Progress sees light ahead

RALEIGH, Oct 31, 2009 (The News and Observer - McClatchy-Tribune Information Services via COMTEX) -- PGN | Quote | Chart | News | PowerRating -- Despite declining electricity sales, Progress Energy beat analyst expectations for the third quarter and eked out a respectable performance by slashing costs and raising rates in Florida.

The third quarter is traditionally the Raleigh-based electric utility's most important of the year, accounting for about 40 percent of annual energy sales as air-conditioners work overtime to cool homes and businesses.

Echoing the opinion of economists and other experts, Progress officials on Friday said the recession appears to have bottomed out. But that doesn't mean conditions will rebound anytime soon.

"We continue to face a challenging environment," CEO Bill Johnson told analysts.

After decades of growth, Progress is seeing declining electricity usage in all customer classes -- residential, commercial and industrial -- and has experienced declining sales throughout the year.

Power sales are down 2.4 percent in the Carolinas and 2.3 percent in Florida for the year. In Florida, the decline is largely caused by the real-estate crash, while in this state, sales have slowed because the recession has weakened economic activity.

The company said it overcame weak usage by aggressive cost cutting throughout its service area in the Carolinas and Florida. Much of the savings has come from slashing travel budgets and other expenses.

Additionally, in Florida, Progress benefited from rate increases and early cost-recovery for nuclear plants under development. So far this year, Progress has cut operating costs 2.7 percent.

In another sign that the economy is resuscitating, Progress said Friday that it plans to borrow as much as $500 million by the end of January to repay more expensive debt and for other operating expenses. At the peak of the recession, credit markets had seized up, making it harder to borrow money.

For more than a year, Progress, along with electric utilities across the country, have contended with declining electricity sales as industries cut back operations or shut down, as residential construction came to a standstill and home foreclosures spiked.

The company reported ongoing earnings of $1.22 per share, ahead of analyst expectations of $1.19 per share. For the same three-month period a year ago, when the recession was worsening, Progress had reported $1.17 in per share earnings.

Analysts and investors refer to ongoing earnings as the most reliable measure of the company's performance.

Progress's third-quarter sales increased slightly to $2.8 billion. Meanwhile, net income dipped to $248 million from $310 million, in large part because the company took a $101 million charge on its books after losing a breach-of-contract lawsuit this month in Florida.

Progress has 3.1 million customers in the Carolinas and Florida and employs about 11,000 people.

Chief financial officer Mark Mulhern said that the company's performance is directly linked to the strength of the economy and the financial health of businesses that use electricity. But he said that to a large extent, the company is insulated from economic vicissitudes because its product -- electricity -- is not a discretionary expense.

"We sell an essential service," he said. "It's hard to do anything without the lights on."

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

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