – Times Personal Finance Editor
• “We believe above average growth in population could help to correct inventory levels in Florida at a slightly faster rate than the national average” – Lehman Brothers
US Census projected population study estimates that Florida’s population is expected to grow 64% vs. the U.S. rate of 23% between 2005 and 2030.
FL CAGR = 2.0%vs.
US CAGR = 0.8%
Issue 2009 2010 2011 2012
PGN -$ 100$ 700$ 450$
PEC 400 6 - 500
PEF - 300 300 -
PCH - - - -
Total 400$ 406$ 1,000$ 950$
Liquidity Overview *
Program Term Amount Expiration
Progress Energy 5-Year $1,130 5/3/12
Progress Energy Carolinas 5-Year 450 6/28/11
Progress Energy Florida 5-Year 450 3/28/11
$2,030
PGN Revolving Credit FacilitiesDebt Maturity Profile
* * As of September 19, 2008.
(in millions)
Credit Facilities Consortium *
* * As of September 19, 2008.
Bank TotalJ.P. Morgan Chase $ 225.0 Bank Tokyo-Mitsubishi 200.0 Barclays Capital 190.5 Bank of America 190.0 Citigroup 180.0 Wachovia 175.5 Royal Bank of Scotland 169.0 Bank of New York Mellon 120.0 SunTrust 115.0 Morgan Stanley 100.0 Goldman Sachs 100.0 Deutsche Bank 95.0 UBS 80.0 BNP Paribas 50.0 BB&T 25.0 First Tennessee 15.0
Total $ 2,030.0
$ in millions
Conclusion
Value Proposition: A Superior Risk-Adjusted ReturnAttractive dividend yield with growth commitment
Long-term earnings growth supported by sales and rate base growth
Clear business model with successful execution history
Balance sheet and credit metrics support strategy
A solid, low-risk, long-term holdingA solid, low-risk, long-term holding
PGN Overarching Strategy
Q&A