新世紀能源 (NEE) 2002 Q1 法說會逐字稿

Welcome to the FPL Group 1Q earnings release conference call.

At this time I will turn the call over to Ms Lisa Chuso (ph) Director of Investor Relations.

Ms Chuso, please go ahead.

Good Morning.

Welcome to our 2002 1Q earnings conference call.

Moray Dewhurst, Chief Financial Officer of FPL Group will

provide an overview of our performance for the quarter.

Lew Hay, FPL Groups Chief Executive Officer, Paul Evanson, President of Florida Power and Light Company, and Ron Green, President of FPL Energy are also with us this morning.

Following Moray's remarks, our senior management team will be available to take your questions.

Before I turn it over to Moray, let me remind you that 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 substantially from such forward looking statements.

A diffrential factor that could cause actual results or events

is contained in FPL Groups 2001 SEC Forms 10K.

Moray.

Thank you Lisa and Good Morning everyone.

Despite economic weakness and a difficult period (Background Disturbance), FPL group turned in a solid performance 2002's 1Q.

Excluding non-recurring items and the mark to market effects of non-managed hedges, which we will discuss.

FPL Groups net income was 135 million compared to 130 million in the year ago quarter.

EPS excluding these items increased 4 percent to $0.80 compared to $0.77 in the prior year quarter.

2002's 1Q income was affected by two nonrecurring items -- a 30 million gain on the settlement of litigation with the Internal Revenue Service and a 220 million non-cash after-tax impairment loss on goodwill.

This asset write down eliminates all goodwill previously reflected in FPL group's financial statements.

The impairment loss represents the cumulative effect of adopting FAS 142 a new accounting standard, which changes the methodology for assessing goodwill impairment.

Let me take a moment to review a change in how we will dicuss our unrealized gains and losses on deriatives, which we introduced at our analysts and investor conference earlier this month.

In 2001, all unrealized mark to market gains and losses was reported separately in earnings discussions.

In 2002, unrealized mark to market gains and losses will be segregated into two categories. First, trading and managed hedged transactions which includes optimization activities that seek to maximize the value of the company's assets and trading activities if any that is not related to any physical assets, and second, non managed hedges, which includes contract positions that lock in desired future outcomes and are more appropriately included in our future operating results when matched with the related item being hedged, while they do not qualify for hedge accounting under FAS 133.

Unrealized gains and losses from trading and managed hedge activities will now be reported in the operating results.

Unrealized gains and losses from non-managed hedges will continue to be reported below the line and discussed separately from operating results.

We believe this treatment provides better transparency of our true operating results and is more indicative of how we manage the business,

For the 1Q of 2002 net unrealized gains from trading and managed hedged activities included in revenues and discussed later in this presentation, totaled 15 million pre-tax or 9 million after tax for FPL Group.

Net unrealized gains from non-managed hedges, which have been excluded from the pro forma net income and EPS numbers presented earlier, totaled

a positive 1million after tax for FPL Group.

FPL Groups 2002 1Q net income including the non-recurring items and the mark to market effect of non-managed hedges was negative 56 million or negative $0.33 a share.

The remainder of this discussion will focus on earnings net of non-recurring items and the mark to market effect of non-managed hedges.

Despite the economic slowdown Florida Power and Light Company had a good quarter.

Net income grew 4 percent from a 113 million to 118 million.

The utilities contribution to EPS increased form $0.67 to $0.69.

Base revenues were up 1.6 percent in the 1Q due to continued customer growth.

FPL added approximately 76,000 new customer accounts, a 1.9 percent increase.

We recently reached a major milestone at FPL as we added our 4 millionth customer account.

However, usage per retail customer was down 2.2 percent due to milder weather and weaker economic conditions.

Net revenues also benefitted from a lower refund position.

As we had earlier indicated we have been seeing cost pressures over the last several months.

O&M expenses were 257 million this quarter compared to 239 million for 1Q last year.

The factors that contributed to the higher O&M included higher nuclear maintenance cost, higher employee benefits cost, rate case related expenses, and an increase in uncollectable accounts, and certain environmental costs that were capped under the previous rate agreement.

Although we expect continued pressures on O&M expenses during this year, we are the leader in the industry and we remain committed to maintaining a low cost position.

Offsetting the increase in O&M with a favorable trend in interest expense, which decreased from 53 million in last years 1Q to 42 million this year.

