Transcript Earnings Conference Call

Earnings Conference Call
Second Quarter 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 forwardlooking statements. A discussion of factors
that could cause actual results or events to
vary is contained in the Appendix herein and
in the Company’s SEC filings.
2
Overview of second quarter 2005
• Florida Power & Light Company
– Continuation of mild weather
– Strong customer growth
– Martin and Manatee generation expansions brought in
service on schedule and under budget
• FPL Energy
– Strong adjusted earnings growth despite Seabrook outage
– Continued improvement in merchant portfolio
– Negative mark on non-qualifying hedges reflects improving
forward markets
– Portfolio additions (Gexa acquisition, new wind investments)
• FPL Group
– Reaffirm 2005 earnings expectation of $2.45 to $2.551 per
share
1
3
Assuming normal weather for the balance of the year, excluding the cumulative effect of adopting new accounting
standards as well as the mark-to-market effect of non-qualifying hedges, neither of which can be determined at this time
FPL Group results
Second quarter
GAAP
Net Income
($ millions)
$257
Adjusted
$251 $255
$0.71
$203
04
Net Income
($ millions)
EPS
05
EPS
$0.69 $0.66
$0.52
04
05
04
05
04
05
4
See Appendix for reconciliation of GAAP to adjusted amounts
Florida Power & Light overview
Second quarter
• Weather impact negative, driven by
weaker weather in April and May
• Some unanticipated weakness due to
underlying usage growth
• Customer growth remains strong
• Martin and Manatee plant generation
expansions completed on schedule and
under budget
• Decision on storm cost recovery
• Base rate case proceeding on schedule
5
Florida Power & Light earnings
Second quarter
EPS
Net Income Contribution
($ millions)
$205
$201
04
05
$0.57
04
$0.52
05
6
FPL historical growth
in customer accounts
(thousands)
92
67
95
87
76
65
62
96
97
97
107
95
85
65
98
99
00
01
02
03
04
05
1
7
1
Change in average customer accounts from prior year’s second quarter
Retail sales at FPL
Second quarter
2.3% customer growth
(3.5)% usage growth due to weather
(0.1)% underlying usage growth and
mix
(1.3)% kWh sales growth
8
Weather Index
2005
Production (GWh):
Actual
Normal
vs. normal
vs. year ago
Degree Days:
Actual
Normal
vs. normal
vs. year ago
2004
Production (GWh):
Actual
Normal
vs. normal
Degree Days:
Actual
Normal
vs. normal
April
8,278
8,727
May
9,239
9,456
June
10,397
10,439
2nd
Quarter
27,914
28,623
-5.1%
2.6%
-2.3%
1.0%
-0.4%
-5.3%
-2.5%
-1.0%
31
74
140
161
245
251
416
486
-58.1%
-35.4%
-13.0%
-9.1%
-2.4%
-23.9%
-14.4%
-20.6%
April
8,071
8,452
May
9,146
9,236
June
10,979
10,152
2nd
Quarter
28,195
27,840
-4.5%
-1.0%
8.1%
1.3%
48
75
154
161
322
249
524
485
-36.0%
-4.3%
29.3%
8.0%
Degree days shown are cooling degree day (CDDs). CDDs are based on average temperature of 72oF; negative
values set to zero. Normal weather based on 56 year average. Production figures shown above are based on net
energy for load. Energy sales statistics shown in the July 22, 2005 earnings press release are net of line losses and
company usage.
