新世紀能源 (NEE) 2002 Q4 法說會逐字稿

At this time, Lisa Kuzel has now joined.

All lines will be muted during the broadcast.

After the presentation, we will begin the question-and-answer period.

If you would like to ask a question during this period, please press star then 1 on your telephone key pad.

Your questions will be answered in the order received.

Should any participant need assistance, please disconnect and redial the conference number.

Lisa Kuzel, you may begin.

Welcome to the 2002 Fourth Quarter Earnings Conference Call.

Moray Dewhurst, Chief Financial Officer of FPL Group will provide an overview of our performance for the fourth quarter and 2002 as a whole.

Lewis Hay, FPL Group's Chairman and Chief Executive Officer, Paul Evanson, President of Florida Power & Light Company and James Robo, President of FPL Energy are also with us this morning.

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

Before I turn it over to Moray Dewhurst, let me remind you that any statements made herein about future operating result s or other future events are forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

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

A discussion of factors that could cause actual results or events to vary is contained in our most recent SEC form 10-Q.

Moray?

Thank you and good morning everyone.

Before getting into the details of the numbers, I'd like to start by highlighting a few of the key events of last year. 2002 was a year of significant accomplishments for FPL Group.

It was a challenging year for everyone in our industry, but we were able to resolve significant uncertainties in both of our major businesses, position ourselves well for the coming years and enhance our overall competitive position within the industry.

At Florida Power & Light, we negotiated an incentive based rate agreement that provides us a clear framework to guide our operations through 2005 and is attractive and fair to customers and shareholders alike.

We completed the repowering of our Fort Myers plant and one unit at our Sanford plant, simultaneously expanding capacity, improving efficiency and reducing emissions.

Fort Meyers facility is now the most efficient fossil-fired plant in our fleet.

We also conducted an extensive competition to determine the lowest cost means of meeting our projected growth and load through the 2005 to 2006 period.

A process that extended through the year and culminated in the PFC's affirmation that the expansion at our Manatee and Martin plants is the best solution for our customers.

Despite the extensive effort and occasional distractions involved in supporting these important regulatory proceedings, our operating units turned in another year of exceptional performance, confirming our long-standing emphasis on operational excellence.

At FPL Energy, we maintained our approach to the business while making significant tactical adjustments to reflect changes positions in the Friday.

We continue to emphasize investment in low cost high dispatch assets, where operational excellence can add value, and we continue to moderate the market risk inherent in the business with prudent forward sales and other hedges.

We added a major asset in the Northeast with our purchase of an 88% interest in Seabrook station, an acquisition which we were able to close in record time, and we continue to build on our industry leading position in wind energy.

We were not immune to the turmoil in the wholesale generation sector, of course, and we significantly restructured FPL Energy to reflect changing market conditions.

We renegotiated a number of supply contracts, reduced our commitments to gas turbines, cut costs and reoriented our developers to focus more tightly on wind projects and possible acquisitions of distressed assets should the right valuation circumstances arise.

At the corporate level, we continue to emphasize the importance of financial strength and flexibility, a hallmark of this company for many years.

We moved early to obtain the equity support our investment program requires, issues 1.4 billion of equity and linked securities before the year was half over.

In a year when liquidity was sometimes difficult to obtain, we expanded the short-term credit resources available to us.

Finally, our boards continued our past practice of raising the dividend modestly each year, reflecting our confidence in the sustainability of our earning power.

We look forward to 2003 and the succeeding years with confidence.

Now let's look at the financial result for the fourth quarter and the full year.

In the fourth quarter, FPL Group earnings, excluding the mark to market effect of nonmanaged hedges, were 133 million, or 75 cents per share, compared to 113 million, or 67 cents per share during the 2001 fourth quarter, an increase of nearly 12% in per share contribution.

Including the mark to market effect of nonmanaged hedges, FPL Group's 2002 fourth quarter income and net EPS were 129 million and 73 cents respectively.

The mark to market effect of nonmanaged hedges was a negative 4 million after taxes or 2 cents per share in the fourth quarter, and an estimated positive 5 million after taxes in the 2001 fourth quarter.

