Transcript FPL Group - External

Delivering Value…
Paul Cutler
Treasurer
Bob Barrett
Director, Investor Relations
April 2005
Cautionary Statements And Risk Factors
That May Affect Future Results
Any statements made herein about future
operating results or other future events are
forward-looking statements under the Safe
Harbor Provisions of the Private Securities
Litigation Reform Act of 1995. Actual results
may differ materially from such forward-looking
statements. A discussion of factors that could
cause actual results or events to vary is
contained in the Appendix herein.
2
FPL Group
• $13.9 billion market capitalization
• $28 billion in total assets
• 30,460 mw in operation
• $10.5 billion operating revenue
FPL Energy
FPL
• One of the largest U.S. electric utilities
• Vertically integrated, retail rateregulated utility
• 18,940 mw in operation
• 4.2 million customers
• $8.7 billion operating revenue
• Successful wholesale generator, operating
in 24 states
• U.S. market leader in
wind-generation
• 11,520 mw in operation
• $1.7 billion operating revenue
A Growing, Diversified Company
Data as of 12/31/04
3
FPL Group Continues to…
•
•
•
•
•
Deliver Value to…
– Shareholders
– Customers
Manage Extraordinary Growth at FPL by…
– Maintaining operational excellence
– Investing capital to support growing energy demand
– Meeting regulatory challenges
Capitalize on Growth at FPL Energy by…
– Maintaining a diverse portfolio
– Leading the US in wind generation and commitment to other
renewables (solar and hydro)
– Positioning for significant upside in merchant markets
– Maintaining disciplined risk management
Diversify Growth Opportunities
Grow the Business Profitably
4
Delivering Value to Shareholders
•
Outperforming the broader markets
and our peers in the capital markets
Consistently growing dividends
since ‘95
Providing an attractive yield vs other
investment instruments
2-for-1 stock split 1
•
•
•
70%
$1.40
60%
$1.20
50%
$1.00
40%
$0.80
30%
$0.60
20%
$0.40
10%
$0.20
0%
$0.00
94
95
96
97
98
99
00
01
02
03
FPL Group
113%
Dow Jones
Utilities
44%
S&P 500
(11)%
5-year Return
Dow Jones
FPL Group
Utilities
49% S&P 500
29%
11%
3-year Return
Attractive Yield and Long-term Growth Potential 2
Annual Dividend
Adj. Dividend Payout
Stable, Growing Dividend
Total Shareholder Return
04
See appendix for reference notes
Consensus
LT growth
rate
5.0%
4.1%
4.3%
3.5%
5-yr CD
10-yr T-Note
FPL
2.0%
Money
market
5
Delivering Value to Customers
Comparatively low residential rates and outstanding service
reliability have been rewarded with high customer approval
Residential Bill per 1,000 kwh
While Base Rates have Declined, Fuel
Charges have more than Doubled 4
(1,000 kwh)
3
$145.71
$125.72
$120.05
$80.85
$99.01
$94.30 $98.23
$89.11 $92.01
other
$8.28
1999
$75.54
other
$11.70
2005
$92.01
base rate
$47.46
base rate
$40.22
fuel
charge
$40.09
C
A
A
M
N
J
TE
C
O
A
Z
L
A
vg
'l
N
at
FP
re
ss
*
Pr
og
G
ul
fP
ow
er
fuel
charge
$19.80
* Figure does not include storm surcharge
Outage Time per Customer
5
2004 Residential Survey Scores 6
(minutes)
137
106
70
103
Good
FPL
Industry Average
See appendix for reference notes
FPL
Industry Average
7
Maintaining Operational Excellence
FPL Group achieves operational excellence by continuously
improving the performance of its power plants
Fossil Plant Performance
Equivalent Availability Factor
O&M per Retail kwh
(cents)
7
96%
Industry
1.77
94%
92%
1.79
90%
88%
1.67
86%
FPL
84%
1.24
82%
80%
78%
94
95
96
97
98
FPL
99
00
01
02
03
04
94
95
96
97
98
99
00
01
02
03
04
Industry Average
See appendix for reference notes
8
Last Year, FPL Incurred Direct Hits from Three
Hurricanes. Although the Damage Was
