Fitch Rates Progress Energy Florida’s $600MM FMBs ‘A+’; Watch Negative

NEW YORK--(BUSINESS WIRE)--Fitch Ratings has assigned a rating of ‘A+’ to the two new series of first mortgage bonds (FMBs) issued by Florida Power Corp. (d/b/a Progress Energy Florida, Inc., ‘PEF’ Issuer Default Rating ‘A-’). The new issues consist of a 4.55% $250 million bond due April 1, 2020 and a 5.65% $350 million bond due April 1, 2040. The bonds of each series will be secured by the lien of the mortgage and will rank equally with all other outstanding PEF FMBs. PEF will use the proceeds of the new bonds to retire $300 million of 4.50% FMBs due June 1, 2010, to repay the outstanding balance of notes payable to affiliated companies and for general corporate purposes. Notes payable to affiliated companies represents PEF’s net position from participation in an internal money pool. PEF’s ratings are on Rating Watch Negative.

PEF’s ratings were placed on Rating Watch Negative on Jan. 12, 2010 following an adverse outcome in the base rate proceeding. The Florida Public Service Commission (FPSC) denied any additional base rate increases for PEF over and above the previously allowed interim rate relief for recovery of costs for the Bartow oil to gas re-powering in July 2009 ($132 million of annual Bartow revenue requirement was approved in July 2009). In addition to approving just $132 million of the $499 million request (26.5%), at the same time the FPSC also reduced PEF's allowed return on equity to 10.5% from 12.54%, which is earned on an allowed 50.3% book equity capital structure. The FPSC is using PEF's depreciation surplus to offset any operating revenue increase, which will have the effect of increasing the size of future rate base. PEF's base rate request was cut in a number of other areas, including several operating expense categories, a depreciation study, salaries and benefits, salary increases, and incentive compensation.

Fitch expects to resolve the Negative Rating Watch after meeting with management and reviewing the company's mitigation strategy and full financial projections. This process should be completed in the next two months.

PEF is a regulated public utility engaged in the generation, transmission, distribution and sale of electricity within an approximately 20,000 square mile service area of Florida. The service area includes the cities of St. Petersburg and Clearwater, as well as the central Florida area surrounding Orlando. PEF had approximately 1.6 million customers as of Dec. 31, 2009.

Applicable criteria available on Fitch's web site at www.fitchratings.com include:

--'Credit Rating Guidelines for Regulated Utility Companies' (July 31, 2007).

--'Issuer Default Ratings and Recovery Ratings in the Power and Gas Sector' (Nov. 7, 2005).

--'U.S. Power and Gas Comparative Operating Risk (COR) Evaluation and Financial Guidelines' (Aug. 22, 2007).

--'Corporate Rating Methodology' (Nov 24, 2009).

Additional information is available at www.fitchratings.com.

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 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.