Progress Energy Q1 2010 Earnings Call Transcript

May. 6.10 | About: Duke Energy (DUK)

Progress Energy (PGN) Q1 2010 Earnings Call May 5, 2010 10:00 AM ET

Executives

William Johnson - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Mark Mulhern - Chief Financial Officer, Senior Vice President, President of Progress Fuels Corporation, President of Progress Energy Ventures Inc and Senior Vice President of Finance Progress Energy Service Company

Vincent Dolan - Chief Executive Officer of Progress Energy Florida and President of Progress Energy Florida

Bryan Kimzey -

Analysts

Neil Mehta - Goldman Sachs

James von Riesemann

Marc de Croisset - FBR Capital Markets & Co.

Hasan Doza - Luminus Management

Gordon Howald - Caylon

Edward Heyn - Catapult

Travis Miller - Morning Star

Operator

Good morning, and welcome to Progress Energy's 2010 First Quarter Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I would now like to turn the conference over to Bryan Kimzey of Progress Energy. Please go ahead, sir.

Bryan Kimzey

Thank you, Adra. Good morning, and welcome to everyone. Joining me this morning are Bill Johnson, Chairman and Chief Executive Officer; Mark Mulhern, Chief Financial Officer; and other members of our management team. We are currently being webcast in Windows Media format from our Investor Relations page at progress-energy.com. The webcast will be archived on the site for at least 30 days. In addition, we have included a set of slides which accompany our speaker's prepared remarks this morning.

Today, we will be making forward-looking statements as well as reviewing historical information. There are numerous factors that may cause future actual results to differ materially from these statements, and we outlined these in our earnings release, Forms 10-K and 10-Q and other SEC filings, as well as the risk factor discussion also found in our Forms 10-K and 10-Q. This morning, following opening comments from Bill and Mark, we will open the phone lines to address your questions. Now, I'll turn the call over to Bill Johnson.

William Johnson

Thank you, Bryan. Good morning, everyone, and thanks for joining us for our first quarter call. Brian said Mark Mulhern is with us this morning as are the CEOs of our two utilities, Lloyd Yates of Progress Energy Carolinas and Vincent Dolan of Progress Energy Florida.

Slide 4 outlines the topics I'll cover this morning, including a few comments about the quarter as well as where we stand with our Crystal River outage and our Florida rate filings. I'll also speak to the progress we're making in executing our balanced solutions strategy, and then Mark will provide details on our financials.

So let's start with the ongoing earnings on Slide 5. For the first quarter, we are reporting ongoing earnings per share of $0.75, which is up $0.09 over first quarter a year ago. The most significant factor here was the unusually cold weather in both Florida and the Carolinas. Other contributing factors include the Bartow rate relief that began last summer, as well as some modest retail growth in usage. So based on how we're executing our plans, we are reaffirming our ongoing earnings guidance for 2010 of $2.85 to $3.05 per share.

If you turn to Slide 6, we'll describe some of the other highlights of the first quarter. Although the cold weather in the quarter increased revenue, it also put a premium on good operational and asset performance, and we're very pleased with how our system and workforce performed in meeting the high demand period this winter, which included setting record winter peaks at both utilities. While achieving this good operational performance, we're also sustaining an aggressive level of cost management quarter after quarter. We're focused not only on short-term belt tightening but also on identifying and harvesting sustainable efficiency gains.

Meanwhile, we continue to make excellent progress in executing our capital plan. For example, we are wrapping up the installation of $1.2 billion in environmental compliance equipment at Crystal River Units 4 & 5. And we're staying on track to complete our Richmond County combined cycle gas turbine in June of next year. We're cautiously encouraged to see some positive signs in the economies of our service areas, including our customer growth in usage. The slide shows the year-over-year customer trends. And some bright spots in our Carolina industrial sales include textiles, which appeared to have bottomed out; primary and fabricated metals, which has come back strongly and paper products, which is also showing significant growth.

On Slide 7, you can see an update on our progress at Crystal River Nuclear Plant in Florida. As discussed in our last call, we're in the midst of an extensive repair to the outer part of one section of the reactor containment building. If you're looking at the slide, you can see a large rectangular building in the foreground with the containment building behind it. The section of the wall we're working on is directly behind the lower portion of that long rectangular building between those two columns, and we're really proceeding deliberately here according to a detailed plan. We're in the latter stages of removing the outer layer of concrete from that section, which we will then replace to concrete and rebar.

