新世紀能源 (NEE) 2002 Q2 法說會逐字稿

Good morning ladies and gentlemen and thank you for standing by.

Welcome to the FPL Group 2nd Quarter earnings conference call.

At this time all participants are in a listen-only mode.

And later we will conduct a question and answer session.

And instructions will be given at that time.

If you should require any assistance during the call today, please depress zero and then star.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Director of Investor Relations, Miss Lisa Kuzel.

Please go ahead.

Good morning.

Welcome to our 2002 2nd Quarter earnings teleconference call.

Moray Dewhurst, Chief Financial Officer of FPL Group, will provide an overview of our performance for this quarter.

Lewis Hay, FPL Group's Chief Executive Officer, Paul Evanson, President of Florida Light & Power and Ron Green, President of FPLS 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 the future events, are forward-looking statements under the Safe Harbor provision of the private securities litigation reform act of 1995.

Actual results may differ substantially from such forward-looking statements.

A discussion of factors that could cause actual results or events to vary is contained in FPL Group's 2001 SEC form 10-K.

Moray.

Thank you, Lisa.

And good morning, everyone.

FPL Group produced outstanding results in 2002 second quarter, despite continued difficulties effecting the industry.

Excluding the mark-to-market effects of non-managed hedges, FPL Group's net income was $249 million compared to $214 million in a year ago quarter.

On a similar basis, earnings per share increased 14% to $1.45 compared to $1.27 in the prior year quarter.

The mark-to-market effects of non-managed hedges was a positive 1 million after taxes, or 1 cent per share in the second quarter, and a positive 5 million in the year ago quarter.

Florida Power and Light had strong results for the quarter due to weather and customer growth which more than offset a 7% reduction in rates which became effective in mid April.

Net income grew 13% from 182 million in last year's second quarter to 205 million this quarter.

The utilities contribution to earnings per share increased from $1.08 to $1.20.

FPL experienced very warm weather in April and May of this year compared with relatively mild weather in last year's second quarter.

As a result, usage per customer was up 5.8%.

However June and the first part of July saw milder temperatures as we experienced a sustained period of rainy weather.

Growth in the number of customer accounts was stronger than anticipated, up 2.1%.

This represents 82,000 new accounts year-over-year and in April our customer account total surpassed 4 million.

We are pleased that customer growth has come back more rapidly than expected from the slowdown in 2001.

The combined growth in customers and usage produced a remarkable 7.9% increase in retail kilowatt hour sales over last year's second quarter.

O&M expense increased from 241 million in last year's second quarter to 268 million this quarter, driven primarily by higher employee benefit and insurance costs.

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

Depreciation decreased from 226 million in last year's second quarter to 202 million this year.

The reduction is the result of a 37 million credit against depreciation expense that is part of our new rate agreement.

In total, the agreement provides for 125 million annual credit towards depreciation expense, for 2002 this credit, in accord with the agreement will be recognized over the 8.5 months beginning with the mid-April implementation date.

In other news earlier this month, FPL announced that a second evaluation confirmed that adding a total of 1900 megawatts at its Martin and Manatee plant sites is the most reliable, cost effective way to provide future power for customers.

As we have discussed previously, building versus buying this capacity will result in capital expenditures of approximately $1 billion.

Therefore, we expect capital expenditures at the utility for 2002 through 2005 to be at the high end of the 4.6 to 5.6 billion range previously disclosed.

Moving now to FPL Energy.

We saw solid growth during the quarter despite very difficult market conditions.

Excluding the mark-to-market effect of nonmanaged hedges FPL Energy's net income rose to 37 million in the second quarter this year, up from 33 million in the 2001 second quarter, and increase of 12%.

FPL Energy's contribution to earnings per share increased 11% from 19 cents to 21 cents quarter-over-quarter.

Boosting FPL Energy's earnings was the addition of projects, totallying more than 1,000 megawatts since the beginning of last year's second quarter, which increased earnings approximately 10 million.

These projects included 843 megawatts of wind assets at several locations in the central and western regions of the U.S.

And 171 megawatt gas fired peaking facility added at our Doslow plant in Virginia.

All of this additional capacity is under long-term contract.

Increased generation and higher margins at our Bellingham and Sayerville facilities had a positive 5 million impact on FPL Energy's results and we had a favorable 8 million effect from an insurance settlement.

