RALEIGH, N.C., May 22, 2006 /PRNewswire-FirstCall

 

Progress Energy (NYSE: PGN) today announced that it has idled production at its synthetic fuel facilities.

The tax credits associated with synthetic fuel production begin to be phased out if the full-year average price of oil exceeds certain levels. Projections of oil prices for 2006 indicate that the value of the credits will be reduced and possibly eliminated altogether for this year.

"The high level of oil prices and continued uncertainty of any proposed federal legislation regarding the tax credits require that we idle our synthetic fuel production at this time," said Peter Scott, chief financial officer of Progress Energy.

A provision, commonly referred to as the "look-back" provision, was considered for inclusion in the recently enacted tax reconciliation bill and would have changed the oil reference price from the current year's average price to the previous year's average price and therefore eliminate the risk of tax credit phase out for 2006 production. However, the look-back provision was not included in the bill as enacted. A similar provision may be included in subsequent legislation, but the potential timing and specific terms are uncertain at this time.

"We are reaffirming our core ongoing earnings guidance of $2.45 to $2.65 per share. We will continue to monitor significant developments relating to our synthetic fuel tax credits that may impact our non-core ongoing earnings guidance and may provide updated 2006 guidance as the year progresses," Scott said.

Synthetic Fuel Earnings Implications:

The company considers its synthetic fuel operations to be non-core.

If oil prices decrease to levels below the phase out range or federal legislation that updates the reference price is enacted in the near future, the company would be able to resume production at its synthetic fuel facilities; however, it would take a number of weeks to achieve high levels of output and sales. The company cannot currently estimate the earnings implications of potentially resuming production in the near future.

Through May 2006, the company has produced approximately 1.6 million tons of coal-based synthetic fuel at its five majority-owned facilities and one minority-owned facility in Kentucky and West Virginia.

If synthetic fuel operations remain idle for the balance of 2006 and the credits are completely phased out, the current year ongoing losses through May from synthetic fuel operations are estimated to be approximately $30 million or $0.12 per share, which includes the reversal of $19 million of tax credits recorded in the first quarter of 2006. The company is also evaluating its synthetic fuel and other related operating long-lived assets for potential impairment and other charges related to the idling of the facilities during the second quarter of 2006. The total carrying value of these assets is approximately $100 million.

A discussion of the company's synthetic fuel operations is available in the most recent Progress Energy Form 10-Q, which is available at www.progress-energy.com/investors.

Synthetic Fuel Background:

The synthetic fuel process involves combining coal material with a chemical change agent to create a significant chemical change in the coal feedstock used to produce such synthetic fuel. Progress Energy's product is sold to unrelated utilities and industrial firms.

Under Section 29/45K of the Internal Revenue Code, manufacturers receive a tax credit for every ton of synthetic fuel sold. Section 29/45K was enacted in the early 1970s to encourage alternative technologies to commercialize domestic fuel sources and reduce reliance on foreign oil. Without the benefit of a tax credit, production of synthetic fuels would not be economical. Section 29/45K of the Internal Revenue Code is scheduled to expire at the end of 2007.

Progress Energy (NYSE: PGN), headquartered in Raleigh, N.C., is a Fortune 250 diversified energy company with more than 24,500 megawatts of generation capacity and $10 billion in annual revenues. The company's holdings include two electric utilities serving approximately 3 million customers in North Carolina, South Carolina and Florida. Progress Energy also includes nonregulated operations covering merchant generation, energy marketing and natural gas exploration. Progress Energy was the 2005 recipient of the prestigious J.D. Power and Associates Founder's Award for dedication, commitment and sustained improvement in customer service. For more information about Progress Energy, visit the company's Web site at http://www.progress-energy.com .

Caution Regarding Forward-Looking Information:

This document contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements involve estimates, projections, goals, forecasts, assumptions, risk and uncertainties that could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Any forward-looking statement is based on information current as of the date of this report and speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward- looking statement or statements to reflect events or circumstances after the date on which such statement is made. Examples of factors that you should consider with respect to any forward-looking statements made throughout this document include, but are not limited to, the following: the impact of fluid and complex laws and regulations, including those relating to the environment and the recently enacted Energy Policy Act of 2005; the financial resources needed to comply with environmental laws; deregulation or restructuring in the electric industry that may result in increased competition and unrecovered or stranded costs; the uncertainty regarding the timing, creation and structure of transmission organizations; weather conditions that directly influence the demand for electricity; the ability to recover through the regulatory process costs associated with future significant weather events; recurring seasonal fluctuations in demand for electricity; fluctuations in the price of energy commodities and purchased power; economic fluctuations and the corresponding impact on our commercial and industrial customers; the ability of our subsidiaries to pay upstream dividends or distributions; the impact on our facilities and businesses from a terrorist attack; the inherent risks associated with the operation of nuclear facilities, including environmental, health, regulatory and financial risks; the anticipated future need for additional baseload generation in our regulated service territories and the accompanying regulatory and financial risks; the ability to successfully access capital markets on favorable terms; our ability to maintain our current credit ratings and the impact on our financial condition and ability to meet our cash and other financial obligations in the event our credit ratings are downgraded below investment grade; the impact that increases in leverage may have on us and our subsidiaries; the impact of derivative contracts used in the normal course of business; the investment performance of our pension and benefit plans; our ability to control costs, including pension and benefit expense, and achieve our cost management targets for 2007; the availability and use of Internal Revenue Code Section 29/45K (Section 29/45K) tax credits by synthetic fuel producers and our continued ability to use Section 29/45K tax credits related to our coal-based solid synthetic fuel businesses; the impact that future crude oil prices may have on the value of our Section 29/45K tax credits including the potential of a reduction in earnings resulting from a loss of 2006 generated tax credits in the event that federal tax legislation is not passed providing relief from the current crude oil phase-out formula; our ability to manage the risks involved with the operation of nonregulated plants, including dependence on third parties and related counter-party risks; the ability to manage the risks associated with our energy marketing operations; the outcome of any ongoing or future litigation or similar disputes and the impact of any such outcome or related settlements; and unanticipated changes in operating expenses and capital expenditures. Many of these risks similarly impact our nonreporting subsidiaries.

These and other risk factors are detailed from time to time in our filings with the United States Securities and Exchange Commission (SEC). All such factors are difficult to predict, contain uncertainties that may materially affect actual results and may be beyond our control. New factors emerge from time to time, and it is not possible for management to predict all such factors, nor can it assess the effect of each such factor on us.

SOURCE Progress Energy

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