9
FPL O&M and Depreciation
Second quarter
($ millions)
O&M
$319 $316
04
05
Depreciation
$227
$232
04
05
10
Figures include amounts that are recovered through cost recovery clauses which have no impact on net income
FPL Earnings contribution drivers
Second quarter
FPL – 2004 EPS
Drivers:
Customer growth
Usage due to weather
Underlying usage growth
and mix
Depreciation
O&M
Other 1
FPL – 2005 EPS
($/share)
$0.57
0.03
(0.05)
(0.01)
(0.01)
0.01
(0.02)
$0.52
11
1
Including AFUDC, other revenues and share dilution
Storm reserve deficiency recovery
update
• Florida PSC voted to approve Staff
recommendation
– ~$442 million to be collected through monthly surcharge
– $70 million to be capitalized
– ~$22 million deferred until accounting treatment determined
• Reinforces prior orders governing recovery
of prudently incurred storm-related costs
• Leaves open some issues around future
accounting methodology for recording
restoration costs
12
2006 rate case key dates
Service hearings
Intervenor testimony
Staff testimony
Rebuttal testimony
Hearings
Briefs due
Staff rec. rev req. and rates
Special agenda rev. req. and
rates
Staff rec. revised rates
Special agenda revised rates
Standard order
Dates are subject to change
June - July
June 27
July 8
July 28
August 22
– Sept. 2
Sept. 20
Oct. 28
Nov. 10
Nov. 14
Nov. 21
Nov. 30
13
FPL Energy Overview
Second quarter
• Adjusted net earnings1 grew by more than 13% during
the quarter
• Excellent overall performance
–
–
–
–
New wind assets
1st phase of Seabrook uprate completed, 52 net mw added
Continued strengthening in forward markets
Partially offset by lower wind resource and Seabrook refueling
outage
– Ongoing positive impact of restructurings
• Losses on non-qualifying hedges reflect improving spark
spreads
– Substantial increase in value of physical assets
• Good progress in hedging 2006
• Strengthening outlook for 2006 and 2007
14
1
See Appendix for reconciliation of GAAP to adjusted amounts
FPL Energy results
Second quarter
GAAP
Adjusted
EPS
Net Income
($ millions)
$69
Net Income
($ millions)
$63
$0.19
EPS
$72
$0.17
$0.19
$20
$0.05
04
05
04
05
04
05
04
05
15
See Appendix for reconciliation of GAAP to adjusted amounts
FPL Energy earnings
contribution drivers
Second quarter
FPL Energy – 2004 Adjusted EPS
Drivers:
New investment
Existing assets
Asset optimization and trading
Development and asset restructuring
Interest expense
FPL Energy – 2005 Adjusted EPS
1 Including share dilution and rounding
See appendix for reconciliation of GAAP to adjusted amounts
($/share)
$0.17
0.01
0.03
(0.01)
0.01
(0.02)
$0.19
16
Wind resource fundamentals
Second quarter
106
96
1
Wind Speed Index 1
102
98
103
100
98
103
95
98
94
97
98
99
00
01
02
03
04
05
Average wind speed for the period from those reference towers chosen to represent FPL Energy’s
portfolio - weighted index based on FPL Energy’s portfolio as of 6/30/05
100 = long-term historic second quarter weighted average mean
17
FPL Energy monthly wind index1
Current portfolio
92
104
97 96 99
103
93 93 96 94
92 94 90 98
82
Apr- May- Jun04
04
04
1
Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun04
04
04
04
04
04
05
05
05
05
05
05
Average wind speed for the period from those reference towers chosen to represent FPL Energy’s
portfolio - weighted index based on FPL Energy’s portfolio as of 6/30/05
100 = long-term historic monthly weighted average mean
18
Significantly improved market conditions
Market update
Change in
Cal 06 Forward
1/3/05 – 3/31/05
Change in
Cal 06 Forward
3/31/05 – 6/30/05
Cal 06
Forward
6/30/05
Natural Gas ($/MMBTU) 1
$
1.61
$
0.30
$
7.99
NEPOOL 7x24 Power 2
$
12.18
$
2.34
$
71.24
NEPOOL Spark Spreads 3
$
0.96
$
1.32
$ 19.41
ERCOT Spark Spreads 4
$
3.42
$
3.84
$ 19.57
WECC Spark Spreads 5
$
5.36
$
(2.49)
$
24.76
1 NYMEX
2
Mass Hub
Mass Hub, Tetco M3 and 7,000 heat rate
4 ERCOT N, Houston Ship Channel and 7,000 heat rate
5 SP15, NGI SoCal and 7,000 heat rate
3
19
Non-qualifying hedges 1
Summary of activity
($ millions, after-tax)
Asset/(Liability) Balance as of 3/31/05
$( 9.1)
Amounts Realized During 2nd Quarter
( 5.8)
Change in Forward Prices (all positions)
(46.4)
Subtotal
(52.2)
Primary Drivers:
Increase in ERCOT spark spreads
Asset/(Liability) Balance as of 6/30/05
$ (61.3)
All other (primarily net short gas
positions)
$(30.5)
(15.9)
$(46.4)
1
Includes contracts of FPL Energy’s consolidated projects plus its share of the contracts of equity method
investees
20
FPL Energy contract coverage
2006
Asset Class
As of 3/31/05
% MW
Available
under
1
MW
Contract
As of 7/15/05
% MW
Available
under
1
MW
Contract
Wind 2
Contracted 3
Merchant 4
3,199
2,044
91
99
3,049
2,044
97
99
NEPOOL 5
ERCOT 5
All other 5
2,343
2,644
1,446
42
48
17
2,298
2,580
1,426
49
82
24
11,675
64
11,397
75
Total portfolio 5
Weighted to reflect in-service dates, planned maintenance and Seabrook’s refueling outage and power
uprate and expected production from renewable resource assets
2 Reflects Round-the-Clock MW
3 Includes all projects with mid- to long-term purchase power contracts for substantially all of their output
4 Includes only those facilities that require active hedging
5 Reflects on-peak MW
Totals may not add due to rounding and exclude pending Duane Arnold acquisition
1
21
Portfolio transactions
• Acquired Gexa Corp.
