Progress Energy 2004 Annual Report Download - page 39

ability to meet these needs is dependent on the earnings
and cash flows of its two electric utilities and nonregulated
subsidiaries, and the ability of those subsidiaries to pay
dividends or repay funds to Progress Energy.
Other significant cash requirements of the Company arise
primarily from the capital-intensive nature of its electric
utility operations and expenditures for its diversified
businesses, primarily those of the Fuels segment.
The Company relies upon its operating cash flow,
primarily generated by its two regulated electric utility
subsidiaries, commercial paper and bank facilities, and
its ability to access long-term debt and equity capital
markets for sources of liquidity.
The majority of the Company’s operating costs are related
to its two regulated electric utilities, and a significant
portion of these costs is recovered from customers
through fuel and energy cost recovery clauses.
Other significant uses of liquid resources include debt
interest and principal payments, capital expenditures and
dividends on preferred and common stock.
As a registered holding company under PUHCA,
Progress Energy obtains approval from the SEC for the
issuance and sale of securities as well as the
establishment of intercompany extensions of credit
(utility and nonutility money pools). PEC and PEF
participate in the utility money pool, which allows the
two utilities to lend and borrow between each other. A
nonutility money pool allows Progress Energy’s
nonregulated operations to lend and borrow funds
among each other. Progress Energy can lend money to
the utility and nonutility money pools but cannot borrow
funds.
Cash from operations, asset sales and the issuance of
common stock are expected to fund capital expenditures
and common dividends for 2005. Any excess cash
proceeds would be used to reduce debt. To the extent
necessary, short- and long-term debt may also be used
as a source of liquidity.
The Company believes its internal and external
liquidity resources will be sufficient to fund its current
business plans.
The following discussion of the Company’s liquidity and
capital resources is on a consolidated basis.
Historical for 2004 as compared to 2003 and 2003 as
compared to 2002
Cash Flows from Operations
Cash from operations is the primary source used to meet
operating requirements and capital expenditures. Net
cash provided by operating activities from continuing
operations for the three years ending December 31, 2004,
2003 and 2002 were $1.6 billion, $1.7 billion and
$1.6 billion, respectively.
Cash from operating activities for 2004 when compared
with 2003 decreased $117 million, as the net result of the
impact of hurricane costs, partially offset by the impact of
an underrecovery of fuel costs in 2003. The increase in
cash from operating activities for 2003 when compared
with 2002 is largely the result of improved operating
results at PEC.
During the third quarter of 2004, four hurricanes struck
significant portions of the Company’s service territories,
with the most significant impact on PEF’s territory.
Restoration of the Company’s systems from storm-related
damage cost an estimated $398 million. PEC’s cost totaled
$13 million, of which $12 million was charged to O&M and
$1 million was charged to capital. PEF’s cost totaled
$385 million, of which $338 million was charged to Storm
Damage Reserve pursuant to a regulatory order and
$47 million was charged to capital. On November 2, 2004,
PEF filed a petition with the FPSC to recover $252 million
of storm costs plus interest from retail rate payers over a
two-year period (See Note 3).
Progress Energy is allowed to recover fuel costs incurred
by PEC and PEF through their respective fuel cost
recovery surcharges. Fuel price volatility can lead to over-
or underrecovery of fuel costs, as changes in fuel prices
are not immediately reflected in fuel surcharges due to
regulatory lag in setting the surcharges. As a result, fuel
price volatility can be both a source of and a drag on
liquidity resources, depending on what phase of the cycle
of price volatility the Company is experiencing. In addition,
in 2004 PEF agreed with the FPSC to use a two-year period
to determine the surcharge for the underrecovered fuel
costs incurred in 2004 (See Note 8C).
Investing Activities
Net cash used in investing activities for the three
years ending December 31, 2004, 2003 and 2002 were
$0.9 billion, $1.5 billion and $2.2 billion, respectively.
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Progress Energy Annual Report 2004