Lower interest rates helped as did lower short-term debt penalties due to the recovery of previously under recovered fuel costs.

Depreciation increased from 218 million in last years 1Q to 222 million this year as a result of increase in plant and service.

Moving now to FPL Energy.

FPL Energy's net income rose to 23 million in the first quarter this year from 20 million in the 2001 1Q.

This is contribution to EPS increased 8 percent from $0.12 to $0.13 quarter over quarter.

Boosting FPL Energy's growth was the addition of projects totaling more than 1,000 megawatts since last years 1Q.

These projects included 843 megawatts of wind assets at several locations in the Central and Western regions and the 171-megawatt expansion of our gas-fired Doswell plant in Virginia.

Favorable asset optimization and trading results and improved operating results from the majority of our portfolio also contributed to FPL Energy's results.

However, severe drought conditions in the Northeast had a serious negative impact on the performance of our hydro assets in Maine, creating a negative after-tax variance to last year's results of approximately 6 million.

Also effecting earnings negatively was increased D&A expenses associated with growing the business.

Notwithstanding the impact of the drought FPL Energy's prospects remained strong.

We already have an additional 4500 megawatts of announced projects under construction.

Last month Congress renewed the wind energy production tax credit through 2003.

As the nations leader in wind power this is a very positive development for us, and we expect to build a 1,000 to 2,000 additional megawatts of wind projects in the next two years.

In support of these projects, earlier this month we announced agreement with Vestas Wind Systems for approximately 175 wind turbines and an option for 650 more, which together will support in excess of 500 megawatts of new projects.

In March we collected the majority of past due receivables plus interest from the California utilities, and will have collected all remaining amounts by year end.

In addition a new favorable five-year fixed rate agreement will become effective in May of this year on the energy sold to Southern California Edison.

And finally, earlier this week we announced the acquisition of an 88 percent interest equal to 1024 net megawatts in the Seabrook nuclear plant.

We expect this acquisition, which should close by the end of the year to be moderately accretive in 2003 and add an average of between $0.10 and $0.12 per share annually from 2004 to through 2006.

Accretion is expected to accelerate after that.

With Seabrook and the new wind projects adding to our current portfolio of projects in operation and under construction, FPL Energy expects to have more than 11,500-megawatt in operation by 2004.

To recap overall results for 1Q, FPL Groups EPS increase of $0.03 was affected by the following.

Customer growth a positive $0.06.

Usage offset by the revenue refund provision a negative $0.02.

O&M a negative $0.06.

Depreciation a negative $0.01.

Other, primarily lower interest a positive $0.05.

For a total $0.02 improvement at FPL.

Additionally FPL energy contributed a positive $0.01, and corporate and other showed no change.

Earnings from FPL FiberNet, which are included in corporate and other was lower than the prior year quarter.

However, the business remained profitable despite a turbulent telecommunications market.

Our total increase in EPS for 1Q is $0.03.

To summarize the 1Q, FPL contributed $0.69.

FPL Energy contributed $0.13, and corporate and other contributed negative $0.02.

That's a total of $0.80, with a total of increase of $0.03 or 4 percent over the same period last year.

Given the impact of the rate agreement and the slower economy, we expect FPL group's 2002 earnings growth to be below that of recent years.

Florida Power and Light earnings are expected to be flat, while FPL Energy's earnings are expected to grow 15-20 percent for the year, including the 1Q impact of the drought in Maine.

These expectations assumed normal weather conditions for the balance of the year.

In total we are projecting FPL Groups earnings for 2002 to be between $4.78- 4.82 per share.

We do expect to return to stronger earnings growth levels after this year.

We expect FPL to grow at 4-5 percent annually over the next few years from customer and usage growth, and efficiency improvements.

Excluding Seabrook, we believe that FPL Energy can grow at an average of 20-30 percent per year.

Together we are continuing to target 6-8 percent average annual earnings growth at FPL Group for 2003-05.

The addition of Seabrook is likely to add 60-70 basis points to the underlying FPL Group growth rate over the same time period.

Altogether FPL group's position is strong.

With the resolution of FPL's rate case we face the prospects of a stable rate environment at Florida Power and Light for the next several years, and FPL Energy enjoys a number of attractive opportunities that will contribute to growth.

Financially we remain positioned to take advantage of additional opportunities should they arise.

