More than a week after Florida regulators doused cold water on Progress Energy Florida's request for higher electricity rates, the stunned power company's response is just starting to emerge.
The parent company, based in Raleigh, N.C., is trying to soothe Wall Street's worries over the rate decision while threatening service cuts for its Florida customers.
Both Progress Energy and Wall Street seem to view the once docile Florida Public Service Commission and its Jan. 11 rate denial as some sort of mano a mano loss of face for the power company. What is unclear is whether the PSC's rate rejection signals a fundamental shift or a momentary act of defiance.
What is clear is we'll likely see Progress Energy come back this year with a new request for higher rates.
On Tuesday, Progress Energy CEO Bill Johnson and other senior executives donned their Wall Street hats, speaking to analysts in a conference call specifically assembled to explain what happened in Florida.
Here are the highlights of that exchange. I am adding a "translation" of parts of the call for us Floridians not so dependent on Wall Street for a living.
First, company executives told analysts the utility will cut operating expenses in Florida and delay building two nuclear reactors. Johnson warned that regulators have left Progress with too little money to maintain service quality for Florida customers.
Translation? Don't blame us if trees don't get trimmed like they used to, if it takes longer to get the electricity back on after an outage or if post-hurricane repairs take longer.
Second, any setback in Florida will weaken the company's overall financial performance and affect shareholders. Johnson said the failed rate case in Florida will likely prevent the company from increasing its dividend to shareholders.
Translation? By jacking up rates in Florida, the company was prepared to tap some of that money from Florida customers to raise its shareholder dividend — rather than use it solely to improve its Florida operations.
Third, the utility cut 300 Florida positions in 2008 and says it faces "declining revenue" in a state whose real-estate woes helped trigger the nation's deep recession. Johnson said Progress Energy may file for another rate request this year.
"We have had major construction projects in Florida over the last four or five years and have put thousands of people on the payroll earning a good wage," Johnson said. "A lot of this will have to come to a halt."
Translation? Progress Energy Florida is a monopoly that wanted the Florida PSC to give it a 12.54 percent profit margin. The company missed the point that Florida's deep recession is not a time to pad its hefty rate of return. The PSC ultimately gave the utility a 10.5 percent profit margin — hardly a figure to cry corporate poverty, or to threaten severe job cuts.
Progress Energy promises more detail on how it will deal with Florida on Feb. 11, when it releases its 2009 earnings.
One message is emerging. The Raleigh company entered Florida in 2000 by buying Florida Power Corp. and with the complete assumption that Florida was, and would be, a pushover on rate hikes.
It's time to re-evaluate.
Robert Trigaux can be reached at [email protected]