Extensive…
Hurricane
Charley
Landfall on
Category
Frances
Frances
Jeanne
08/13
09/05
09/26
4
2
3
Jeanne
Affected:
Customers
Counties
874,000
2,786,300 1,737,400
22
35
35
Poles
7,226
3,890
2,390
Transformers
5,159
3,011
3,037
925
575
254
13,500
16,738
16,566
13
12
8
Replaced:
Miles of
conductor
Personnel
Days of
restoration
Data as of 12/03/04
Charley
9
…Performance Was Outstanding
Percent of customers restored (%)
Jeanne
Frances
100
Charley
75
50
25
1
2
Data as of 12/03/04
3
4 5 6 7 8
Day of restoration
9
10 11 12 13
10
Overview of Storm Reserve Fund
•
•
Designed to cover non-insured storm losses and insurance
deductibles
Became significant after 1992
– due to lack of affordable insurance after Hurricane Andrew
•
•
•
FPL maintains commercial insurance for its power plants
Lost revenues are not recoverable
Regulated by the FPSC
– sets ratemaking and accounting treatment
– establishes estimated reserve, annual accrual and contributions
– has no specific investment restrictions
•
FPL currently accrues $20 million per year for the storm reserve
– rate case requests substantial increase
•
•
Current rate agreement contemplated possibility of restoration costs
above reserve and recovery of deficit
Deficit of $536 million to be recovered subject to prudency hearings
11
Managing Extraordinary Growth at FPL
Steady customer growth requires significant system expansion
Average Customer Accounts
Total Generation Capability
(mm)
(mw)
4.22
Martin and
Manatee
25,462
Turkey
Point 5
22,412
3.42
18,146
94
95
96
97
98
99
00
01
02
03
04
94
96
98
00
02
04
06E
12
Investing Capital to Support Growing Energy Demand
Steady customer growth translates into increased investment
Capital Expenditures
2003-2007 cumulative
(billions)
CapEx of $8.1 bn
$2.5
$2.0
$1.5
$1.0
$0.5
$96
97 98 99 00 01 02 03 04 05E 06E 07E
All other Transmission and Distribution New Generation
13
Facts About Residential Electricity Rates
•
•
•
The base rates have not
increased in more than 20
years, in fact the residential
base rate is 16% lower than it
was in 1985
– In comparison, prices paid
for other goods and
services have increased by
more than 80%
FPL is investing in new
power plants to meet strong
customer growth
FPL service reliability is the
best in Florida and among
the best in the nation
Components of a FPL Residential Bill 8
(1,000 kwh)
p ur chased
p o wer r eco ver y
char g e
8%
envir o nment al
co st r eco ver y
0 .2 5%
g r o ss r eceip t s
t ax
1%
b ase amo unt
44%
ener g y
co nser vat io n
co st r eco ver y
2%
st o r m
r est o r at io n
sur char g e
2%
f uel co st
r eco ver y
44%
Total 1,000 kwh residential bill
excluding municipal taxes and
franchise fees - $92.01
14
First Base Rate Increase Request in
More Than 20 years
Real and Nominal Base Rates 9
History of Changes in Base Rates
(Since 1985)
(millions)
$300
$60.00
$200
$50.00
$100
$40.00
$0
$30.00
Nominal
(16%)
-$100
$20.00
-$200
Real
(54%)
$10.00
-$300
-$400
83
85
87
89
91
93
Permanent Change
95
97
99
01
03
$0.00
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05
One-Time Refund
15
First Base Rate Increase Request in
More Than 20 years
• Rate request of $430 million
–
–
–
–
$184 million for CapEx associated with new plants and infrastructure
$100 million for additional storm fund contribution
$100 million to cover potential RTO costs
$46 million misc. expenses
• New rates would be effective on Jan. 1, 2006
• Additional annual increase of $123 million to cover costs of
Turkey Point expansion commencing with the in-service date
expected in mid-2007
• Impact on typical residential customer’s bill
– 2006 to mid-2007: $3-$4/month
16
Estimated Base Rate Case Timeline