Early in this complex repair, we had targeted the middle of this year as the expected time for the unit's return to service. Now that we're much deeper into the project, we have updated that restart projection to the third quarter. And we continue to keep the NRC and all other interested parties well informed throughout this process. The slide also shows the outage cost through the end of the first quarter, as well as our cost recovery plan, which includes significant insurance coverage through NEIL.

Next if you turn to Slide 8, I'll say a few words about where we stand with two filings we made in March that were a follow-up to the Florida PSC's rate decision earlier in the year. One filing is a motion for reconsideration to correct what we believe are math errors made by the PSC staff in the rate case. This correction would increase our revenue requirements by $36 million. Yesterday, the schedule was updated so that now the PSC staff will issue his recommendation on our motion on May 19, with the commission vote on June 1.

The second filing is an accounting order petition that would affect how we record certain operating expenses related to depreciation. This is consistent with the commission's decision to reduce our depreciation reserve. This accounting order would credit depreciation expense by $76 million per year. The PSC staff recommendation on this filing is due June 3, with the commission vote on June 15. And the outcome of these two filings will, of course, inform our next steps.

In addition to managing through our regulatory issues and near-term priorities, we're working on our long-term plan, continuing to build the elements of our balanced solution shown on Slide 9. We've been working on this balanced solution strategy for last several years, and this strategy is designed to address the challenge in front of our company and our country, which is the transformation or replacement of power systems nationwide as we move to a low carbon future. Our objective is to do this in a deliberate, careful manner to achieve the desired results with the least disruption to our customers and the economy. And we have substantial initiatives underway in each of these three areas: energy efficiency, alternative energy projects and the state-of-the-art power system.

The Smart Grid is one major initiative that recently received a financial boost. We signed the papers last week on a $200 million grant from the Department of Energy as part of the federal stimulus package. We're one of only six utilities in the nation awarded a grant of this magnitude, and it will accelerate our efforts to modernize our grid and increase its capabilities for our customers and our company. The Smart Grid supports another initiative where we're a utility leader preparing for plug-in electric vehicles. We also continue to sign new solar contracts and roll out new efficiency programs.

If I can turn you to Slide 10, talk about our Levy nuclear project in Florida. As you probably know, we submitted our annual nuclear cost recovery filing to the Florida PSC last Friday. In making that filing, we announced that we're deferring major construction work on the project until after we have the NRC license in hand, expected in late 2012. At that time, we'll be in a better position to assess the project and determine the final schedule. Now we're slowing down the work and spending there until -- for a number of reasons. There are base rate hearings and the decision early this year. The PSC made it clear that it wants us to hold down the rates our customers pay in this weak economy. So slowing the work on the Levy project lowers the near-term price impact. This deferral also allows time for the economy to get stronger and for federal and state energy policy to become more settled. And we will benefit from what others experienced during the first wave of nuclear construction.

So does this mean that we're backing away from nuclear expansion? No, not at all. Building advanced nuclear plants, still very much a part of our long-term plan. New nuclear is becoming increasingly important for how our nation addresses climate change and energy security, as well as how we replace aging plants and prepare for the tremendous population growth in the decades ahead. Much of our current generation fleet, the majority of it, will be retired over the next several decades just as a matter of age. And the recent population growth statistics project it will have up to another 100 million people in this country by mid-century. And although climate change legislation appears stalled at the moment, I do believe it will come back and will require significant CO2 reductions by 2020 and 2030. So if you study the carbon math, it goes along with these targets. You quickly conclude nuclear has to be an important component of the solution.

So we're not backing away from nuclear expansion. In fact, we think it's inevitable. But we are slowing down for the time being in Florida. And in the near term, our company will focus its capital dollars on maintaining and modernizing the power system and developing other parts of a balanced portfolio. This includes the coal-to-gas initiative in the Carolinas and the Smart Grid at both utilities.

When we turn to Slide 11, we look at some more specifics on our system modernization projects. Our first conversion project, the Bartow oil-to-gas repowering in Florida was a highly successful project completed last summer. It more than doubled our generating capacity at that site, and now we've installed scrubbers and SCRs on our largest coal plants in the Carolinas that will complete this environmental work at Crystal River 4 & 5 later this month. In addition, we have initiated an extensive coal-to-gas repowering in the Carolinas. We will retire 11 unscrubbed and the 11 oldest coal-fired plants in North Carolina and build combined cycle natural gas plants and possibly some biomass. These projects are substantially reducing our emissions profile and are an important part of our transition to a low carbon future.