• Wind additions 500-750 mw by year-end ’05
–Weatherford Wind brought into service with
~107 mw of wind, total year-to-date to ~221
mw
–Additional ~250 mw announced
• On July 5, announced intent to purchase
Duane Arnold Energy Center
22
Gexa Corp. acquisition
Closed acquisition of fast-growing Texas retail energy
provider on June 17:
– Serves approximately 1,000 mw’s of peak load
associated with over 125,000 small commercial and
residential customers throughout Texas
– Financially attractive:
• EPS: 2 to 3 cents/year over next 5 years expected
– Significant synergies with FPL Energy Texas portfolio:
• Hedge for Texas assets
• Green product marketing outlet for renewable energy
• Expands FPL Energy commercial and operational
capabilities
– Provides balance to FPL Energy’s naturally long power
position in ERCOT
23
Acquisition of Duane Arnold
Energy Center
Acquisition announced July 5 for $387 million:
– Attractive economics
• Expect immediate earnings accretion
• Long-term power contract provides predictable and growing
cash flow through contract period
– Low-cost baseload producer in Midwest market
• Complements FPL Energy wind portfolio in region
– Leverages FPL’s nuclear expertise
• Opportunity to enhance operations from current levels
• Leverages successful Seabrook integration
• Builds nuclear scale
– Improves FPL Energy portfolio diversification
24
FPL Energy outlook strong
2005
– Likely to come in towards the high end of net income
range of $245 to $275 million1,2
2006
– Initial net income range of $320 to $360 million
2007
– Updated net income range of $420 to $460 million
2006 and 2007 ranges reflect the anticipated
addition of Duane Arnold
Ranges are supported by current forward curves
1 See
2
Appendix for reconciliation of GAAP to adjusted amounts
2005 estimate is based upon FPL Energy EPS guidance given on July 22, 2005, and excludes the cumulative
effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges,
neither of which can be determined at this time. It is FPL Group's policy not to comment on guidance during the
25
quarter.
FPL Energy’s 2006 and 2007 figures are indicative ranges and are appropriate for this point in time but are not
based on detailed budgeting analysis. As a result, they should only be taken into account in conjunction with
the Company’s standard earnings guidance
Earnings Per Share contributions
Second quarter
GAAP
FPL
FPL Energy
Corporate and Other
Total
04
$0.57
0.19
(0.05)
$0.71
05
$0.52
0.05
(0.05)
$0.52
Change
$(0.05)
(0.14)
0.00
$(0.19)
Adjusted
FPL
FPL Energy
Corporate and Other
Total
04
$0.57
0.17
(0.05)
$0.69
05
$0.52
0.19
(0.05)
$0.66
Change
$(0.05)
0.02
0.00
$(0.03)
26
See Appendix for reconciliation of GAAP to adjusted amounts
2005 Outlook
• FPL
– Expect earnings contribution of $1.93 to $2.00 per
share assuming normal weather
• FPL Energy
– Expect earnings contribution of $0.65 to $0.73 per
share
• Corporate and Other
– Modestly negative results at FPL FiberNet
– Higher interest expense
– Net drag of $0.15 to $0.18 per share
EPS of $2.45 to $2.55 1
1
Assuming normal weather for the balance of the year, excluding the cumulative effect of adopting new
accounting standards as well as the mark-to-market effect of non-qualifying hedges, neither of which can be
determined at this time
27
Q&A Session
Appendix
FPL: potential drivers of 2005
earnings variability
Issue
Weather variability
Variability
Potential 2005 Impact
Balance of Year
at 80% probability
± 9¢
Customer growth
± 1 to 2¢
Usage growth
± 1 to 2¢
O&M expenses
sensitivity
2% variation
See Safe Harbor Statement and SEC filings for full discussion of risks
± 4¢
30
Florida ranks 1st in growth
among most populous states
State
CAGR
2000-2004
% of
Population
CAGR
2000-2030
in 20041
% of
Population
in 2030
Florida
2.1%
5.9%
2.0%
7.9%
Texas
1.9%
7.7%
1.6%
9.2%
California
1.5%
12.2%
1.1%
12.8%
Illinois
0.6%
4.3%
0.3%
3.7%
New York
0.3%
6.5%
0.1%
5.4%
United States 1.1%
1
0.9%
Estimated population by state as a percentage of total U.S. population; 2030 are based on estimated
population
Source: U.S. Census Bureau
31
FPL Energy: potential drivers
of 2005 earnings variability
Issue
Sensitivity
Market risk
commodity prices
Weather
 Wind portfolio
 Maine hydro
wind resource
rainfall, snow pack
Variability
-1¢ + 3¢
± 1 wind index
± 20% 1
Oper. performance EFOR
New growth
 Wind
 Other
New development
Asset acquisitions
Asset restructuring
Potential
Impact Balance
of 2005
± 1-2¢
± 2¢
?