As expected, we saw lower contributions from our main fossil asset this quarter compared with last year's second quarter. amounting to approximately 6 million as prices decreased and these assets were pushed further out the dispatch curve.

Hydro conditions return to roughly normal.

Milder weather led to lower prices in Texas which dampened the results from our [INAUDIBLE] by 3 million.

Asset optimization activities were less successful this quarter than last.

Net, unrealized mark-to-market losses from trading and managed hedge activity were 4 million after taxes in the second quarter, reducing the total gains of 9 million marked earlier in the year and reported in the first quarter.

The net unrealized gains from nonmanaged hedges which consistent with past practice we have excluded from this discussion of operating results, totalled 1 million after taxes.

You will recall that last quarter we began including trading and managed hedge transactions in operating results while continuing to show the nonmanaged hedge activity separately.

Trading and managed hedge transactions include optimization activities that seek to maximize the value of our assets as well as trading activities, if any that are not related to any physical assets.

During the second quarter of last year, essentially all of our activities were in the nonmanaged hedge category.

FPL Energy continues to execute a disciplined growth strategy.

We are completing the buildout of our previously announced construction projects.

And our focus is now on wind development and opportunistic pursuit of value creating asset acquisitions.

We recently announced the completion of our 54 megawatt phase water peaking unit on Long Island and our 283 net megawatt [INAUDIBLE] project in Texas also began delivering power.

We recently announced the construction of a new 66 megawatt wind energy project in West Virginia which is under long-term contract.

The approval process for the 1,024 net megawatt Seabrook plant is proceeding satisfactorily.

And we continue to expect to close this acquisition by year-end.

FPL Energy expects to have nearly 10,800 megawatts in operation by year end 2003.

And more than 11,500 megawatts in operation by year-end 2004 including projects under construction, pending acquisition and additional new wind projects.

For the balance of 2002, 79% of FPL Energy's capacity is under contract or sold forward, and 55% of 2003 capacity is hedged.

Our ongoing target is to have roughly 75% of our capacity contracted out or hedged over the following 12 months.

Our current capacity under contract by region is as follows with the first number for each region representing the contracted percentage for the balance of 2002 and the second number representing the percentage for 2003.

In Neepool and NYPP 47% and 28%.

PJM and ECA 80% and 78%.

In Sook, 100% and 86%.

Map and SPP 100% for both periods.

Arcot 80% and 57%.

WSCC 100% and 60%.

Please note that these figures include all announced projects including Seabrook and Forny for which we have only just begun marketing and hedging activities.

To recap overall results for the second quarter, FPL Group's earnings per share increase of 18 cents was affected by the following: At FPL customer growth positive 7 cents, Usage primarily weather positive 19 cents, Rate reduction negative 24 cents, Refund provision positive 11 cents, O&M negative 9 cents, Depreciation positive 13, All other. negative 5 for a total 12 cent improvement at FPL.

Additionally, FPL Energy contributed 2 cents and corporate and other contributed a positive 4 cents.

The 4 cent increase in corporate and other was driven by a significant sale of dark fiber to an existing customer.

Although FPL FiberNet does not anticipate additional sales of a similar magnitude for the balance of this year we do expect FPL FiberNet to be profitable this year despite a turbulent telecommunications market.

So to summarize the second quarter FPL contributed $1.20.

FPL Energy contributed 21 cents.

And corporate and other contributed 4 cents.

That is a total of $1.45 representing a total increase of 18 cents or 14% over the same period last year.

Including the effects of the recent equity and equity linked offerings, we continue to expect earnings per share to be between 4.70 and 4.75 at FPL Group for 2002.

Although our outlook by business segment has changed slightly.

We currently expect FPL Energy's 2002 earnings growth to be in the 10 to 15% range down from our previous guidance of 15 to 20%.

This is primarily due to delays in wind development activities for the 2000 time period as a result of the late passage of the production tax credit as well as to depressed market conditions.

However, given the stronger than expected results of Florida Power and Light Company in the second quarter, we now expect FPL full year results to show a modest increase that will offset the decrease in FPL Energy's outlook, assuming normal weather for the balance of the year.

You will recall that our previous guidance for the utility was flat earnings for 2002 compared to last year.

Because 2002 is a transition year with the commencement of FPL's new rate agreement and with a change in portfolio mix at FPL Energy, we expect the pattern of earnings for the remainder of the year to be different from last year's.