Slide 12 provides more specific information about repowering to these coal-fired plants, Lee and Sutton. We recently announced gas supply agreements for the new combined cycle units we will build to replace that coal capacity. The North Carolina Utility Commission issued its certificate last fall to go forward with the Lee project. And we've completed the hearings on the Sutton project and expect commission approval later this month. So when you look across our company, you can see we're making good headway on a number of fronts. We're effectively managing through near-term issues while creating long-term value for our customers and our investors. So now I'll ask Mark Mulhern, our CFO, to provide some more details on the finances.

Mark Mulhern

Thank you, Bill, and good morning. We appreciate you being on the call. The topics I will cover are on Slide 14. And as Bill noted, we had a strong earnings for the first quarter, much of it due to weather but also solid operational performance and some green shoots on the revenue line.

Slide 15 shows the breakdown by utility, with PEC being $0.05 ahead of 2009 and PEF $0.07 ahead of 2009 and slight negativity at Corporate. So on a consolidated basis, our ongoing earnings were up 14% or $0.09 better than first quarter 2009, a good start to the year.

Slide 16 provides more specific detail of the positives and negatives. As I said, weather was very strong at both utilities and contributed $0.14. The rate increase related to our Bartow Plant in Florida contributed $0.07. As you will recall, we received interim recovery for these investments starting in the second half of 2009. But comparing first quarter 2010 to 2009 resulted in this variance. We also saw a return to a modest increase in growth in usage of $0.04, which is encouraging.

On the negative side, we did have some storm activity in the first quarter that increased O&M costs. There was a nuclear decommissioning pore-over in 2009, which lowered income taxes, and this item accounts for the $0.03 variance in income taxes in this quarter. We had issued some equity through our Investor Plus Plan and therefore have about $0.02 of share dilution compared to 2009. So all in all, a pretty straightforward quarter.

I will note that our GAAP reported earnings of $0.67 include an $0.08 charge related to the healthcare reform bill and the changes to the Medicare Part D subsidy rules.

On Slide 17 is the information that we traditionally provide on customer growth and low usage customers. You can see the trends improving on both charts, and the indicators are positive in reversing the declining statistics.

Slide 18 shows our industrial customer data for Progress Energy Carolinas. Bill touched on a number of the segments here in terms of various industrial segments. Our first quarter 2010 industrial kilowatt-hour sales were up 1% versus 2009. And as we have noted, the trend here has stabilized. Our first quarter numbers were more driven by positive residential revenues than the industrial and commercial customer classes. I will note the wholesale revenue declines from 2009 at both utilities. Though PEF's related to contracts that were not renewed and PEC's kilowatt-hours sold were up, there's a timing issue on a contract that resulted in slightly lower revenues for the quarter, and this should turn around by year end.

To be clear on where we are on a weather-normalized basis, our retail kilowatt-hour sales at PEC were up 2.5% compared to 2009. Again, that's a weather-normalized number, 2.5%. And you may recall that our annual planning assumption for PEC in establishing our guidance was up 0.6%, so we're ahead at PEC after the first quarter. At PEF, the weather-normalized retail sales were down 0.4% for the quarter, and our annual planning assumption had them down 2.2%. So again, you can see at PEF, even on a weather-normalized basis, better performance than is in our guidance assumptions. So these are the revenue green shoots that I referred to earlier in my comments. Our thesis on revenues continues to be that as the broader economy improves, our service territories will benefit from customer growth, which should be a positive driver of earnings relative to the future.

Slide 19 shows our continued progress on effective cost management. We had some higher O&M costs in the first quarter, again, some due to storms and some in nuclear. But overall, we continue to manage the O&M line effectively. Our employees are doing an excellent job of belt tightening and identifying longer-term efficiency gain.

On Slide 20, we've included the financial highlights from the annual nuclear cost recovery filing that we made in Florida last Friday. We are now focused on obtaining the combined operating license at Levy, estimated by the end of 2012 and then evaluating our next steps on the project. The estimated costs for 2010 through 2012 are shown here. The 2010 cost includes some estimates related to disposition and/or cancellation of certain purchase orders on equipment. We are seeking to recover $164 million in 2011, which works out to be a 21% reduction from the nuclear component of the customer bill in 2010. This reflects our slower schedule and is, we believe, prudent in light of all the circumstances we've laid out in the filing.