500 – 750 MW
?
± 1-2¢
+?
0+% of FPLE
earnings
32
1
From historic mean
Non-qualifying hedges 1
Summary of activity
($ thousands, after-tax)
Description
Gas Supply Contract
Other - net
Total
Description
Gas Supply Contract
Other - net
Total
Asset /
(Liability)
Balance
12/31/04 (2)
$
16,205
$
5,416
$
21,621
Asset /
(Liability)
Balance
3/31/05
$
21,341
$
(30,477)
$
(9,136)
Amounts
Realized
(1,611)
(6,417)
$
(8,028)
1st Quarter
Deals
Change in
Executed
Forward
During
Prices
Period (3)
6,747
(17,321)
(12,155)
$ (10,574) $ (12,155)
Amounts
Realized
(2,263)
(3,542)
$
(5,805)
2nd Quarter
Deals
Change in
Executed
Forward
During
Prices
Period (3)
1,615
(39,120)
(8,856)
$ (37,505) $ (8,856)
Total
Unrealized
MTM
5,136
(35,893)
$
(30,757)
Asset /
(Liability)
Balance
3/31/05
$ 21,341
$ (30,477)
$
(9,136)
Total
Unrealized
MTM
(648)
(51,518)
$
(52,166)
Asset /
(Liability)
Balance
6/30/05
$ 20,693
$ (81,995)
$ (61,302)
Includes contracts of FPL Energy’s consolidated projects plus its share of the contracts of equity method
investees
2 12/31/04 balance has been decreased $201 for the impact of changing tax rate from 39.23% to FPL Energy
Project specific tax rates
3 Amount represents the change in value of deals executed during the quarter from the execution date through
quarter end
1
33
Non-qualifying hedges 1
Summary of forward maturity
($ thousands, after-tax)
Asset /
(Liability)
Balance
6/30/05
$ 20,693
$ (81,995)
$ (61,302)
Description
Gas Supply Contract
Other - net
Total
Gain / (Loss) 2
2005
(4,342)
29,520
$ 25,178
2006
(9,631)
26,314
$ 16,953
2007
(6,990)
8,925
$ 1,935
2008
2009 2014
1,851
$ 1,851
15,385
$ 15,385
Includes contracts of FPL Energy’s consolidated projects plus its share of the contracts of equity method
investees
2 Gain/(loss) based on existing contracts and forward prices as of 12/31/05
1
Total
2005 - 2014
(20,693)
81,995
$ 61,302
34
Non-Qualifying hedge example
Forward spark spread sale
FPL Energy enters into a forward sale in January 2005 to "lock-in" gross margin
Assumptions:
•
Volume
175 MW On Peak (358,400 MWh's)
•
Term
April - Sep '05
•
Spark Spread
$11 per MWh ($3.94 million total value)
At the end of each quarter, assume the market value of the spark spread changes to:
– 1Q05
$17 per MWh
– 2Q05
$8 per MWh
As the power is sold, FPLE will recognize the $11.00 / MWh in contract spark spread and the
unrealized mark-to-market will reverse.