Month
January
January –
March
Event
Notified Florida Public Service
Commission (FPSC) of upcoming
request
Prepare Minimum Filing
Requirements (MFRs) and testimony
March
May – June
June –
August
August
November
File formal rate request
Quality of service hearings
Intervenor, staff, and FPL rebuttal
testimony
Rate hearings
Final decision by FPSC expected
17
Solid Earnings and Good Growth
Prospects at FPL
2005 Drivers
• Good revenue growth
but with some
uncertainty
Long-term Growth Drivers
• Strong customer growth
• Track record of good cost
management
• Addition of 1,900 mw at
• Continued consistent and
Martin and Manatee
fair regulation
mid-year
• Managing continued
cost pressures
18
Capitalizing on Growth at FPL Energy
Addition of diversified assets has led to growing profitability
Asset Additions (net mw)
Adjusted Net Income
($ mm)
$175 $175
3,904
$126
$105
2,235
$83
$58
99
1,1081,014
1,219
00
01
02
03
04
99
00
744
02
01
03
04
900
05E
Nat. Gas
Oil
Nat. Gas/Oil
Solar
Nuclear
Wind
See appendix for reference notes and reconciliation of GAAP Net Income to Adjusted Net Income
20
FPL Energy’s Diverse Portfolio
Asset Type
Regional Breakdown
Contracted
Fossil
19%
Northeast
25%
West
17%
Central
34%
Wind
24%
Mid-Atlantic
24%
Merchant
(fossil and
hydro)
48%
FPL Energy operations
Seabrook
(nuclear)
9%
2005 mw planned:
400 - 900
11,520 Net mw in Operation
As of 12/31/04
21
Leading the U.S. in Wind Energy
Wind Generation Market Share
50%
43%
7,000
41%
33%
35%
5,000
30%
4,000
3,000
45%
40%
37%
6,000
mw
• Business scale
• Project development
track record
• Quick-to-market (3 - 6
months)
• Tax appetite
• Creditworthy
• Efficient third party
financing access
8,000
25%
22%
18%
20%
15%
2,000
10%
1,000
FPL Energy Market Share
Our Competitive
Advantages:
5%
-
0%
99
FPL Energy
00
01
Industry
02
03
04
FPL Energy Market Share
• Public policy support required
– Production Tax Credits (PTCs)
extended through 2005
22
Wind is a Significant Source of
Income Growth
Projected Wind
Generation Additions
(mw)
Wind Generation Additions
(mw)
1,200
1,200
1,000
1,000
800
800
600
600
400
400
200
200
-
-
Pre00
00
01
02
03
04
05
Each 100 mw adds roughly 1 ½ - 2
cents/share first twelve months
?
?
06
07
In service
05
Long run potential average of 250-500
mw/year dependent on PTCs
23
Contracted Portfolio Profile
Fuel Diversity
Contract Maturity
Gas
50%
Gas/Oil
39%
MW Under Contract
2,500
2,000
1,500
1,000
500
Other
9% Oil
2%
0
2005
2008
2011
2014
2017
2020
2,236 Net mw in Operation
• Steady earnings contributor
• “Trapped” value in existing contracts
– Significant contract restructurings each of last three years
– Potential for further restructurings
As of 2/4/05
24
FPL Energy Acquired the Seabrook
Nuclear Station in 2002
Market Price for Electricity
(MA Hub)
Headcount
Reliability
(capacity factor)
974
97.4%
799
85.3%
2002
2005
Average 1995 - 2002
Average post FPL
Energy
• Financial performance well above original forecast
• Substantial upside performance
– 84 net mw uprate
– Recontracting at higher prices
Additional contribution margin
$80 - $100 million in 2007
25
Significant Upside Potential in Merchant
Assets (Fossil and Hydro)
• Markets depressed due to
overbuild
• Plant retirements and market
growth leading to improved
capacity utilization
• Return to market equilibrium
could add $200 - $250 million
pretax gross margins for FPL
Energy gas merchants –
probably late in the decade
Regional Diversity
New
England *
25%
Texas
51%
All Other
24%
5,198 net mw
* Excludes Seabrook
Mw as of 2/4/05; projected year-end 2005
26
Disciplined Risk Management
Contract Coverage in 2005
Asset Class
Wind11
Contracted12
Merchant