Slide 21 summarizes our financing plans for 2010. And as you have seen, we have been very proactive with pre-funding and opportunistic where appropriate, with a very successful bond deal at Progress Energy Florida in March and at making steady progress on the equity program that we outlined for 2010.

To Slide 22 summarizes the actions of the rating agencies in the aftermath of the Florida rate case decision. In short, Fitch and Moody's downgraded PEF one notch and went to stable on all the entities. S&P affirmed all the ratings but placed all the entities on negative outlook. The agencies' actions are a direct result of the deterioration in the Florida regulatory environment. Our actual 2009 metrics at PEF were stronger than we had forecast but the rating agencies considered consistent and reasonable regulation as a key component of our business model. We appreciate the work of all three agencies in considering our financial plans and coming to their conclusions.

The continued access to short-term commercial paper markets is a positive, as well as the stable outlooks from two of the three agencies. However, the regulatory environment in Florida has impacted our financial flexibility and will directly impact our cost to capital in the future.

So before I turn it back over to Bill for Q&A, I'd summarize with three observations. First, we're off to a good start, with solid earnings for the first quarter. We resolved our issues in the short term with the rating agencies, and we are focused on an active regulatory calendar in Florida, including a nuclear cost recovery and the CR3 recovery plans. So as we go, we will keep you informed of our progress. So Bill, it's back to you for Q&A.

William Johnson

Thanks, Mark. And before we take your questions, let me refer you to Slide 23 and remind you of some of the key value drivers for Progress Energy. We have an attractive, sustainable dividend. We have strong long-term growth prospects, and we have a good system modernization strategy that provides for significant rate-based growth opportunities. We appreciate your interest in the company, and now we'll be glad to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Gordon Howald with East Shore Partners.

Gordon Howald - Caylon

Does your guidance include any relief in Florida, $36 million, $76 million requested?

William Johnson

Yes, Gordon, if you recall, we had a waterfall chart that we had laid out that had a $0.10 or $50 million item that was based, basically labeled as regulatory initiatives/O&M. So our thought process around that was that we would have some success in regulatory space. And if we were unsuccessful that we would get that $0.10 through further O&M reductions, and that's in the guidance.

Gordon Howald - Caylon

You noted some equipment cancellation cost at Levy Nuclear. Could you give us a little bit more detail and maybe give us some thoughts on how the FPSC might consider this? Is that a properly spent number that is recoverable, things like that?

William Johnson

We certainly believe it's a proper, prudent and recoverable expense. As we have slowed down the Levy schedule, we had some equipment being manufactured or fabricated or parts being acquired. When you change the schedule, as we have here, then you have to dispose of some of that or slow down or somehow deal with some of the equipment that you're not going to need as soon as you thought. So we don't actually have a final number on that. We're still negotiating with vendors, and we think we'll have more clarity on that as we get towards the hearing in the fall on our nuclear cost recovery.

Gordon Howald - Caylon

Is there a basic range, Bill, that you could provide?

William Johnson

I don't think we're even in a position to give you a range at the moment. We're still talking to the vendors and other people, and we just don't have a range at the moment that's very significant.

Operator

We'll go next to Marc de Croisset at FBR.

Marc de Croisset - FBR Capital Markets & Co.

Just a question about the outlook for Florida, I'm sure this question is not new to you. How do you see potential turnover at the Florida Commission and how do you see that playing out implications, both for this year and next year?

William Johnson

As you know from the news, two of the appointees we're not confirmed recently, so they will have, I think, a little bit of time to serve maybe through the end of this month. And then there'll be some process that the legislature and the governor come up with new appointees. We're not exactly sure how that works, although we have a general idea. So these two will leave their seats over the next little while. The process of appointing new ones will take place. We don't actually have a role in that. That's between the legislature and the governor. Two of the seating commissioners, I think, are up for reappointment at the end of the year. And it's really hard at the moment to predict what's going to happen in Florida. So I think I have successfully evaded your question. That's about all I want to say about it.

Marc de Croisset - FBR Capital Markets & Co.

And I think this comes back to the concerns expressed most likely by the credit agencies. A growth strategy continues to some extent in Florida, and at some point, cash recovery has to be obtained. Is it still or has it been your intent to file a new rate case in 2011 still, regardless of how turnover at the commission evolves?