In 2001, we did not distinguish between managed and nonmanaged hedge activities, and the total mark to mark was a positive 3 million after taxes in the fourth quarter.

We estimate the trading and managed hedge activity within this was approximately a negative 2 million after taxes which we include for comparison purposes within operating results.

Let me remind you that we break out the mark to market effect of the nonmanaged hedges because we believe this component of our results is most meaningfully viewed in a separate context.

We enter into a variety of contracts that do not qualify as hedges under FAS 133, but that serve to offset at least in part an economic exposure.

A gain or loss in our nonmanaged hedges is general associated with an offsetting but unrealized economic gain or loss in a physical asset position.

For the full year 2002, the impact from the effect of nonmanaged hedges was a positive $1 million.

For the full year 2002 excluding certain nonrecurring charges in the mark to market effect of nonmanaged hedges, FPL Group's earnings were 831 million, compared with 792 million in 2001.

EPS was up 2.3% to 4.80, compared to 4.69 in 2001.

Included is a 9 million contribution to net income from FPL FiberNet.

Including nonrecurring charges and mark to market effect of nonmanaged hedges, FPL Group's 2002 net income in EPS were 473 million, and 2.73, respectively.

The 2002 nonrecurring items totaled negative 359 million or $2.07 per share and consisted primarily of the cumulative effects of a required accounting change, impairment and restructuring charges, and charges related to certain wind projects and leveraged leases partially offset by a gain from an income tax settlement.

A breakdown is available in the financial summary that accompanies the earnings press release issued this morning and that is posted on our website.

Also included is the mark to market effect of nonmanaged hedges which represented a 1 million gain.

Earnings of Florida Power & Light were 111 million in the fourth quarter, up from 109 million a year ago and the earnings per share contribution was 63 cents down from 65 cents in 2001, due to the dilutive effect of additional shares outstanding in 2002.

For the full year FPL earned net income of 717 million, up 3% over 2001 net income of 695 million, excluding the nonrecurring item in 2001.

FPL contributed 4.14 per share in 2002, an increase of 3 cents.

Customer growth in the fourth quarter was very robust 2.4%.

In addition, we experienced growth and usage per customer of roughly 6.1%.

Of this growth and usage, roughly half was associated with warmer than normal weather in the quarter, with the remainder reflecting stronger economic conditions than in 2001, price elasticity associated with the rate reduction and the normal underlying trend of general usage growth.

Together these produced a remarkable 8.5% growth in retail kilowatt hour sales.

For the full year, FPL's customer growth was 2.1% in line with the long-term experience and significantly stronger than we had anticipated going into the year.

Customer growth started out slow, but accelerated as the year wore on.

Usage per customer grew 3.5 % for the full year, significantly faster than the long-term average, about half of the growth in usage for the year was associated with weather with both the late spring and early fall months being significantly warmer than usual.

The remaining increase in usage was due to stronger economic conditions and price elasticity associated with the rate reduction as well as underlying secular growth.

For the fourth quarter, FPL's O&M expense was 386 million, up from 324 million in the 2001 quarter.

Included in the increase is a one-time voluntary accrual of 35 million to our storm reserve representing a partial offset to the beneficial impact of weather for the quarter.

We continue to believe it is prudent to strengthen our storm reserve when possible.

At the end of the year, the total storm fund reserve stood at nearly 300 million, this reserve is available to cover restoration activities after named tropical storms and other severe weather events.

Our drivers of O&M increases included additional nuclear maintenance expenses and the continuing pressure from rising health insurance costs.

For the full year, FPL's O&M expense was 1,225,000,000, up from 1,085,000,000 in 2001.

O&M on a cents per kilowatt hour basis was 1.18 compared to 1.09 in 2001.

Absent the one-addition to the storm reserve, cents per kilowatt hour would have been 1.14.

As we've indicated earlier, O&M continues to be pressured from rising insurance and employee benefit expenses, as well as nuclear maintenance expenses.

These pressures will carry over into 2003.

However, based on the benchmarking studies we completed last summer, the operational plans that have been developed subsequently, we feel confident we will be able to hold O&M costs per kilowatt hour at least flat in 2003, ignoring the one time boost occasioned by the storm reserve contribution.