NEPOOL13
ERCOT13
All other13
Total portfolio13
Available
mw10
2,917
2,170
2,304
2,644
1,274
11,309
% mw
under
Contract
98
99
72
79
8
78
More than 85 percent of expected 2005 gross margin hedged
As of 12/31/04. See appendix for reference notes
27
Excellent Growth Prospect at
FPL Energy
2005 Drivers
• Build-out of new wind
generation
• Uprate and refueling
outage at Seabrook
• Modest drag from Marcus
Hook
Long-term Growth Drivers
• Wind projects
• Recontracting at higher prices
at Seabrook
• Improving merchant markets
• Contract restructurings
• Acquisitions
• Increased interest expense
28
Sound Credit Profile Reflected on
Balance Sheet and Credit Ratings
Total Debt to
Total Capitalization
62%
58%
FPL Group
Industry
Average
S&P
A/
Negative
Moody’s
A2/
Stable
Fitch
A/
Stable
FPL First
Mortgage
Bonds
A/
Negative
Aa3/
Stable
AA-/
Stable
FPL Group
Capital
Senior
Unsecured
A-/
Negative
A2/
Stable
A/
Stable
FPL Group,
Inc. Issuer
Total Debt to Total Capitalization as of 12/31/04 for FPL Group and 9/30/04 for the Industry
Average.
30
Environmental Stewardship
20
• FPL Group is one of the cleanest
electric generating companies in the
nation
– A member of EPA’s Climate
Leaders program
– FPL Group is the largest U.S.
power company to have joined
World Wildlife Fund’s Powerswitch!
Pioneers program
• Well positioned vis-à-vis other utilities
in the event of more stringent
environmental regulations
SO2 Emissions
(lbs/mwh)
15
10
5
FPL
0
2500
CO2 Emissions
(lbs/mwh)
2000
1500
1000
FPL
500
0
5
NOx Emissions
(lbs/mwh)
4
3
2
FPL
1
0
31
Strong, Tangible Growth Prospects
•
•
•
•
•
•
•
Customer and usage growth at FPL
Growing wind business
Seabrook Station improvements
Contract restructurings
Asset acquisitions
Upside leverage on merchant fossil fleet
Acquisitions of regulated distribution
companies and/or regulated integrated utilities
• Gas infrastructure / LNG
32
FPL Group: A Powerful Investment
+
=
• Growing electricity
demand in our territory
• Moderate risk
approach
• Sound fundamentals,
disciplined approach
• Outstanding operating
performance
• Well diversified by
region and fuel
source
• Proven track record
• Collaborative and
progressive regulatory
environment
• Disciplined
hedging/
optimization
• Attractive, realistic
growth prospects
• Low environmental risk
• Wind and nuclear
creating
substantial
value
• Financial strength
and discipline
33
Appendix
Compared to Our Peers
2005 P-E Ratios 14
Total Enterprise Value 14
40
$50
$40
Average = 16.5
20
FPL
15.8
($bn)
30
10
FPL
$24
$20
$10
0
$0
Credit Ratings 15
A
$30
Total Debt to Capitalization Ratio 15
FPL
A
100
Average = BBB
80
BB
60
(%)
BBB
Average = 61%
FPL
56
40
20
0
See slide 44 for reference notes
NYSE ticker (common stock): FPL
36
Compared to Our Peers
Current Yield 14
2005E Dividend Payout Ratio 16
100
6
FPL
3.5 Average = 3.6%
(%)
4
3
80
(%)
5
Average = 55%
FPL
58%
60
40
2
20
1
0
0
YE04 GW in Operation
$25
50
$20
40
$15
FPL
$10.5
$10
(GW)
($bn)
2004 Revenues
30
20
$5
10
$0
0
See slide 44 for reference notes
FPL
30.1
37
Ways to Invest in FPL Group
Selected Fixed Income Issues
Type of Debt
Florida Power & Light
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
First Mortgage Bonds
Interest
Rate (%)
Maturity
Date
Amount
(millions)
6.875
6.000
5.875
4.850
5.850
5.950
5.625
5.650
12/01/05
06/01/08
04/01/09
02/01/13
02/01/33
10/01/33
04/01/34
02/01/35
500
200
225
400
200
300
500
240
3.250
7.625
4.086
6.125
5.000
7.375
7.375
5.875
04/11/06
09/15/06
02/16/07
05/15/07
02/16/08
06/01/09
06/01/09
03/15/44
500
600
575
500
506
225
400
309
CUSIP #
341081DW4
341081DX2
341081EN3
341081EP8
341081ER4
341081EQ6
341081ES2
FPL Group Capital
Debentures
Debentures
