Progress Energy revises 2004 earnings guidance due to lower synthetic fuels production from hurricane impacts

RALEIGH, N.C., September 24, 2004 (PRNewswire-FirstCall) — Progress Energy announced that the total damage resulting from Hurricanes Charley, Frances and Ivan is estimated at $310 million to $330 million. As a result, the company’s 2004 ongoing earnings guidance is being revised to $2.95 to $3.10 per share from $3.50 to $3.65 per share due to a decrease in synthetic fuel production.

“Forecasted synthetic fuel production levels and the amount of tax credits we can claim each year have always been a function of our projected regular tax liability,” said Geoff Chatas, executive vice president and chief financial officer, Progress Energy. “However, we have never experienced such a significant reduction to our estimated tax liability as we have this year as a result of the catastrophic loss due to hurricane damage.

“While the reduction in 2004 ongoing earnings per share from lost synthetic fuel production is significant, the cash earnings impact is not — we are simply losing future cash-flow benefits that would have been realized after the synthetic fuel tax credits expired in 2007,” said Chatas. “We previously estimated this post-2007 benefit nominally at $1.2 billion. The lower production will lower the nominal value by about $75 million to $100 million.”

Storm costs

The total cost estimate of $310 million to $330 million for Hurricanes Charley, Frances and Ivan is comprised of approximately $295 million to $315 million in Florida and approximately $15 million in the Carolinas. These figures are estimates, and actual costs may vary from these figures.

Earnings impact on utilities

Due to the anticipated regulatory treatment of these storm costs, the company expects no significant annual earnings impact at the two utilities or at Progress Ventures, except for the impact on synthetic fuels.

In Florida, the company has a storm reserve to cover O&M expenses related to storm restoration. The company collects $6 million per year through customer rates and had a total of approximately $45 million in the reserve through August 31, 2004. Existing Florida commission rules permit the company to seek recovery of O&M amounts in excess of the storm reserve balance. As a result of this storm damage, the company will exceed the current balance in the Florida storm reserve but is still accounting for those storm costs that will be applied toward the reserve.

“We will seek to recover these costs in a manner that limits the impact on our customers,” said Bill Habermeyer, president and CEO, Progress Energy Florida.

In the Carolinas, the company does not have a storm reserve, but has the option to request and seek commission approval for deferral of storm costs. The hurricane damage in the Carolinas resulted in approximately $13 million of additional O&M expense. The company currently plans to seek North Carolina Utilities Commission approval to defer its 2004 storm expenses.

Earnings impact on synthetic fuels production

The impact of storm costs from Hurricanes Charley, Frances and Ivan will substantially reduce the company’s 2004 tax liability. The reduction in income tax liability will result in a decrease in synthetic fuel production because of the company’s diminished ability to recognize corresponding Section 29 tax credits. The company is evaluating options to offset some of the losses from these storms. Without these offsets, the company’s ability to recognize tax credits in 2004 is based on an estimated 6 million to 7 million tons of production, down from the original estimate of 11 million to 12 million tons. The decrease in synthetic fuel production in 2004 will not have any impact on synthetic fuel production in 2005.

Revised 2004 ongoing earnings guidance

The decrease in synthetic fuel production will negatively impact 2004 earnings by approximately $0.55 per share. As a result, the company is revising its 2004 ongoing earnings guidance to $2.95 to $3.10 per share, down from its original 2004 earnings guidance of $3.50 to $3.65 per share. The revision to the company’s 2004 ongoing earnings guidance and synthetic fuel production is not related in any way to the ongoing tax audit of the company’s Earthco synthetic fuel facilities.

Other financial impacts

The company has sufficient liquidity to fund the hurricane-related expenses. The storms will not have a material impact on overall corporate leverage. The company estimates that its year end 2004 total debt to total capitalization will be approximately 58 percent.

Conference call

Progress Energy will host a conference call with the investment community to discuss the revised 2004 earnings guidance. The call will be held this morning at 10 a.m. EDT (7 a.m. PDT) and will be hosted by Geoff Chatas, executive vice president and chief financial officer. Investors, media and the public may listen to the conference call by dialing (913) 981-4901, confirmation code 833446. Should technical difficulties be encountered, please contact Tammy Blankenship at 919-546-2233. A playback of the call will be available from 1 p.m. EDT September 24 through midnight October 8, 2004. To listen to the recorded call, dial (719) 457-0820 and enter confirmation code 833446.

A webcast of the live conference call will be available at http://www.progress-energy.com. The webcast will be available in Windows Media format. The webcast will be archived on the site for those unable to listen in real time.

This announcement is available on the company’s Web site at www.progress-energy.com

Progress Energy, headquartered in Raleigh, N.C., is a Fortune 250 diversified energy company with more than 24,000 megawatts of generation capacity and $9 billion in annual revenues. The company’s holdings include two electric utilities serving more than 2.9 million customers in North Carolina, South Carolina and Florida. Progress Energy also includes nonregulated operations covering generation, energy marketing, natural gas production, fuel extraction, rail services and broadband capacity. For more information about Progress Energy, visit the company’s Web site at www.progress-energy.com

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