Power business loses zing in Post Enron era

TRIGAUX E-mail: Click here Archive

© St. Petersburg Times
published September 6, 2002

After listening Thursday to Progress Energy Bill Cavanaugh's "we're doing okay in rough times" speech, I'm sure the conservative CEO would have enjoyed taking a polished wingtip to the derriere of any Enron executive found lurking about the Lehman Brothers energy conference.

Alas, not a backside was in sight.

That's too bad. Without the astonishing collapse last fall of Houston's Enron, meat-and-potato energy companies like North Carolina's Progress Energy would be slowly expanding without a worry across both the Carolinas and Florida, courtesy of its purchase in 2000 of St. Petersburg's Florida Power Corp.

In the power biz, it's now B.E. or P.E. Before Enron or Post Enron. And B.E. was a lot more fun.

P.E., Cavanaugh found himself Thursday morning telling Wall Street analysts in New York how Progress Energy was cutting by half its plans to build and sell 6,000 megawatts of electricity on the now-depressed wholesale power market. He also explained how Progress Energy aimed to cut more costs, sell off more extraneous assets and sell additional stock to deal with the S&P and Moody's credit rating agencies that are upset with the company's heavy debt.

Poor Cavanaugh. In a low-wattage voice, he had to pitch his company's virtues at a time when its stock price has slipped under $44 a share from a 52-week high earlier this summer of more than $52. In a stuffy business that still heavily depends on earnings from electric utility monopolies, a 15 percent decline is hefty.

Compared with bankrupt and pilloried Enron, of course, almost any power company seems impressive. Progress Energy looks positively sterling.

On a local level, Progress Energy shines next to Tampa's TECO Energy. Once a Wall Street darling, TECO has recently hit the skids. Its bold but ill-timed expansion scheme to build power plants (with the help of an Enron subsidiary) out West is peaking -- just as energy prices drooped and the industry's deregulation push hit a brick wall.

The result? Multiple analysts now rate TECO a "sell" -- remember that long-lost Wall Street term? And the company has watched close to $2-billion in market value evaporate since spring.

"In today's reality, all energy companies face turbulence and challenge," Cavanaugh told his Lehman Brothers audience. "There's more pressure on us now than six months ago, but we are weathering the storm better than many of our peers."

The industry's once-hot wholesale power market has gone from "boom to bust," he said. The economy still "struggles." The capital markets are "constrained." Investor confidence remains hurt "by scandals." Credit rating agencies are "more stringent."

To raise funds, Cavanaugh wants to sell a railroad-repair business, called Progress Rail, that the company inherited when it bought Florida Progress Corp. (Florida Power's parent). After peddling the unit, nobody seems interested in offering a decent price. Progress Energy will try again later when the economy improves.

On Thursday, UBS Warburg energy analyst Ronald Barone initiated coverage of Progress Energy with an underwhelming "hold" rating. He said the company has limited exposure to "bleak wholesale power markets" and an "overall solid dividend growth outlook." But he said the company's stock valuation looks "rich" and sees no short-term economic signs for a boost in the share price. Most of Progress Energy's earnings this year will come from its regulated electric utilities, Barone said.

Progress Energy on Thursday had its own share of news. Florida Power and the city of Safety Harbor reached agreement on a new 30-year electric utility franchise. Company senior vice president Bonnie V. Hancock, the executive who played such a hands-on role in merging Florida Progress and Florida Power into Progress Energy, was named to the newly created position of president of Progress Fuels Corp. And Progress Energy said one of its priorities was to "add substantial amounts of power to Florida" in the form of new power plants.

Cavanaugh, a 10-year veteran of Progress Energy (formerly known as Carolina Power & Light), told the Lehman Brothers conference that he's learned four lessons during the industry's recent bumpy ride:

1. Don't oversell the ability to grow. "Contrary to the beliefs of the past two years, we are not in a fast-growing industry," he said. The 6 to 8 percent growth rates Progress Energy enjoyed during stronger economic times are "no longer realistic."

2. Know who you are. "Companies forgot who they were and hired people without in-depth knowledge of the industry. Those errors are now reflected in their depressed stock prices."

3. Don't bet the company on a single strategy. "As companies ventured into unfamiliar territory, some mortgaged their utility businesses." Cavanaugh acknowledged his company "made some investments outside our core competencies that did not produce as we had hoped, particularly in the technology sector." But the financial damage was not overwhelming.

4. When it comes to integrity, practice what you preach. "Enron," Cavanaugh said, "espoused the values of communication, respect, integrity and excellence, though its actions fell well short of the mark."

Cavanaugh's hardly the only energy executive who likes to blame Enron for disrupting their business and giving the industry a black eye. But what on Earth will they all do when there's nothing left of Enron to kick around?

-- Robert Trigaux can be reached at trigaux@sptimes.com or (727) 893-8405.

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