(This is an amended version of a press release issued earlier today containing revised information in the third paragraph.)
Fitch Ratings affirms the ratings of Progress Energy, Inc. (PGN) and subsidiaries, Carolina Power and Light Company (PEC) and Florida Power Corp (PEF). The Rating Outlooks are Stable. Approximately $11.6 billion of debt and preferred securities are affected by today's rating actions. A complete list of ratings is at the end of this release.
PGN's ratings are supported by upstream dividends from solid utilities, consolidated cash flow coverage and leverage ratios that are consistent with 'BBB' category guidelines, strong liquidity and historically supportive state regulatory environments in Florida, North Carolina and South Carolina. PGN enhanced its capital structure by issuing 15.5 million common shares with net proceeds of $545 million, including a public offering of $523 million in January 2009. Fitch expects the consolidated FFO coverage ratio to be approximately 3.6 times (x) for the years ending December 2009 and 2010.
Both utilities benefit from ownership of significant baseload generating capacity and operate under traditional cost of service regulation. Currently, PEC's credit ratios are strong relative to peer medians and credit ratio rating guidelines for the 'A-' category, while PEF's ratios are less robust than guidelines as the utility completes the fourth year of a four-year base rate settlement that ends Dec. 31, 2009. Fitch's ratings of PEF assume rate adjustments on Jan. 1, 2010 will lead to improving credit ratios that will return to levels consistent with 'A-' rating guidelines for the 12 months ended Dec. 31, 2010.
The utilities' cash flows are stabilized by numerous clause recovery mechanisms including fuel and purchased power (PEC and PEF) and environmental spending and nuclear investments (PEF) that promote timely cost recovery and help limit the adverse impact of the recession and the base rate freeze in Florida. Despite numerous clause mechanisms at PEF which account for approximately 60% of total revenues, PEF's latest twelve months (LTM) credit ratios have nonetheless weakened due to lower residential demand, debt incurred to post collateral for gas purchase contracts, and deferrals of cost recovery. The Florida Public Service Commission's (FPSC) decision on the $499 million base rate request and Levy cost recovery filings are important drivers of future cash flows and ratings at PEF. The FPSC decisions on base rates and nuclear cost recovery are expected in late fall with new rates expected to become effective Jan. 1, 2010. FPSC hearings on the base rate case begin this month. PEF also will make its annual fuel case filing this month.
Fitch's primary rating concerns include uncertainty over the outcome of the PEF base rate case and Levy cost recovery filings in Florida and recovery of capital spending and operating costs at both utilities. Substantial under-recovery or prolonged deferrals of costs could place pressure on credit ratings. PEF's LTM credit metrics have been adversely affected by lower demand stemming from the economic downturn and collateral margin posted for fuel purchase contracts. Historically, Florida has had constructive regulation and recent base rate decisions for unaffiliated utilities have demonstrated the persistence of regulatory support. However, the weak economy and the political process in the state may affect PEF's chances of getting adequate immediate relief to restore credit ratios to guidelines. Another concern is that PGN parent debt is still significant at nearly 30% of consolidated long-term debt.
PEF's Stable Rating Outlook assumes that the outcomes of the base rate and Levy filings will result in improvement in cash flow and credit metrics at PEF in 2010. On the other hand, if regulatory decisions are adverse, Fitch would expect to take negative rating action.
PGN's Stable Rating Outlook incorporates Fitch's expectation that capital investments at both utilities will be funded in a manner to maintain the consolidated PGN capital structure at approximately 55% adjusted debt to capitalization (adjusted for equity credit to hybrid securities).
Fitch affirms the following ratings:
Progress Energy, Inc.
--Long-term Issuer Default Rating (IDR) at 'BBB';
--Senior unsecured debt at 'BBB';
--Short-term IDR at 'F2'.
Carolina Power & Light Co.:
--IDR at 'A-';
--First mortgage bonds at 'A+';
--Senior unsecured debt at 'A';
--Preferred securities at 'A-';
--Short-term IDR/commercial paper (CP) at 'F1'.
Florida Power Corp:
--IDR at 'A-';
--First mortgage bonds at 'A+';
--Senior unsecured debt at 'A';
--Preferred securities at 'A-';
--Short-term IDR/CP at 'F1'.
FPC Capital One
--Preferred securities at 'A-'.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Contacts:
Fitch Ratings, New York
Sharon Bonelli, 212-908-0581
Ellen
Lapson, CFA, 212-908-0504
or
Media Relations:
Cindy
Stoller, 212-908-0526
Email: cindy.stoller@fitchratings.com