The table below illustrates the impact on Adjusted Earnings
and GAAP Earnings in each period ($ millions):
1Q '05
2Q '05
3Q '05
Total
Adjusted Earnings (Pre-Tax)
Non-Qualifying Unrealized
$0.00
$1.97
$1.97
$3.94
Gain/(Loss)
(2.15)
2.69
(0.54)
0.00
($2.15)
$4.66
$1.43
$3.94
(see calculation in boxes below)
GAAP Earnings (Pre-Tax)
358,400 x (11-17) = $(2.15)
179,200 x (17-11) = $1.08
179,200 x (17-8) = $1.61
$2.69
179,200 x (8-11) = $(.54)
Cash
revenue
s
Non-cash
"M-T-M"
gains &
losses
Extensive
Earnings
Volatility
35
FPL Energy 2007 outlook
Common assumptions for 2006 and 2007
WIND RESOURCE
Assumes normal wind resource
NEW WIND INVESTMENTS
1,250 - 1,750 mw by end of 2007
ANNOUNCED AND ANTICIPATED ACQUISITIONS
Includes previously announced acquisitions and potential acquisitions (Gexa
effective June 17, 2005 and Duane Arnold effective January 1, 2006)
Assumes no additional unidentified acquisitions
MARKET PRICES
Reflects forward prices as of June 30, 2005
See Safe Harbor Statement and SEC filings for full discussion of risks
36
Wind resource fundamentals
Annual
Wind Speed Index 1
104
105
103
100
101
98
97
99
96
97
95
96
97
98
99
00
01
02
03
04
Average wind speed for the period from those reference towers chosen to represent FPL Energy’s portfolio weighted index based on FPL Energy’s portfolio as of 6/30/05
100 = long-term historic annual weighted mean
1
37
Bridging reference tower wind
speed to earnings impact
Reference Tower Wind Speed
Correlation factor effect (tower to site)
Wind shear derivation (convert lower
level measured wind to predicted)
Wind Turbine Hub Height
Wind Speed
Air density assumption
Turbine specific performance (power curve)
Theoretical Wind Turbine Output
Availability
Reliability
Curtailments
Actual Wind Turbine Output
Price paid by buyer
Earnings Per Share Contribution
±1 in the annual portfolio wind index for
2005 equates to ± $0.02 to $0.03/share 1
1
Sets aside uncertainties that can cause actual performance to deviate from that predicted solely by using the
wind data from the selected reference towers. This reflects the impact on projects that were fully in operation
on 6/30/05
38
Regional Long Term Wind Reference
Location
Jamestown
Walla Walla
Pipestone
Scranton
Pierre
Mason City
Lone
Rock
Evanston
Concord*
Johnstown
Livermore*
Red Oak
Garden
City
Bakersfield*
Gage
Lancaster
Clinton
Clovis
Palm Springs*
Abilene*
Winkler*
Midland
* Denotes new references included to
better describe FPLE Wind Portfolio
39
FPL Energy plant operations
FPL Energy MWs and Regional
Reference Towers
Second Quarter
Long Term
2004
2004
Long Term 2Q
2Q2004
2Q2004
2Q2005
2Q2005
Associated
Avg. Wind
Avg. Wind
Wind Speed
Avg. Wind
Avg. Wind
Wind Speed
Avg. Wind
Wind Speed
Net MWs
Speed (m/s)
Speed (m/s)
Index
Speed (m/s)
Speed (m/s)
Index
Speed (m/s)
Index
Midland.TX
598.60
4.94
4.92
99.59
5.62
5.63
100.20
5.21
92.61
WallaWalla.WA
324.90
3.76
3.39
90.01
3.96
3.56
89.96
3.70
93.39
Clovis.NM
204.00
5.21
5.25
100.74
5.72
5.60
97.94
5.32
93.07
Concord.CA
162.00
3.75
3.46
92.32
4.62
4.60
99.63
4.04
87.51
Abilene.TX
114.00
4.99
4.78
95.65
5.61
5.44
96.98
5.31
94.65
Clinton.OK
0.00
5.69
5.86
102.84
6.07
6.23
102.64
5.82
95.85
Lancaster.CA
165.10
4.94
4.90
99.19
6.57
6.65
101.18
6.28
95.50
Evanston.WY
144.00
4.66
4.33
92.89
5.07
4.93
97.31
4.64
91.62
GardenCity.KS
112.20
5.53
5.40
97.65
6.09
6.00
98.61
6.06
99.61
Johnstown.PA
130.40
4.24
4.14
97.77
4.02
4.01
99.75
3.83
95.14
Pipestone.MN
116.50
4.20
4.37
104.09
4.50
4.52
100.35
4.85
107.80
Livermore.CA
151.00
3.50
3.03
86.65
4.13
3.90
94.58
3.40
82.30
Gage.OK
102.00
5.14
5.13
99.73
5.86
6.04
103.18
5.75
98.15
RedOak.IA
97.70
3.68
3.50
95.26
4.28
4.03
94.07
3.93
91.63
PalmSprings.CA
77.30
3.58
2.92
81.64
4.46
3.72
83.29
3.86
86.46
Bakersfield.CA
77.00
2.74
2.65
96.70
3.26
3.19
98.09
3.17
97.44
Jamestown.ND
61.50
5.05
5.05
100.04
5.29
5.14
97.10
5.79
109.55
Scranton.PA
64.50
3.09
3.06
99.30
3.07
2.91
94.67
2.78
90.40
Pierre.SD
40.50
4.94
5.15
104.17
5.23
5.24
100.16
5.65
108.00
Winkler.TX
56.80
4.25
4.30
101.29
4.86
4.81
98.88
4.74
97.58
MasonCity.IA
41.30
5.04
5.09
101.07
5.43
5.35
98.51
5.35
98.36
LoneRock.WI
30.00
3.46
3.20
92.32
3.71
3.38
91.09
3.38
90.95
Reference Tower
Total Net MWs
Av Index
2871.30
96.81
97.49
94.35
40
Reference towers were selected for their proximity to FPL Energy’s wind assets.