Depreciation at FPL decreased from 226 million in the fourth quarter of 2001 to 199 million in 2002.

The reduction is the result of a 44 million credit against depreciation expense that is part of our new rate agreement.

Without this credit, depreciation at FPL would have been up 17 million, reflecting overall growth in the asset base.

For the full year, depreciation at FPL was lower by 67 million, at 831 million, compared with 889 million in 2001.

The lower depreciation reflects the 125 million annual credit towards depreciation expenses that was taken as part of our rate agreement.

Without this credit, depreciation at FPL would have been up 58 million or 6.5%, reflecting overall growth in the asset base and a regulatory settlement.

Turning now to the wholesale generation business, FPL Energy realized a significant increase in fourth quarter earnings primarily due to project additions and restructuring activities.

Excluding the effect of nonmanaged hedges, FPL Energy net income increased to 30 million in the fourth quarter of 2002, results in 2001 with estimated mark to market activity with trading managed hedge included were 8 million or 5 cents per share.

Project additions contributed significantly to the growth in FPL Energy earnings in the fourth quarter, new projects added 15 million to results, primarily driven by Seabrook.

Earnings from the existing portfolio were down 4 million, owing partly to weaker market conditions year-over-year, partly to lower wind resources.

Asset optimization activities had a positive impact of 3 million.

Our development and asset restructuring activities also contributed significantly, as we realized a 14 million after-tax contribution associated with the restructuring of a natural gas contract which I will describe in more detail in a moment.

All other factors were a net negative 6 million, made up of a variety of positive and negative items.

We experienced a gain of 8 million from a settlement with a counterparty, but this was more than offset by increases to G&A, interest expense, credit reserves, certain one-time expenses associated with the acquisition of Seabrook and a variety of smaller items.

As we discussed in October, development and asset restructuring activities are a recurring part of our business.

FPL Energy is actively involved in the development as well as the operation of projects and this brings with it certain additional opportunities to change the form and structure of asset ownership whether the assets are physical or contractual.

Historically, these restructuring activities have on average contributed about 15% of FPL Energy's earnings, fluctuating from year to year.

Going forward, we see continued opportunities in this area, at least for the next several years, and we expect the asset restructuring and development segment to contribute 10 to 15% of FPL Energy net income for 2003.

Let me now provide you more detail on the gas contract restructuring that benefited fourth quarter results.

We were able to renegotiate a particular gas supply contract so as to yield lower fuel costs for our plant and better net margins for the commodity supplier, since the supplier is no longer locked into high cost transportation commitments.

Because of the original contract was at above market prices, we were thereby able to improve both net cash flows and book income.

On a cash basis, we made an up-front payment to produce cash indication in future years, and this aspect of the transaction has an internal rate of return of about 20%.

On a book basis, we eliminated a liability and recorded a net gain of approximately 14 million.

I'll now turn to FPL Energy full year results, which were also strong.

Excluding certain nonrecurring items in the first and third quarters, and the effect of nonmanaged hedges, earnings were 126 million, a 20% increase from 2001.

While contribution to earnings per share increased 18% from 62 cents to 73 cents.

We thus ended the year at the high end of the range we had originally anticipated.

For the full year, FPL Energy earnings excluding nonrecurring items and the mark to market effect of nonmanaged hedges increased 21 million.

Project additions contributed 41 million, primarily from the full-year effect of new wind projects that came online in the 2nd half of 2001 and the 324 megawatts that we added in 2002, as well as from Seabrook.

The existing portfolio was down by 11 million, with decreases in Maine and Texas and mixed performance in other parts of the portfolio.

Asset optimization activities were off by 2 million, compared with 2001.

Development and asset restructuring activities increased earnings by 15 million, with 2 successful contract restructurings in 2002, compared with one asset sale in 2001.

All other factors were a net negative 22 million.

Increased G&A and net interest expense reflecting the growth in the business accounted for half of this with a variety of positive and negative items making up the difference.

We experienced gains from settlements with counterparties, but these were more than offset by creases to our credit reserves, one time expenses associated with the acquisition of Seabrook and a variety of smaller items.