William Johnson

It's too early for us to answer that question. You're exactly right. You cannot continue to invest in a growth strategy unless you have some cash recovery that goes along with it. And of course, the problem with the decision earlier in the year was we didn't have sufficient cash to continue that plan. So we have been pretty publicly straightforward about the fact that we are reducing our capital spending in Florida, and the Levy movement certainly is a result of that rate case decision and the direction that the commission wants to see, which is don't raise rates. But when you go in for your next rate case, how we do on these two orders we have or these two filings we have before the commission, I think a lot of that will dictate what our next filing is. But at the moment, until we have the results of those two orders, I think it's too soon to predict what the next step is.

Marc de Croisset - FBR Capital Markets & Co.

I'm wondering what the ROE looks like in Florida based on your guidance range, assuming these accounting orders take place. Is that an answerable question at this point?

Mark Mulhern

It is, Marc. This is Mark. I think what we anticipated is if we were successful on the two orders that we would get to the 10.5% number, which was the new ROE that they established. Now the only caveat to that, I would say, is obviously, with the first quarter weather, those numbers are going to look a little high.

Operator

We'll go next to Jim von Riesemann at UBS.

James von Riesemann

I want to follow up on Marc's questions but a little bit differently. And seriously, on all or I should say it's all in Florida regulation. It's my understanding, you have a quorum with three members on the Florida Commission, is that correct?

William Johnson

That is our understanding also.

James von Riesemann

So the question then becomes if you have a quorum of considered three, one of the vote characteristics, i.e., does the vote have to be two to one favor or does it have to be a full plurality of all three since it's a 5% commission? Do you know the answer to that?

William Johnson

Yes, the answer is if you have a quorum, then the majority rules, two votes.

James von Riesemann

And now I know Florida statute gets strange, but is there anything odd when replaced or commissioners who have been named are not confirmed with respect to replacements? I guess what I'm driving at here is do the replacements serve out the term of those that they're replacing or is there a reset to the clock of their terms?

William Johnson

If anybody knows the answer to that, it's Vincent Dolan. So I'm going to refer this question to him.

Vincent Dolan

The two commissioners that Bill mentioned that would leave, their replacements would, as our understanding, they would serve the remaining part of their term, which essentially started in January this year, four-year terms.

James von Riesemann

So we have wait [ph] (30:35) any sort of parallel four commissioners all expiring at the same term, given as the two that expired this year, right?

Vincent Dolan

I believe that's correct, yes.

James von Riesemann

The second part of my question is specific to you guys, but it's on the nuclear on the annual cost recovery filing. Can you refresh our memory on to the timing of that and what their views were previously on nuclear cost recovery?

Vincent Dolan

Yes, this is Vincent Dolan again. Every year, part of the statute that we have here in Florida requires this filing with the Public Service Commission. And this is the second official year we've been through the filing. Last year, in October, the commission made a positive decision on really three things they look at every year, the prudence of our actions to date, the amount that's eligible for cost recovery in the coming year and then the ongoing feasibility of the project. And last October, that commission voted a positive on all three of those fronts. That same determination on those three issues will take place this year. The hearing will be in August, and the decision will be in October.

James von Riesemann

So just specifically, were the three members, who on the commission, they were all in favor of those three items last time around?

Vincent Dolan

No, as a reminder, there were five commissioners, two of which left last year. The former Chairman Carter and Commissioner McMurrian were part of the five. And I believe there was one of the five that was a negative vote.

Operator

And next, we'll go to Hasan Doza at Citigroup.

Hasan Doza - Luminus Management

Just a quick question on your 2010 ongoing guidance. Now your guidance assumes normal weather, right?

William Johnson

It does.

Hasan Doza - Luminus Management

So I'm just curious, you received an $0.18 benefit in the first quarter. And it also seems like your actual load growth is coming in a lot higher than your load growth assumption in your guidance. So I'm curious as to why you guys didn't decide to address the guidance given these benefits. I'm just trying to understand, I mean, are there items that are moving against you, which makes you hesitant to address the guidance, given these two pretty strong currents in your favor?

William Johnson

Well, this is the end of the first quarter. And so we only have one quarter behind us. It was a pretty strong quarter. Historically, our first and second quarters account for 40% of net income, and the third quarter's another 40%. So at the end of the first quarter, it's really hard to assess the year. Now you did point out some things that are going in our favor. Our load growth is a little better than we projected. The economy appears to be a little better, but we're also concerned that this is a fragile economy. So for example, in the three states we serve, we still have unemployment rates that are higher than the national average. And we just think our overabundance of caution and given the uncertainty around this, we're going to stick with the guidance we gave earlier in the year.