Overall we expect earnings to be down somewhat in the third quarter and up slightly in the fourth quarter compared with last year.

To repeat, however, we continue to expect earnings per share for the year to be in the range of 4.70 to 4.75.

Looking forward to 2003, we see greater uncertainty associated with the evolution of competitive wholesale markets.

Through early June our expectation of earnings per share in the 5.10 to 5.20 range, was readily supported by then prevailing forward prices.

That is no longer the case.

Since early June, we have seen aggregate deterioration in 2003 forward prices accompanied by significantly reduced liquidity.

Some of the prices we are seeing are difficult to reconcile with the likely supply demand balance and the variable cost of supply at the margin.

Given the uncertainty surrounding market dynamics, we think it is premature to update our forecast at the moment.

And therefore we are not announcing new expectations for 2003 earnings per share.

However, during the second half of the year we will be monitoring both the development of market prices and our progress in developing new wind projects and we will update our guidance as appropriate.

We continue to have confidence in the fundamentals of our business positions, both at FPL and FPL Energy, however we must acknowledge a greater range of uncertainty over 2003 prospects than existed as recently as the beginning of June.

Clearly our industry is currently being affected by very difficult market conditions and a lack of investor confidence.

However, given our strong franchise in Florida and our disciplined growth strategy at FLP Energy we remain very optimistic about our future prospects and our ability to continue to build shareholder value.

Now we would be happy to take questions.

And ladies and gentlemen, if you wish to ask a question, please depress the one on your touch tone phone.

You will hear a tone indicating that you have been placed in queue.

You may remove yourself from queue at any time by pressing the pound key.

We do ask that if you are using a speaker phone to please pick up your hand set before pressing the numbers.

And one moment, please, for the first question.

Our first question is from the line of Neil Stein with First Boston.

Please go ahead.

Good morning.

Can you talk about the spark spread assumption that had been reflected in your previous '03 guidance?

And then also going into next year what might be the sensitivity of changes in that spark spread on EPS?

Um -- well, obviously it varies from region-to-region.

Up through the early part of June in the north Texas market, we were seeing forward spreads in the low to mid-teens.

Pretty consistently.

Those have come down, and they bounce around a lot.

One of the problems is the prices come down at the same time liquidity has come down.

And so the prices that we are observing are not always trust worthy because the market is so thin.

But, if you just go on sort of quoted spreads for '03 today, those would be more -- for north Texas would now be more in the high single digit levels.

For south Texas they were in the mid single digits and they are now in the very low single digits.

The situation is in Neepool is a little different.

And there I think the liquidity effect is even more significant.

As you probably know Neepool is going to be moving to a LNP structure sometime next year.

And I think there's considerable uncertainty on the part of most market participants as to how their assets or their positions are likely to be affected by that.

So there, what we have seen is a significant decline in spreads against oil and a more modest decline against gas.

I don't have the exact numbers off the top of my head.

But I think they were in the sort of mid teens and now kind of are in the lower teens against gas.

But the bigger effect has been limited liquidity.

So we have found that, on occasion, we have been able to -- our abilities to pick off the prices we want have been limited, but we have been able to pick off prices that have been reasonably attractive.

For example, we have been able to -- although we don't -- we haven't closed on Seabrook yet, we have been looking to sell forward some of the position supported by other assets in New England.

And we have been able to do that up to about roughly 150 megawatts at prices that are very consistent with our original expectations.

So it's a little puzzling as to what's going on in some of these markets and how real the actual price curves are.

But clearly there has been a strong decline in liquidity and that does give us cause for concern.

And you know at this point, and a lot could change between now and next year.

But if you were to mark your portfolio to the current forward curve, do you think you could have a flat year with this year's results, or is there a possibility of down results next year versus this year?

Yeah, we have not done that.

But, just looking at how much they have moved, we would certainly on a mark basis, be at least at this year's level, probably somewhat above.

And, as far as the price sensitivity in your income statement, is there any guidance you could give on that?

Um -- not at this stage.

Part of the problem is that we have very distinct portfolios with very distinct responsive characteristics.

So one of the things that we are going to be working on is seeing if we can find a relatively straight forward way to simplify some of the information that we look at day-to-day that would be meaningful for the outside world.

I don't have that done yet, but we are working on that.

Thank you.

Would expect to have that later in the year.

Our next question is from the line of Greg Gordon with Goldman Sachs.