To summarize the fourth quarter quarter, FPL contributed 63 cents, FPL Energy contributed 17 cents and corporate and corporate and other contributed a negative five cents that is a total of 75 cents representing a total increase of 11.9% and a total increase of 8 cents over the same period in 2001.

FPL Group's fourth quarter earnings per share increase of 8 cents was affected by the following: At FPL, customer growth, positive 8 cents.

Usage due to weather, positive 9 cents.

Other usage, positive 10 cents.

Rate reduction, negative 21 cents.

Refund provision, negative 3 cents.

O&M, negative 21 cents.

Depreciation, positive 13 cents.

Other, including share dilution, positive 3 cents.

For a total of a 2-cent reduction at FPL.

Additionally, FPL Energy contributed a positively 12 cents and corporate and other impact was a negative 2 cents.

Within the corporate and other category, FPL FiberNet were negative 1 cent, with the remainder of the category impacted by higher corporate expenses.

To summarize the results for the year, FPL contributed 4.14, FPL Energy contributed 73 cents, and corporate and other contributed a negative 7 cents, that is a total of 4.80, representing a total increase of 11 cents or 2.3% over the same period in 2001.

FPL Group's earnings per share increase of 11 cents for the year was affected by the following: at FPL, customer growth, positively 28 cents.

Usage due to weather, positive 18 cents.

Other usage, positive 24 cents.

Rate reduction, negative 72 cents.

Refund provision, positive 26 cents.

O&M, negative 47 cents.

Depreciation, positive 38 cents.

Other, primarily share dilution, negative 12 cents for a total of a 3 cent increase at FPL.

Additionally, FPL Energy contributed a positive 11 cents and corporate and others impact was a negative 3 cents.

Within the corporate and other category, FPL FiberNet's positive 5-cent contribution was more than offset by higher corporate expenses.

Turning now to the outlook for this year, our expectations at this point remain largely unchanged from what we shared with you last October.

We continue to see an EPS range of 4.80 to $5 for FPL Group.

Our expectations include income growth at Florida Power & Light, of four to 5%, off the weather normalized 2002 base, which translates to between 725 and 735 million.

We also expect income growth at FPL Energy of between 30 and 50%, breakeven results at FPL FiberNet,, and a drag of corporate and other of between 20 and 30 cents a share.

Let me take a moment to give you a little more detail and some idea of possible variations around our expected results.

At Florida Power & Light, we expect a more normal year of growth with customer growth of with 1.9% and weather normalized usage growth of about 2.1%.

We do not anticipate any major weather event that would extend beyond the resources of the storm reserve.

Relative to these expectations, there are a number of operating parameters that we will be monitoring.

Obviously, variations in our revenue growth drivers are always important with normal weather variations being the largest.

Typically, in any one year, weather can lead to a plus or minus 18 cents per share swing in EPS contribution with 80% probability.

Typical variability around the customer growth rate might result in a plus or minus four or 5-cent per share variation, by variability in usage growth excluding weather could translate to a plus or minus 7 or 8-cent a share variation.

Our ability to meet O&M goals is also critical, with a 2% variation in O&M translating to roughly an cent per share variation in EPS.

Our historical performance in this area has been very good.

As we have earlier disclosed, O&M will continue to be pressured buy employee benefits, insurance and nuclear maintenance costs.

There is particular uncertainty about the costs that will be incurred with the two reactor vessel head inspections we will conduct.

Finally, we will continue to deliver the same operational excellence that have characterized our company in the past.

Let me emphasize that this list is not intended to be exhaustive, I would refer you again to our Safe Harbor statement and our SEC reports for a more detailed discussion of possible risks which might affect our results.

Nevertheless, the factors I've described are important ones we will be actively monitoring as the year proceeds.

While it would be unlikely for us to be at the high end or low end of all these variables simultaneously, we can expect some variability during the course of the year.

At FPL Energy, there are a number of factors that could cause our results to be towards the upper or lower ends of the range I mentioned earlier.

In setting our expectations, our starting point is always our contractual commitments, coupled with the application of current market forwards for the portion of our capacity that remains unhedged.

We do not anticipate any significant strengthening of most U.S. power markets in 2003, although volatility is likely.