Debentures (A Equity Units)
Debentures
Debentures (B Equity Units)
Debentures
Debentures
Debentures (Junior Subordinated)
As of 3/31/05
302570AQ9
302570AK2
302570AN6
302570AJ5
302570AJ5
38
Ways to Invest in FPL Group
Equity/Equity-linked
Security
Ticker
• FPL Group common stock
FPL
• FPL Group 8.0% equity unit B
FPLPrB
• FPL Group Capital Trust I
5 7/8% preferred trust securities
FPLPrC
39
Diversified Fuel Sources
FPL 2004 Energy Sources
FPL Energy 2004 Fuel Diversity
(mw hrs produced)
(net mw in operation)
Hydro
3%
Oil
6%
Coal
6%
Oil
18%
Gas
37%
Other
1%
Wind
24%
Gas
57%
Purchased
Power
18%
Nuclear
21%
Nuclear
9%
Further hedged through its use of multiple energy
sources at FPL and FPL Energy
40
FPL - Reconciliation GAAP to
Adjusted EPS
1999
2000
2001
Reconciliation of Earnings Per Share to Earnings
Per Share Excluding After-tax Effect of Certain Items:
Earnings P er Share (assuming dilution)
$
1.68
$
1.78
$
0.11
1.89
$
2.01
$
0.05
2.06
Adjustments:
Settlement of litigation
Merger-related expenses
Earnings P er Share excluding certain items
0.12
$
1.80
There were no adjustments to GAAP earnings in 2002, 2003, and 2004
41
FPL Group - Reconciliation GAAP to
Adjusted EPS
1999
2000
2001
2002
2003
2004
Reconciliation of Earnings (Loss) Per Share to Earnings (Loss)
Per Share Excluding After-tax Effect of Certain Items:
Earnings (Loss) Per Share (assum ing dilution)
Adjustments:
Litigation settlement at FPL
Impairment loss at FPL Energy
Gains on divestiture of cable investment at Corporate & Other
Merger-related expenses - $0.11 per share at FPL and $0.01 per share
at Corporate & Other
Merger-related expenses - $0.05 per share at FPL and $0.01 per share at
Corporate & Other
Cumulative effect of change in accounting principle (FAS 142) - FPL Energy
Charges due to restructuring - $0.21 per share at FPL Energy and $0.18
per share at Corporate & Other
Reserve for leveraged leases - Corporate & Other
Gain on settlement of IRS litigation - Corporate & Other
Cumulative effect of change in accounting principle (FIN 46) - FPL Energy
Net unrealized mark-to-market losses (gains) associated
w ith non-managed hedges, FPL Energy
Earnings Per Share excluding certain item s
$
2.03
$
2.07
$
2.31
$
1.37
$
2.50
$
2.45
$
0.01
2.46
0.12
0.30
(0.47)
0.12
0.06
0.64
0.39
0.09
(0.09)
0.01
$
1.98
$
2.19
$
(0.02)
2.35
$
2.40
$
(0.06)
2.45
42
FPL Energy - Reconciliation GAAP to
Adjusted Earnings
($ millions)
Reconciliation of Net Income (Loss) to Earnings
Excluding After-tax Effect of Certain Items:
1999
Net income (Loss)
$
Adjustments:
Impairment loss
Merger-related expenses
Cumulative effect of change in accounting principle (FAS 142)
Restructuring and other charges
Cumulative effect of change in accounting principles (FIN 46)
Net unrealized mark-to-market losses (gains) associated
with non-qualifying hedges
Earnings excluding after-tax effect of certain items
$
2000
(46)
$
2001
82
$
113
2002
$
(169)
2003
$
2004
194
$
172
104
1
222
73
3
58
$
83
$
0.24
$
(8)
105
$
126
$
(0.49)
$
(22)
175
$
3
175
Reconciliation of Earnings (Loss) Per Share to Earnings (Loss)
Per Share Excluding After-tax Effect of Certain Items:
Earnings (Loss) Per Share (assuming dilution)
$
Adjustments:
Impairment loss
Merger-related expenses
Cumulative effect of change in accounting principle (FAS 142)
Restructuring and other charges
Cumulative effect of change in accounting principles (FIN 46)
Net unrealized mark-to-market losses (gains) associated
with non-qualifying hedges
Earnings Per Share excluding certain items
$
(0.13)
$
0.33
$
0.54
$
0.48
$
0.01
0.49
0.30
0.64
0.21
0.01
0.17
$
0.24
$
(0.02)
0.31
$
0.36
$
(0.06)
0.49
Totals may not add due to rounding