Please go ahead.

Hi, thanks.

Moray, can you clarify the answer to that question a little bit before I ask a different question?

You are saying that if you were to hypothetically mark FPL Energy's different portfolios to market today that you would expect at least a flat to up year at FPL Energy, on the profitability of current existing assets or including the assumption that you roll in incremental wind power projects, or would that be upside from that number?

Including -- there's a second uncertainty here, which is how much wind we're going to be able to get in.

Assuming some new wind coming in, we would be talking, probably somewhere, you know, FPL Energy flat to somewhat up if we marked it today.

Okay.

Great.

I would stress that we have two big uncertainties.

One is the speed of the development progress on the wind portfolio, and the second is the evolution of market conditions.

Speaking to the first for a moment, we've got a lot of good projects in the pipeline, but it's kind of early to say exactly how much we're going to have in, when.

I feel more confident about the fundamentals there because that's simply a matter of timing.

I feel very confident that we will get good projects in, in the course of the next two years, but whether we will get them -- whether the average maturity date of commercial operations will be in the middle of next year or towards the later part of next year is much more difficult to tell at the moment.

Okay.

Can we switch gears a little bit and have Paul talk about relative fundamentals at FPL -- Florida Power & Light and what you are seeing vise vee customer growth and if there's any change in outlook or growth rate in 2003 over 2002 given that customers are growing more robustly than expected?

Yeah, the customer growth, Greg, is a lot stronger than we thought.

After September 11th we did have a real hit.

And we were quite nervous going into this year as to what would happen on that.

But actually in every single month this year our customer growth from year-over-year has increased.

So January we were up 73,000 customers, February was 76 then it went 78, 79, 82, and 85 in the month of June.

You know year-to-year.

So we are feeling very good about that.

And the general economic climate in Florida.

That's a real positive.

Of course, so fundamentally, that's getting back on track and we feel good.

The weather side, as you know, was very strong in April and May, and July, this week we hit an all-time record, 19,064 megawatts on Tuesday.

So you never know from the weather week-to-week.

Certainly we are feeling better about that.

So our original estimate was that we would be flat this year and then return to a 4 to 5% growth rate going forward.

At this point it looks like we will be up this year, unless weather turns dramatically, cooler, which is not likely, I think, this summer, but you never know.

So we would be up this year.

Then on the similar track that we had previously forecasted for next year.

So that's great.

So basically from a 40,000-foot perspective, the robustness of the core business could offset, at least to some degree, weaker earnings at FPL Energy if current prices actually wound up being executed for cash at this time next year?

Moray, is that a fair --

Yeah, I think that's a fair statement.

All though again, I want to stress there is just much more uncertainty in our minds about the range of possible outcomes for '03 than we had, even as little as a month ago.

Is that uncertainty, in your mind, mostly stemming from FPL Energy, or are there also certain characteristics around Florida Power and Light that cause concern or give you hope for upside?

Different things.

Most of the uncertainty is on the FPL Energy side.

I would note because of where we are in the new rate agreement at FPL, we are -- from an earnings perspective -- we are much more exposed to weather than we have been in the recent past.

Because in the recent past we have been in the sharing regime where two-thirds of any deltas in revenue, essentially flow through the refund provision.

That's no longer the case.

Although, if, you know, we continue to have hot weather, and we continue to see customer growth like we have, we may soon be back in that sharing regime.

But when we are below that first sharing threshold, we are proportionately more sensitive to weather than when we are above the threshold.

It will be a high class problem for all of us if you hit the sharing mechanism levels.

Exactly.

That's right.

Thanks, guys.

And our next question will be from the line of Paul Ridzon with McDonald Investments.

Please go ahead.

Good Morning.

I noticed in your release you indicated that the NRC had granted license extension.

I'm wondering what your plans are regards to depreciable lives and any impact -- change you might have?

Also if you could, just review your hedge positions again, that was awful quick and I couldn't write that quickly?

O.K., on the first question, the impact to the license extension at Turkey Point on depreciation.

Under the current rate agreement, depreciation profile, if you like is essentially fixed through the course of the agreement.

One of the reasons for including the 125 million special credit against depreciation was a recognition that if we were to go through the detailed depreciation studies sometime during the course of the rate agreement, we might well conclude that the aggregate depreciation should be lower.

So we will be filing new depreciation studies in sequence with the termination, if you like, of this rate agreement.