Given the high degree of contract coverage or hedging with which we enter 2003, our exposure to commodity price risk is moderate, but fluctuations in commodity prices will have an impact on our results.

We will be actively balancing our different risk exposures to be sure we meet our goals.

In addition to commodity price variability, our results will also be affected by a counterparty performance and by weather, by the degree of success we have with the wind development program and by the activities of our asset restructuring segment.

Again, let me stress that this list is not exhaustive, but highlights some of the more important variables that we will be actively monitoring.

Let me first update you on our hedging position and our sensitivity to commodity price fluctuations.

I would encourage you to access the slides available on our website, www.FPLgroup.com, under Investor Information, since I will not review every number on the slides.

Also note that the available megawatts are weighted to do reflect when during the year new assets go into service and all assets are adjusted for 2003 outages, including a refueling outage at Seabrook.

I'm pleased to report we have increased our contract coverage for 2003 to 77%, based on 8,855 available megawatts.

This reflects increased contract coverage primarily in ERCOTT and NEPOOL.

In terms of our expected 2003 gross margin, the hedge position is stronger.

We now have more than 90% of FPL Energy's expected 2003 gross margin hedged.

Let me turn now to the unhedged portion of our portfolio.

As we've done before, we have provided you a rough estimate of potential 2003 impact per share given the change in pricing assumptions.

As before, we have based the range of fluctuations on what we have observed in the markets over the past six months or so, and I would remind you that actual changes could exceed this range.

However, the historical range of price variability applied to our base expectations produces a rough range of sensitivity to commodity prices of plus or minus 7 cents per share.

Again, I would encourage you to view the slides available on the website for more detail.

In managing our exposure to commodity prices, we are naturally dependent upon our counterparties to perform to their contractual obligations.

We constantly and actively manage the trade-off between market risk and credit risk and we actively manage our exposure with individual counterparties as a function of their credit-worthiness.

In 2002, we were very successful in ensuring that we were not caught in a position of large exposure to counterparties with rapidly declining credit-worthiness.

Approximately 87% of FPL Energy's 2003 contracted revenues are with investment grade counterparties.

Excluding Southern California, Edison and PG&E, it's bigger than 92%.

Of course, credit exposure depends also on the ease of which a contract could be replaced if a counterparty failed to meet its obligations.

Within our merchant portfolio, including all our asset optimization activities, 97% of our economic positions as of December 31st, 2002, are within investment grade or better companies.

We also manage our purchases and sales together and after netting all positions, FPL Energy is today in a net payable position with sub investment rate counterparties.

Our results will also be affected by natural fluctuations in weather, our base expectations assume long-term statistical averages for weather impacts.

In addition to the effect of temperature, which acts through commodity prices, changes in weather affect wind portfolio as well as the hydro units in Maine.

A one standard variation from par from hydro positions translates to a minus 3-cent variation from our base expectations, while a one standard deviation variation in wind resources translates into a plus or minutes six-cent variation.

In addition to the factors just described, our results at FPL Energy will also be affected by the degree of success we have with our wind development efforts and our asset restructuring activities.

As we have discussed, our target for new wind is between 712 megawatts this year, of which we have announced specific projects totaling more than 400 megawatts.

We expect the bulk of the new assets to go into service during the second half of the year.

Timing will have an impact on 2003 results, while the total megawatts installed will have some impact on 2003, but a larger impact on 2004.

Based on the projects announced and the strength of the development pipeline, we feel confident we will be be somewhere within our targeted ranges.

In terms of rough impact, our success in this area could affect 2003 results by plus or minus six or 7 cents per share.

As I indicated earlier, we expect development and asset restructuring activities to contribute 10 to 15% to FPL Energy's results this year.

We are actively pursuing a number of different initiatives and some of these are close to completion although the timing of closing is uncertain.

Taking just those initiatives that we estimate have very high holds of closure, we will be at the 10% of the range.

If we are very successful with the initiatives, there could employee some upside to overall FPL Energy results.

While we have much work to do, we feel confident this aspect of the business will be a significant contributor in 2003.

2002 has been a challenging year, but one which we believe confirms both the underlying strength of FPL Group and the merits of our strategies.