43
Reference Notes
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
2-for-1 stock split: March 15, 2005
As of 3/8/05; source Wall Street Journal and FirstCall
GP’s, FPL’s, PEF’s, and TECO’s rates became effective on 1/04. The bills
exclude municipal taxes and franchise fees. Rates outside of Florida as
reported in EEI Typical Bills Report Summer 2004 (7/04).
Excluding franchise fees and municipal taxes; rates as of March 1999 and
March 2005
FPL data as of 2004 excluding the impact of the three hurricanes that hit
FPL’s service territory; industry average data as of 2003
Source: J.D. Power and Associates, July 22, 2004
Investor owned utilities with at least 5,000 megawatts. Source: North
American Reliability Council
As of Feb. 17, 2005. Percentages have been rounded, resulting in more than
100%.
Adjusted for inflation (CPI)
Weighted to reflect in-service dates, planned maintenance, and a refueling
outage at Seabrook
Reflects round-the-clock mw
Reflects on-peak mw; includes Seabrook
Reflects on-peak mw
As of 3/8/05
As of 12/31/04
FPL annualized latest quarterly dividend divided by 2004 EPS
44
Cautionary Statements And Risk Factors That
May Affect Future Results
In connection with the safe harbor provisions of the Reform Act, FPL Group and FPL are hereby filing cautionary statements identifying important factors that could
cause FPL Group’s or FPL’s actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made
by or on behalf of FPL Group and FPL in this presentation, in response to questions or otherwise. Any statements that express, or involve discussions as to
expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely
result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts
and may be forwardlooking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their
entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in
connection with such forward-looking statements) that could cause FPL Group’s or FPL’s actual results to differ materially from those contained in forward-looking
statements made by or on behalf of FPL Group and FPL.
Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.
New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the
business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking
statement.
The following are some important factors that could have a significant impact on FPL Group’s and FPL’s operations and financial results, and could cause FPL
Group’s and FPL’s actual results or outcomes to differ materially from those discussed in the forward-looking statements:
• FPL Group and FPL are subject to changes in laws or regulations, including the Public Utility Regulatory Policies Act of 1978 (PURPA), and the Holding
Company Act, changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public
Service Commission (FPSC) and the utility commissions of other states in which FPL Group has operations, and the Nuclear Regulatory Commission (NRC), with
respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, operation and construction of plant
facilities, operation and construction of transmission facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and
purchased power costs, decommissioning costs, return on common equity and equity ratio limits, and present or prospective wholesale and retail competition
(including but not limited to retail wheeling and transmission costs). The FPSC has the authority to disallow recovery by FPL of costs that it considers excessive or
imprudently incurred.
• The regulatory process generally restricts FPL’s ability to grow earnings and does not provide any assurance as to achievement of earnings levels.