So that would be the opportunity when fundamental depreciation rates would get reset.

So for the period through the end of '05, the Turkey Point life extension won't have an effect.

Okay.

Now, on the second one, let me re-read the hedge ratios.

Again the first number is for the balance of 2002 and the second number is for 2003.

For Neepool and NYPP, 47 and 28.

PJM and ECA 80 and 78.

Waserch 100 and 86.

Map and SPP 100% for both periods.

For Ercot 80 and 67.

And WSEC 100 and 60.

And just a quick question, was your insurance settlement, you gave a number, was that pre tax or after tax?

That was after tax.

That was the net effect after tax.

And at corporate, do you think there's any future fiber sales that we could see upside from or is this kind of an opportunistic sale?

Well, as I said we are not anticipating any of this magnitude, but we are certainly still actively in the market and we are currently working on a couple of additional possibilities that would be smaller.

So there is a market still there because of everything that's been going on in the telecommunications sector, it is a much tougher environment.

We have taken some significant steps to down size the infrastructure to accommodate the realistic levels of business.

But I certainly wouldn't rule out additional sales of fiber.

They are real customers, real credit worthy customers who continue to want capacity.

And your higher O&M for the quarter, is that -- should we assume that's kind of a pattern here?

Or is there a timing issue?

We -- as we have been saying for some time, this year in particular we have been anticipating that we would see some significant cost pressures.

I'm sure everybody knows that the insurance market has been really tough and we have gone through some of our renewals in this period.

So we are seeing significant increases in insurance.

We are seeing significant increases in employee benefits, primarily on the medical side.

And, at the same time, we have been working hard on the wire side of the business to make sure that we are, you know, maintaining and supporting our reliability efforts.

So, at the same time, we recognize that we have a track record productivity improvement has lasted for a long time.

We are definitely committed to that.

And so we are now beginning a new round of benchmarking to understand where we are by all the major functions against our key benchmarks.

And from that we'll be setting new productivity targets going forward.

So I think that, as we move into '03, we are definitely going to be exerting very strong pressure on productivity.

Are any potential pension issues already rolled into this outlook?

Um -- help me out on what kind of pension issues you may be referring to?

I don't know if you need to change any of your actuarial assumptions.

Or are there any pending issues with regard to your pension?

No.

Really there's nothing to update there.

We are pretty conservative on our actuarial assumptions.

We have had a very conservative investment mix which obviously didn't help us through the boom time, but has served us very well overall over the last four or five years, we have typically outperformed our relevant indexes so that the investment side has been good.

We have been relatively well protected against the down side.

So I feel very comfortable on the pension side.

Okay.

Thank you very much.

Thank you.

Our next question is from the line of Vidula Murdee with SAC Capital.

Please go ahead.

Good morning Moray.

Good morning Vidula.

Let's see just again to plow over some ground that you discussed earlier.

I think I want to make sure I understand what you are trying to say with respect to '03.

Back at your analyst conference earlier this year you'd indicated that you were looking for earnings growth at the utility going forward post '02 of about 4 to 5%.

So, if we were to basically to look at marking FPL Energy to the current forward curve and under your current scenario given new assets and everything like that we are probably talking flat-ish, at worst maybe up a little bit.

The utility in and of itself ought to be able to generate in aggregate 15 to 20 cents net income growth year-over-year.

So, if you were to fall in your 470 to 475 range this year, would it be reasonable to conclude that as of now, what you consider probably a worse case scenario, at this point, would be earnings growth that would put you up, then, you know, about 20 cents above this year's current earnings?

Um -- that's a difficult question to address.

I don't think it's fair to say that that's a worst case, but it's certainly a very reasonable, somewhat pessimistic case.

I think even if we -- we haven't done this -- but even if we marked the FPLE portfolio to today's curves, we would still be up.

We still anticipate being up at FPL Energy for next year.

So at least at this point, the scenario that I laid out would still be somewhat pesimistic or cautious given your current point of view?

If you were to ask me personally, I think it would be below my personal expectation, but still above the possible down side.

I can't go beyond that.

Okay.

That's fair.

I'm wondering, also, given the current turmoil in the market, could you go over, again, kind of Cap-X at FPL Energy and, you know, what type of development, including the wind and nonwind.

If there's any left that's coming up here and kind of, you know, in terms of, you know, future cash flow utilization and that kind of thing for a potential debt pay down.