FPL Energy wind portfolio as of 6/30/05
Reconciliation of GAAP to
Adjusted amounts
Three months ended June 30, 2004
(m illions, except per share am ounts)
Reconciliation of Net Income (Loss) to Earnings
Excluding After-tax Effect of Certain Items:
Net Income (Loss)
Florida Pow er
& Light
$
Adjustments:
Net unrealized mark-to-market gains associated
w ith non-qualifying hedges
205
Corporate &
Other
FPL Energy
$
-
69
$
(6)
FPL Group, Inc.
(17)
$
257
-
(6)
Earnings (Loss) excluding after-tax effect of certain item s
$
205
$
63
$
(17)
$
251
Earnings (Loss) Per Share (assuming dilution)
Net unrealized mark-to-market gains associated
w ith non-qualifying hedges
Earnings (Loss) Per Share excluding certain item s
$
0.57
$
0.19
$
(0.05)
$
0.71
$
0.57
$
(0.02)
0.17
$
(0.05)
$
(0.02)
0.69
41
Reconciliation of GAAP to
Adjusted amounts
Three months ended June 30, 2005
(m illions, except per share am ounts)
Reconciliation of Net Income (Loss) to Earnings
Excluding After-tax Effect of Certain Items:
Net Income (Loss)
Florida Pow er
& Light
$
Adjustments:
Net unrealized mark-to-market losses associated
w ith non-qualifying hedges
201
Corporate &
Other
FPL Energy
$
-
20
$
52
FPL Group, Inc.
(18)
$
203
-
52
Earnings (Loss) excluding after-tax effect of certain item s
$
201
$
72
$
(18)
$
255
Earnings (Loss) Per Share (assuming dilution)
Net unrealized mark-to-market losses associated
w ith non-qualifying hedges
Earnings (Loss) Per Share excluding certain item s
$
0.52
$
0.05
$
(0.05)
$
0.52
$
0.52
$
0.14
0.19
$
(0.05)
$
0.14
0.66
42
Cautionary Statements And Risk
Factors That May Affect Future
Results
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) is hereby providing
cautionary statements identifying important factors that could cause FPL Group'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 in this press release, in presentations, 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 forward-looking. 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
actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group.
Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group undertakes no obligation to update any forwardlooking 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 operations and financial results, and could cause FPL Group's actual
results or outcomes to differ materially from those discussed in the forward-looking statements:
• FPL Group and its subsidiaries, Florida Power & Light Company (FPL) and FPL Energy, LLC (FPL Energy) are subject to changes in laws or regulations,
including the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), the Public Utility Holding Company Act of 1935, as amended (Holding Company
Act), the Federal Power Act, the Atomic Energy Act of 1954, as amended and certain sections of the Florida statutes relating to public utilities, 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 U.S. 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 (ROE) 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 any and all 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, FPL Energy 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.
43
• 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, FPL Energy’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, FPL Energy’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, FPL Energy’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 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 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.
44
• 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 Inc (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, FPL Energy’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.
• FPL Group’s and FPL’s results of operations can be affected by the impact of severe weather which can be destructive, causing outages and/or property
damage, and could require additional costs to be incurred. At FPL, recovery of these costs is subject to FPSC approval.
• FPL Group, FPL Energy 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, FPL Energy 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, FPL Energy’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, FPL Energy 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 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 businesses in the
future.
45
46