• FPL Group and FPL are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste
management, wildlife mortality, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of
certain fuels required for the production of electricity and/or require additional pollution control equipment and otherwise increase costs. There are significant
capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more
significant in the future.
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• FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation
or restructuring of the energy industry, including deregulation of the production and sale of electricity. FPL Group and its subsidiaries will need to adapt to
these changes and may face increasing competitive pressure.
• FPL Group’s and FPL’s results of operations could be affected by FPL’s ability to renegotiate franchise agreements with municipalities and counties in
Florida.
• The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines,
use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters such as
hurricanes), as well as the risk of performance below expected or contracted levels of output or efficiency. This could result in lost revenues and/or increased
expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of
replacement power. In addition to these risks, FPL Group’s and FPL’s nuclear units face certain risks that are unique to the nuclear industry including the
ability to store and/or dispose of spent nuclear fuel, as well as additional regulatory actions up to and including shutdown of the units stemming from public
safety concerns, whether at FPL Group’s and FPL’s plants, or at the plants of other nuclear operators. Breakdown or failure of an FPL Energy operating
facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the
agreement or incurring a liability for liquidated damages.
• FPL Group’s and FPL’s ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin
construction or capital improvements to existing facilities is contingent upon many variables and subject to substantial risks. Should any such efforts be
unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of their
investment in the project or improvement.
• FPL Group and FPL use derivative instruments, such as swaps, options, futures and forwards to manage their commodity and financial market risks, and to
a lesser extent, engage in limited trading activities. FPL Group could recognize financial losses as a result of volatility in the market values of these contracts,
or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these
derivative instruments involves management’s judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative
valuation methods could affect the reported fair value of these contracts. In addition, FPL’s use of such instruments could be subject to prudency challenges
and if found imprudent, cost recovery could be disallowed by the FPSC.
• There are other risks associated with FPL Group’s non-rate regulated businesses, particularly FPL Energy. In addition to risks discussed elsewhere, risk
factors specifically affecting FPL Energy’s success in competitive wholesale markets include the ability to efficiently develop and operate generating assets,
the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of
fuel, transmission constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant
volatility in market prices for fuel and electricity, and there are other financial, counterparty and market risks that are beyond the control of FPL Energy. FPL
Energy’s inability or failure to effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk
measures could significantly impair FPL Group’s future financial results. In keeping with industry trends, a portion of FPL Energy’s power generation facilities
operate wholly or partially without long-term power purchase agreements. As a result, power from these facilities is sold on the spot market or on a short-term
contractual basis, which may affect the volatility of FPL Group’s financial results. In addition, FPL Energy’s business depends upon transmission facilities
owned and operated by others; if transmission is disrupted or capacity is inadequate or unavailable, FPL Energy’s ability to sell and deliver its wholesale
power may be limited.
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• FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power
industry. In addition, FPL Group may be unable to identify attractive acquisition opportunities at favorable prices and to successfully and timely complete and
integrate them.
• FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows. The
inability of FPL Group, FPL Group Capital and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms,
particularly during times of uncertainty in the capital markets, which, in turn, could impact FPL Group’s and FPL’s ability to grow their businesses and would
likely increase interest costs.
• FPL Group’s and FPL’s results of operations are affected by changes in the weather. Weather conditions directly influence the demand for electricity and
natural gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities. In addition, severe
weather can be destructive, causing outages and/or property damage, which could require additional costs to be incurred.
• FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the
effect of new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.
• FPL Group and FPL are subject to direct and indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been
identified as potential targets. The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or
threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic
recovery in the United States, and the increased cost and adequacy of security and insurance.
• FPL Group’s and FPL’s ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national, state or local
events as well as company-specific events.
• FPL Group and FPL are subject to employee workforce factors, including loss or retirement of key executives, availability of qualified personnel, collective
bargaining agreements with union employees or work stoppage.
The issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face. Additional issues may arise or
become material as the energy industry evolves. The risks and uncertainties associated with these additional issues could impair FPL Group’s and FPL’s
businesses in the future.
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