Or if we go further out and the markets continue to be this way, you know, if we go beyond '03, do you see the possibility of equity repurchases in '04 should there be -- if there's unattractive acquisition opportunities, or development opportunities?

Vidula, there I would just go back to -- essentially where we were on the capital plan back at the April analyst conference.

On the spending side for FPL Energy, for the completion of the build-out of the existing construction projects for '02 and beyond that's still about the 1.6 billion level.

We are doing well on the construction variances there.

So there's no change there.

We still got the 836 million for Seabrook, and we are still anticipating somewhere between 1,000 and 2,000 megawatts or a billion to 2 billion of spending on new wind projects.

We continue to look for value enhancing asset acquisitions.

But, again, we really haven't seen things that meet our financial criteria given the current market conditions.

So, at the moment, there's really been no change on the capital side at FPL Energy.

As you know, we did do the equity issuance earlier than we had originally anticipated, but that as we explained at the time, was what we were looking for to support that overall growth program.

The big change has really been, if you like, that we now really believe that the FPL spending will be on the higher end or the 5.5 to the 4.5 range for the 2002 to 2005 period, so we are very much where we were on the capital plan back in April.

Now you'll recall that what that meant was some stress in the first two years, that's the tight period where the FPL Energy spending is concentrated and then freeing up in the latter two years.

At this stage, I think it's very premature to say what that would imply for '04, you know, repurchase possibilities because there's so many other things to go between here and there.

Okay.

Thank you very much.

Our next question is from the line of Deborah Blomburg with Jefferies.

Please go ahead.

Hi, just two questions.

Can you tell us what the gain was from the sale of dark fiber in the quarter?

And also just provide the status of plants under construction in terms of target commercial operation dates?

Um -- on the fiber sale, I think the net impact was approximately 15 million.

That's after tax?

After tax, yes.

Okay.

And I'm sorry, I missed the second part of your question.

Could you just provide us the status of plants under construction as it regards target commercial operation dates?

Um --

Or whether there have been any significant changes in your plans?

No.

That's fine.

Um -- we, as I said in the script, we just completed the phase water peaking facility in New York, and our half of the Bastrock project came online in Texas.

The Johnson Rhode Island facility will complete sometime in the fourth quarter.

Blythe, the plant out in Southern California will be early in the first quarter of next year.

Forni, the north Texas plant is on track for mid-year next year, COD.

As is the Calhoun peaking facility in Alabama.

And then the remaining one is the Marcus Cojen facility and PJM which should be coming on in the first quarter of '04.

There have been really no changes to those dates.

Is Belingham -- is the Belingham addition cancelled or is that just indefinitely delayed?

We are continuing to pursue that, but it has been definitely a difficult project.

And at this stage, I think it's very open as to when it might happen.

Great.

All right.

Thank you.

Our next question is from the line of Andrew Levi with Bear Wagner.

Please go ahead.

Hey, guys I'm going to skip.

Thank you, though.

Then we'll have to take our next question, it will be from the line of Vic Totam with Deutsche Asset Management.

Please go ahead.

Thank you.

Two questions.

One on Seabrook.

Are there any issues with respect to the nuclear decommissioning cost?

What is happening at [INAUDIBLE]?

And I have another one.

Um -- the decommissioning funding, we had the hearings at the NDFC the nuclear decommissioning funding commission up there.

Which is a unique structure.

There is a provision in New Hampshire law that says that on decommissioning, any funds that are excess of what customers originally contributed have to go back to the customers.

And that was part of our agreement all along.

The state in Massachusetts and Connecticut is less clear, but we may end up with a similar sort of provision there.

But, that only affects the amounts that customers originally contributed.

So in, you know, in all likelihood the actual cost of decommissioning is going to be significantly in excess of what the customers originally contributed because we will be contributing, you know, for the next 20-some-odd years.

So the probability of that provision coming into play, I think, is very small.

It's not quite the same situation as at Vermont Yankee.

So that does not bother you from closing the deal in terms of that is excess over what customer is paying for it?

Well, I'll say here what I said to the NDFC, which is as a matter of principle, we believe that since we are bearing the downside of the decommissioning costs -- with the exception of the provisions built into New Hampshire law or equivalent provisions which seem reasonable to us, we do believe that if there is any excess it should ultimately flow back to the shareholder.