Operator

And next, we'll go to Travis Miller at Morningstar.

Travis Miller - Morning Star

Do you guys have the breakdown on a weather-normalized basis across the different retail classes? I appreciate the overall number that you guys gave. Do you have that broken down residential, commercial, industrial, great [ph] (34:15) to your segments?

Mark Mulhern

I do. I can give it to you by utility as I have Progress Energy Carolina here in front of me. I'll read to you. This is on residential. Well, this is all weather-normalized first quarter. We're up 7.3%, residential. We were down 2.0%, commercial; down 2.1%, industrial and then 7.6% up in governmental. So those numbers, when you do total retail, it's the 2.5% positive number that I stated earlier. That's Carolina. Then Florida, residential was up, again, weather-normalized, 2.3% up. Commercial was 1% down. Industrial was 8.6% down, and governmental was 3% down. So the total number, 0.4% negative on retail at PEF, weather-normalized.

Travis Miller - Morning Star

Any big impacts on industrial side in Florida, is it -- anything?

Mark Mulhern

Yes, our Florida industrial base is very small, most with phosphate mining. So nothing in particular that's noteworthy there.

Operator

And next, we'll go to Neil Mehta with Goldman Sachs.

Neil Mehta - Goldman Sachs

Question on adjusted O&M, looks like you were up 1.4% year-over-year on the quarter. Is that the right run rate to think about for the second quarter, third quarter and fourth quarter 2010?

William Johnson

Our objective is to do better than that, but we would like to see as flat O&M over last year and maybe a little better than last year. We had, as Mark said, there's some nuclear costs and some storm costs and some other things that were unanticipated. But I would hope by the end of the next quarter, we're talking about a number smaller than 1.4%.

Neil Mehta - Goldman Sachs

And what's the path to actually get your flat O&M year-over-year? What are the actual items that will drive that?

William Johnson

I guess like everybody else in the business, the big part of it is how efficient you are with your labor, how many people you have working, how productive they are, what materials cost. This is just the old-fashioned exercise in managing your business, setting targets and making those targets. So there's nothing particular that stands out in O&M space other than doing it safer, better, faster cheaper everyday.

Neil Mehta - Goldman Sachs

And then the final question's around industrial demand. We thought Duke yesterday in the Carolinas posted a year-over-year industrial demand growth number for the first quarter of plus 4%. That's a little higher than you reported today in your release. Any thoughts on what could be driving the difference in the strength of recovery in the first quarter in that customer segment between the two companies?

Mark Mulhern

Yes, their industrial customer makeup is a little different than ours. We did notice, obviously, their numbers and pay attention to them. I think their textile numbers were especially strong. I think they've got some automotive textile that we maybe do not have. So if you look at the components of our industrial customer base, they are a little different than ours. Both Southern and Duke, they had strong industrial numbers, stronger than ours.

Operator

[Operator Instructions] We will go next to Edward Heyn with Catapult Capital Management.

Edward Heyn - Catapult

Just had a quick question on the DRIP and direct investment plan for the year. It looks like you've done about 40% of your target already, and just wanted to see if there is any updated thoughts, given that we have gone through the rating agency process and have gone through a first strong course, Q1 quarter. Are you still thinking about doing the full $0.5 billion of equity or is there any chance that may change?

Mark Mulhern

Ted (sic) [Ed], it's Mark. We have not changed that assumption. I think we do have some flexibility around it, and I think we will pay attention to it as we get into the second half of the year. You know what we've done here. We've been relatively conservative given the issues we faced in regulatory space in Florida. You know we've pre-funded a lot of things in terms of the holding company maturities that we have coming due. So I think we'll just assess that, but no official change in that target at this point.

Operator

And at this time, we have no further questions. I'll turn the conference back over to management for any closing remarks.

William Johnson

Well, thanks again to all of you for being on the call. We had had a good start to the year but we still have a long way to go, and as I said earlier, the third quarter being especially important to us. Meanwhile, we'll continue to focus on excelling in day-to-day operations and financial management while laying a strong foundation for the future. Thanks for your interest.

Operator

And that does conclude today's conference. Again, thank you for your participation.

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