We have continued to focus on fundamentals, emphasizing cost competitiveness, high quality reliable service, operational excellence and a strong balance sheet; factors that we believe are keys to success in commodity business.

We are pleased we ended the year meeting the financial expectations we had set out early on in very different market environment, and having done so, despite the dilution caused by our decision to accelerate our planned issuance of equity, a decision we believe was well justified by subsequent events.

Furthermore, our actions in 2002 positioned the company well for a strong 2003.

Based on what we can see today, we have a high degree of confidence that our earnings per share for this year will be in the range of $4.80 to $5.

This expectation is not dependant on improvement in industry conditions.

We have much work ahead of us , but we know what to do arrest are confident in our ability to succeed.

Before we begin the question-and-answer session, I have one final thing to mention.

Lisa Kuzel has recently accepted a position in Seabrook management, she'll have direct responsibility for commercial aspects of our ownership in that project.

While we will miss her strong contributions to Investor Relations, we are pleased she's taking on this new and challenging role.

I'm sure those of you who have the chance to work with Lisa will join me in thanking her for all she has done for Investor Relations over the past three and a half years.

We will announce her replacement shortly.

And now, we'll be happy to answer your questions.

Again, if you would like to ask a question, simply press star, then 1 on your telephone key pad.

The first question is from Greg Gordon with Goldman Sachs.

Thanks, a couple of questions.

One, as I look at your operating performance for the fourth quarter for the utility, you mention in the release and I think you mentioned in your comments that you did choose to, on a discretionary basis, put an additional 35 million into your storm reserve fund.

Is that an item that we would expect to be recurring in 2003?

I think not unless we had similar extraordinarily positive weather conditions.

Right.

So basically, you had weather a lot stronger than you expected, so you took the opportunity to build up your reserves?

That's correct.

And then my second question is: As I look at the guidance for FPL Energy, of 30 to 50% growth and I just assume you hit the low end of that range and we're basically looking at something like 10 to $15 million at a minimum, and restructuring-type activities, to the bottom line in 2003, is that a fair, back of the envelope assessment?

Yes, that's a fair back of the envelope number.

And can you give us a breakdown, if you have it available, where your debt to capital was at the end of the year and your operating cash flow profile if you have any cash on the balance sheet?

I don't have the details of the debt to total capital ratio on the top of my head.

In terms of where we are on the financing side, maybe a moment on that, we're very much consistent with what we have been saying before.

We'll be looking to raise external capital on the order of a billion to a billion and a half this year, no change to that profile.

Obviously, we had S&P confirm the ratings in the fall so we continue to be executing against the same plan we described earlier.

the next question is from Michael Goldenberg with Luminus.

Yes, good morning.

I I wanted to ask you about your cash flow from operations guidance for '03 and I guess you stated that your free cash flow GAAP is about a billion to a billion five; is that correct?

Yes.

What would be the cash flow from operations?

Bear with me one second.

Uhm-hmm.

Cash from operations will probably be somewhere in two and a quarter to two and a half billion range.

Uhm-hmm.

And could you please update us on what you're doing as far as the portfolio -- group portfolio loan that you are talking about?

Sure.

We're just -- everybody's benefit, as a reminder, one of the financing alternatives we're work on is taking three of the new gas projects that are presently in construction and raising a portfolio debt against them.

We have - two leads have credit approval.

We are in the midst of negotiations with kind of a second tier of banks.

I think we can expect to know whether that deal is going to be viable on terms that will be acceptable to us or not within the next probably within the next month.

The next question is from Deborah Bromberg with Jeffries and Company.

Hi, good morning.

Two questions.

On the restructuring of the natural gas contract, you had mentioned that you recorded a net gain of 14 million.

Is that after tax?

That's correct.

And is that included in earnings for FPL Energy this year?

Yes, it is.

And you also mentioned that you made an up-front payment on a cash basis.

Could you disclose what that was?

And I'm assuming that isn't in earnings?

Yes, that is reflected in earnings.

Part of the net -- the net gain on the transaction that we book is the net of the elimination of the liability that existed, minus the cash payment that was made.

I don't remember the cash payment on the top of my head, but it was on the order of 10 million.

The next question is from Annie Saoul with Alliance Capital.

Good morning, I have a couple of questions.