As the management team we are committed to meeting expectations and enhancing shareholder value.

And with that I will be happy to take any questions.

If you would like to ask a question during this time please press zero one on your touch tone phone.

Your first question is from Tom Hamlin.

Yes Good Morning.

Good Morning, Tom

Could you comment on the actions by S&P, you know the commenting when you recently did equity and you announced the Seabrook acquisition, but it seems to me that your capital structure is pretty strong?

We would agree with you.

It is sometime since we have shared some detailed information with both rating agencies.

We had planned to do that.

It is toward the end of April or the beginning of May, in any case after we had the resolution of the rate case and we will conitnue to do that.

In our view these announcements were somewhat premature.

We think that when they see the real numbers at the end of the month there would be hopefully a different reaction.

Thank You

Your next question is from David Reynolds.

Good Morning everyone.

Just one quick question.

I know at the end of the year last year you had a sales growth target, I believe, of 2.2 percent at the utility.

Is that still essentially what you are envisioning.

I know the economy situation has improved a little bit.

Just wondering if you could give us a quick up date?

2.2 percent for 2002 you mean.

Yes

Yes, we are still roughly on the same anticipated revenue growth path.

We have seen a little stronger customer grwoth recently than we had anticipated last fall.

In this course, Jan. and Feb. were both weak with mild weather, March was significantly stronger, the weather was at the assistance there.

But I think there is some indication, although it is hard to read at this stage, there is some indication that we are seeing a little bit of recovery in the underlying growth.

So we may be looking at something slightly better, but I think we are still roughly where we were talking about before.

Thank You very much.

Again if you would like to ask a question during this time please press zero one on your touch tone phone.

Your next question is from Paul Ritznan.

Mr Ritznan your line is open.

I had a question about the $0.06 negative comp in O&M.

How much of that is timing related if any?

I am sorry.

Could you repeat your question of the $0.06.

The O&M comp.

The negative $0.06, if any of that is timing related that should wash out through the balance of the year.

Paul I would say this call

I would say that there is some elements of timing.

For example, the rate case related expenses, we are trying to record most of that this quarter.

But a lot of it is kind of fundamental pressures we have been seeing at the utility, which is probably likely to continue to some degree this year.

But we will let you have the whole number of initiatives.

We are looking at and are in the process of implementing.

I think it will return us to the performance that you have seen over that decade of the 90s.

O.K Thank You very much.

Your next question is from Daniele Seitz.

Good Morning.

I was wondering and I

if it is a repeat, but could you go over the construction expenses or capital expenditures for this year and next year including Seabrook, if you could?

For 2002, at the utility for FPL Energy this year, it would be approximately 1.6 billion.

Seabrook is obviously is the $836m that we announced the other day.

In 03, FPL will continue at a little above a billion.

The FPL Energy numbers based on current projects that are in construction or committed to which doesn't include new wind projects, drops to I believe it's on the order of 500 million.

But, to that we would expect to add some incremental CAPEX for wind projects both in 2002 and 2003.

Assuming you are adding, you were talking about 2000 megawatts of wind projects.

Those will be scheduled for this year and next year.

Is that correct?

Yes.

That's correct.

We are hoping at this stage to be able to get perhaps 400-500 megawatts completed this year and as a rough rule of thumb a $1000 a kilowatt is a good guide for CAPEX and then somewhere between a 1000 and 2000 in the two year period, 2002 and 2003 combined.

Your next question is from Neil Stein

Just had a couple of questions on your guidance, for 2002, the guidance assumes that you are getting used to full depreciation credit at the utility.

Comment?

A. Yes.

It does.

It does, and I just want to clarify the 2003, 68% EPS growth rate does not change with the Seabrook acquisition?

The Seabrook is so mildly accretive in the first year that I don't think it is something that changes the growth rate for 2003.

Or over the 2003-05 period?

Over the 03-05 period, as I indicated it will add other things equal, it will add something like 60-70 basis points to the CAGR for that period.

So in other words where, if before we were saying 6-8 percent now in effect we are saying 6.6-8.6 to be technically precise.

Could you achieve so the base case, I don't know if you call 6-8% or whatever over that period without seeing any other acquisitions?

No other acquisitions are anticipated in that 6-8 percent band.

That is based on current projects under construction and the addition of 1000-2000 megawatts of incremental wind.