Having said that because the decommissioning date is likely far out in the future as a practical impact on economics, not very significant.

Second question, Moray, regarding if you aggregate for 2003 your hedged position and your desired level at 75%, are you short there?

And do you have enough opportunity to contract right now at low price, or would you rather keep it on a [INAUDIBLE] basis the remaining assets, which have not been contracted?

Yes, we were short of where we would like to be.

But no, we don't see any value in simply rushing out to contract at, you know, depressed prices.

Let me separate it into two parts.

There's the contracting market and the forward sales market.

Let me speak to the latter first.

We have -- that's where market liquidity has really dried up, but we have been successful in picking off, from time to time, by choosing our spots appropriately, you know, some volume there at prices that are very consistent, some cases above our original expectations when we did the Seabrook deal.

But because the liquidity is so thin, there's no point in pushing that market because if there aren't counter parties on the other side, you know, there really is nothing to be done.

We just have to be patient, and work the market as it's available to us.

On the other side, on the straight contracting side, up to now we have been reluctant to push too far because, of course, there is still some closing risk, although we are getting more and more comfortable on the Seabrook acquisition.

At the same time, there's much less liquidity in that market than has been true previously.

However there are a number of low serving entities that will be coming out in the fall with RFPs for some of their need for next year and beyond.

And of course we will be actively participating in those.

That's interesting.

But, looks like what Vidula was asking earlier, perhaps, that 90% of the income is coming from the Florida Power and Light utility side.

So that's this certain sense of comfort we have.

Is that right?

Yes.

Well I think that's what we have said all along.

I mean, last year we were 87% from FPL and because of the hugely greater size of FPL, even FPLE's greater growth rate takes it a long time to shift the portfolio mix given that FPL itself is growing very nicely.

We are comfortable with that overall portfolio mix.

Thank you.

And our next question will be from the line of Daniele Seitz with Salomon, Smith Barney.

Please go ahead.

I was wondering if you could review how much wind plants you anticipate to have by year-end, and what is the status at this time relative to your expectations of 500 megawatts for 2002?

And also, could you clarify the potential impact in the delay. [ INDISCERNIBLE ].

Et cetera, could you help me on that?

Um -- yeah.

On the first one, we had indicated that we were hoping to get maybe 500 done by the end of this year.

I think, based on what we are seeing today, that's -- that would be a stretch.

I think I have a higher degree of confidence that we could be at the 300 level, but there's still a lot of work to be done.

You know, these are like any other development projects, there are many pieces that you have to go through from permitting --

Yes.

-- to negotiations with the land owners, et cetera, et cetera.

I think I have indicated before that we have a pipeline of -- on the order of 1700 megawatts of potential projects.

We still feel very good about the fundamentals of those.

So in terms of the 1,000 to 2,000 between '02 and '03 that we had indicated, I see no reason to move away from that.

We are still confident that we can do that.

But I would say that based on where we are right now, probably the average date of introduction has slipped back somewhat.

At this stage, it's a little difficult for me to say what that would mean in terms of net income impact for this year and next year, but definitely it would be, you know, an additional hurdle to climb over.

Right.

Do you anticipate that '03 will probably be not as strong as you anticipated as well?

I mean, it's more difficult to actually get new contracts for new plants?

Um -- it's really just a timing issue.

Uh-huh.

There's obviously a pricing trade-off here.

We don't want to push too hard, or you end up giving too much on the pricing side.

So you are trying to make sure that these are value accretive deals.

But, of course, if they don't come in as early as you anticipated, then the revenue doesn't start flowing, the margin doesn't start flowing and the production tax credits don't start flowing as quickly.

Right.

So there would be a delay that would have an earnings impact.

But, I guess the point I want to stress is that from a value creation point of view that would be relatively minor.

Uh-huh.

Is -- do you anticipate a meaningful participation to earnings from Seabrook next year?

Or do you think that the market -- if the market doesn't get better, it will be difficult?

No, we are still anticipating meaningful contribution to FPL Energy from Seabrook.

It's important to remember that there's a difference between prices and spreads.

We have seen spark spreads, you know gas based --

Right.

-- spark spreads get extremely compressed.

But Seabrook is much more dependent on the absolute level of prices.

Uh-huh.

And while those have come down, the forwards have come down somewhat, they haven't come down that much.

And as I said earlier, we are somewhat suspicious of the validity of the forwards because we have been able to execute transactions that have been reasonably favorable.