First of all -- hello?

Hello?

We can hear you.

Okay.

First question, you mentioned before just a -- just to clarify, asset optimization is down 2 million versus last year year?

Can you elaborate on that?

Well, Annie, as you know, asset optimization trading activities are all oriented around sort of extracting a little extra margin from our physical assets.

The main driver of that, I would say for this year, has just been lower volatility in markets in aggregate.

Obviously, the more volatility you have, the more the opportunities are for the kind of, you know, asset-based activities that we do.

They typically are not a large contributor to earnings, they were not a large contributor either in 2001 or 2002, but there was a little, fewer opportunities in 2002 than there were in 2001.

Okay.

And also, can you touch on your pension obligation on, underfunded or overfunded.

We remain in the significantly overfunded situation.

There has been really little change to that.

You know, the way the pension accounting works is significant smoothing of the effect of any, you know, individual year gains or losses.

So I don't know that there's really a lot more to add.

We're in a strongly overfunded situation, and would not anticipate making any contributions to the pension fund for the -- as far as we can see.

We also, you know, just a reminder, we had some of the most conservative assumptions on earnings rate and discount rate out there.

The next question is from Zack Schreiber with Ducane Capital Management.

Mr. Schreiber, your line is open.

Hi, it's Zack Schreiber from Ducane Capital Management.

Good morning.

Good morning, I was just following up on this debt portfolio.

How much capital do you want to raise or do you anticipate raising?

How much of its spoken for with these two lead banks?

How much of it does that leave so that's sort of left for other players?

And also, when you spoke about, you know, a billion to a billion and a half of external financing, how much of that's supposed to come from publicly raised debt, how much from the project financing, how much of it is external equity?

Zack, I'm not going to get into the details of the portfolio deal, other than to say that as we're presently looking, it will be on the order of a billion.

It's one of a number of initiatives that we are pursuing, some of which we talked about in the past, including trying to find ways to leverage our wind portfolio.

Which is proceeding quite well this year.

We have a number of different possibilities open to us.

I can't at this stage say exactly how much of the one to one and a half we're going to fill with capital market debt or bank debt.

For us, the issue is how do we optimize that and get the most out of it.

So to be blunt, we will pursue the portfolio deal strictly with a view to its cost competitiveness or economic competitiveness versus the other alternatives available to us.

If that continues to look good, we will keep pushing it.

And if the terms don't look good, we will drop it and move on to one of our other alternatives.

As far as the external financing for 2003, how much of that was prefunded, if any, from a bunch of the timely equity issuances you did in 2002?

I don't know if I can give you a specific numerical answer, but obviously, what we did in 2002 was bring forward, as we discussed last year, we brought forward the equity component of the financial plan that we'd been working against since the beginning of last year.

Leaving ourselves with a strong balance sheet, and really only debt pieces to do.

So we would not anticipate in 2003 issuing new equity, unless there were additional attractive investment opportunities.

Next question is from Michael Goldenberg with Luminus.

Yes, I'm sorry, gentlemen, I forgot one question.

Could you please quantify the O&M and pension costs?

Maybe I missed it.

But in terms of for '03, year-over-year, what additional costs will be?

We don't know what the specific components are going to be at the moment.

I'm not going to get into the details of, you know, what we expect each of the components to be.

I would stand by the statement that we feel very confident that we can keep O&M cents per kilowatt hour flat with the 1.14 excluding the contribution to the storm fund.

Okay.

Also, is it possible to quantify contribution from Seabrook on kind of EPS basis?

I think that's a little difficult for '02.

Because we just had two months and there were a number of sort of transition costs associated with bringing it into the portfolio.

When we originally announced the acquisition, I believe we indicated that we would be expecting a net contribution to EPS of one to four cents in '03.

I think -- I haven't expected those lately, but based on the degree of contracting and the prices of the contracting we've done and the progress on the operating side, I would expect at least to be at the high end of that range.

the next question is from Danielle Seitz with Salomon Smith Barney.

Good morning.

Your Spark Spread assumptions for the gas generation coming on in 2003.

Are we supposed to pretty much use the forward numbers?

Yeah.

I think, you know, our central expectations are probably the best point is actually to go back to the numbers that were in the previous release, the third quarter release.