It also assumes forward prices that are roughly comparable to market forwards, although the expectations differ slightly from region-to-region.

Your next question is from Steve Fleishman.

Hi, Good Morning.

Hi, Steve

The O&M increase of utility we saw in this quarter, is that likely to be the rough trend for the rest of the year?

Is this going to increase or you going to moderate a little?

Well I think Steve on an average we were looking at about 5-6 percent increase in absolute O&M for the year 2002.

O.K, and on the FPLE, If we could go into a little more detail in the quarter, you mentioned you made 9 million of essentially trading mark-to-market type income.

The 6 million negative from the drought.

Is that a kind of a absolute number or is that relative to the prior year number?

That is relative to the prior year.

I guess what I am trying to get at is, of the 23 million that FPLE earned in the quarter, you've got 9 million coming from the trading business, shall I assume that hydro lost money in the quarter?

A. No.

That's not correct, but it didn't make much money.

O.K, than on the trading side, is that mainly reflective of some of these QS transactions that you have talked about at the meeting or is it just a ........?

A. It's a number of different things as you can imagine.

There are some significant positives from restructuring transactions, the benefits of which we had subsequently locked-hedged in, locked in.

That's probably more than half of that total.

The rest is you know we definitely benefited late in March from the run up in gas prices and a number of smaller things.

Actually as I have been just pointed out that we had some significant activity in the

capacity auctions, which was very beneficial.

As you know we trade around that north-south spread and given our position with the asset that was very helpful to us.

Those occurred a couple of months ago, right?

The capacity auctions are now occurring monthly.

Monthly.

O.K, Thanks a lot.

Thank You.

Your next question is from Vidula

Hi Good Morning.

Hi

Hi, I've been wondering, we have been seeing a few companies in the industry seeing their earnings pattern in terms of how they realize their earnings over the course of 4 quarters shifting around vs. prior historical experience and pattern.

And I am wondering if within your outlook here for this year, if you take a look at 2Q coming up here, $1.27 was last years comparison.

Are you in a position at this point to help us tackle in some type of qualitative and quantitative fashion as to kind of how we might expect things.

Will there be more you know back end loading or more shift to the 3Q or any of that kind of things that we've seen in other places?

The short answer is that we are not quite in that position yet.

We do anticipate as we get into each quarter providing some ongoing guidance.

Having said that I would also say that we are likely to see some shifts away from the historical quarterly split pattern that we've observed in part just because of the changing mix of our portfolio, and in part because of the changing nature of the wholesale generation business.

But I think at this stage it is a little premature for us to be offering guidance on 2Q.

So can't give us not even you know roughly within the current annual outlook comp that you have pegged in roughly for 2Q?

A. I am a little reluctant to do that at the moment.

O.K , Thank You very much.

Thanks

Again if you are to ask a question during this time please press zero one on your touch tone phone.

Your next question is from Debra Danburg.

Hi, Good Morning.

I was wondering if you revised your CAPEX program at the utility?

Because in the 10-k it suggests that CAPEX is a bit higher than what you mentioned earlier.

Some thing like 4.4 billion for 2002 through 04

Probably the major driver of there is that in 04 we begin substantial construction expenditures on the Manatee and Martin projects, which continue on into 05.

So that 4.4 has a large piece of it in 04.

Just one other question, on the earnings growth rate, assuming at the utility, does that assume the booking of any AFUDC after 2002?

For the 2004-05 period, we are anticipating that we will be booking some AFUDC, yes.

Great.

Thank You.

Your next question is a follow-up from Paul Ritznan

Could you comment on any hedge ratios you might have at Energy?

Sure.

Let me just first reiterate about our basic policy from a risk management perspective which is to have roughly three quarters of the portfolio under contract or sold forward for the immediately prospective 12-month period at any given point in time and tapering off thereafter.

For the balance of 02, we are little bit above or about 80% covered according to that definition and at the moment 03 is roughly 50% covered again according to the same measure.

Thank You.

That does include Seabrook by the way.

At this time you currently have no questions in Queue.

O.K.

If I can wrap it up then.

I would like to thank everybody for participating in the call and to remind you that a replay of this webcast will be available on www.fplgroup.com for 10 days.

A taped replay of this call will be available beginning at noon today.

To listen to the taped replay dial 402-220-2306 and enter the confirmation number 4980176.

Once again thank you for joining us.