We definitely anticipate that Seabrook will have a meaningful impact on FPL Energy's earning profile next year.

Great.

Thanks a lot.

Our next question will be from the line of Paul Hole with Luminus Management.

Please go ahead.

Mr. Hole your line is open.

Okay.

We'll go to the next question.

And it's from the line of Leslie Rich with Bank of America.

Please go ahead.

Yes.

Just one question following your equity offering.

What is your debt-to-cap look like?

Right now I think we are around 51% on an as is basis, i.e., treating the equity linked securities as notes which they technically are.

If you were to kind of give them the roughly 80% equity credit that the rating agencies commonly do, the effective debt ratio would be about 45%.

Okay.

Thank you.

And our next question will be from the line of Tim Fila with George Wise Associates.

Please go ahead.

Question has been answered.

Thank you.

Thank you.

We'll take the next question.

And it will be from the line of Dan Ford with Lehman Brothers.

Please go ahead.

Mr. Ford, your line is open.

And once again we'll go to the next question.

It will be from the line of Michael Worms with GKM, please go ahead.

Good morning, Moray.

A question for you.

It appears as though the wind program, development program is more back end loaded now than we had anticipated.

Should all of this get done by the end of 2004, I guess, does this put more pressure on your financing capabilities of the projects?

No.

Let me just correct one thing.

We are talking about the wind program for 2002 and 2003 which is the period for which present production tax credits have been extended.

Okay.

Um -- that would -- that really wouldn't effect the financing profile.

If anything it makes it slightly easier obviously if the projects are delayed it gives you more time.

We are working on some innovative structures for financing those wind projects that we haven't previously employed, given that they are becoming now a much more significant piece of the portfolio, and we'll be, you know seeing how those go through the course of the rest of this year.

Okay.

And one other question.

Can you just explain to us why the earnings profile in the second half of the year will shift a little bit?

Um -- yeah.

There are issues, both at FPL and FPL Energy, most of which relate to third quarter of a year ago.

At FPL the third quarter of a year ago benefited from a favorable property tax settlement and a couple of other smaller things.

So it was a little bit bumped up relative to normal as well as some O&M timing differences.

And FPL Energy had a very strong quarter in Q3 last year.

And there it's very much it gets to be lumpy because of when new assets come in.

So if you look out over the rest of this year, given our 4.70 to 4.75 guidance, and you subtract off what we have already done in the first half, you'll quickly figure out that we are talking about being down for the second half somewhere in the 6 to 8% range.

And that will be concentrated in the third quarter.

It mostly has to do with just timing issues, and particularly from the comparison point from a year ago.

Let me also point out that the second quarter results here at Florida Power & Light will present us with a similar comparison issue when we come to next year's second quarter if the weather is at all normal.

Great, thank you very much.

And once again, ladies and gentlemen if there are any additional questions at this time, please press the one on your touch tone phone.

We have a question from the line of Laura Blanco with UBS Warburg.

Please go ahead.

Hi, good morning.

I wonder if you could -- um -- elaborate a little bit more on Seabrook.

I know you are talking about doing some concessions there, [INAUDIBLE] and I'd like to know if you can specify more what kind of contracts you have?

What prices?

Um -- we have no formal contracts against Seabrook because, of course, we don't own the assets.

I indicated that we have been active in looking for forward sales opportunities.

I think we've got about 150 megawatts sold forward in '03.

We also have some sold forward in '04 and '05.

But that's as far as I'm willing to go at this stage.

And I think that should probably be our last question, or perhaps one more.

Yeah.

Do you expect those trading conditions to improve?

Do you have some sort of idea in terms of timing?

I can't say.

Okay.

Thank you.

And if there's one more question, we'll take that.

Alright, we'll take that question from the line of Paul Devas with Value Line.

Please go ahead.

Hi, is that debt-to-capital figure include short-term debt?

Yes, it does.

Thank you.

Okay.

I'd like to thank everyone for joining us on our conference call today.

I would also like to remind you that there will be a replay of this webcast available on our web site which is WWW.FPLgroup.com.

There will also be available a taped replay of the conference call beginning at noon today.

To listen to the replay dial area code 320-365-3844 and then enter access code 644477.

This replay will be available until midnight on July 26th.

Once again, thank you all for joining us.

Thank you for using AT&T teleconference service.

You may now disconnect.