Obviously, forwards move up and down, if anything, they are strengthened in the last few months.

Right.

But they'll go up and down again throughout the year.

But my advice would be to look at the -- look at forwards and then apply a suitable variation around that.

Uhm-hmm.

Also, you mentioned that you had nuclear expenses during most of '02.

Do you see those expenses continuing or tapering off?

Maybe it's worth just expanding a little bit on the key issue there, which is the reactor vessel head inspection and eventual replacement.

As I think we discussed in the third quarter release, we have adopted what I would call a proactive approach, life cycle management approach to the reactor vessel head issue.

We recognize that for assets such as Turkey Point and St. Lucy which will be around for a long time, life cycle economics say you will replace the says you will replace these heads at some point.

Therefore, the only question is how to optimize the replacement sequence.

Our present plan is we will continue to do the inspection and repair approach through the next set of refuelings, which include two next year at Turkey Point, and then most likely in the subsequent refuelings or later, we will then be replacing the heads.

So in terms of the impact on 2003, we have two inspections at Turkey Point, and as you all know at Turkey Point, they're relatively older units.

Until we get in and inspect the under sides of the heads, we won't know to what degree we have cracking and repair expenses for this cycle.

I would also point out we have an agreement with the PFC to take the total cost of the expectations and repairs incremental to what we had anticipated back in 2001, and amortize those over a five-year period to levelize the impact.

The next question is from Thad Angstrom with Hamilton Investment Management.

Good morning.

I want to make sure if I understand if you look at the difference in debt balances at FPL Group and FPL, sort of all nonutility debt, how are you allocating that to FPL Energy and to the corporate line, how much debt and how much interest expenses are being allocated?

For reporting purposes, we look at FPL Energy on an imputed 50/50 capital structure.

And, therefore, the extent to which our sort of aggregate corporate debt to capital varies from that, we will have an amount that will get held in the corporate and other segment segment.

And as I've discussed in past sessions, for 2003, 2003 will be kind of the year where we have the most departure from the long-term expectations.

We'll have a significant drag in the corporate and other segment from extra interest expense, that is part of the 20 to 30-cent drag we described earlier.

Does that mean then that there is -- that the leverage is out of whack from that 50/50, to to the extent it's greater than that, you dump it into the corporate bucket?

That's correct.

The purpose for that is so that we can look at the trends in the underlying earnings at FPL Energy on a more consistent basis and not have them, you know, distorted by fluctuating capital structures.

The next question is from Michael Worms with GKM.

Good morning.

Can you give us an update as to when you expect the governor to decide on the Manatee and Martin expansions, and could you tell us, if that were to be approved, when the construction of those plants would get going?

Maybe I'll turn this over to Paul, who can provide a little more of an update on that whole program.

The key item, of course, was the approval by the Public Service Commission of the need to termination, that was in early November.

And now it goes to the governor -- well, it has some environmental approvals it still needs to go through, and ultimately it goes to the governor, probably in May or June of this year.

And then construction will begin shortly thereafter.

A the lot of the engineering contracts now are being let and evaluated.

Thank you.

The next question is from vehicle with Vig Katai with Deutsche Management.

Yes, hi.

I was just checking about the capex program.

Could you remind me about -- go into the details of what the capex program is for 2003 by FPL Group, utility, and FPL Energy?

Sure.

For FPL, we would anticipate capex for 2003 of about 1.3 to 1.4 billion.

At FPL Energy, we have, I think, maybe about 300 million to -- left to go to complete the gas portfolio, and then the major additional item would be a capex on wind.

And obviously, depending on where we are in the 700 to 1200 range, that would influence it.

As a rough guide, you can think of a thousand bucks for KW.

If we're at the 700 megawatt range, that's roughly 700 million of capex.

If we're at the 1200 range, it's roughly 1200.

Somewhere in that range, let's say we took a thousand, so that would be a billion, we're talking about somewhere in the 1.3, 1.4 billion range.

So have you also budgeted any other discretionary capex in your program?

There's a small amount at FPL Energy just for ongoing maintenance, it's really pretty insignificant.

But in our base expectations, so we're consistent as we have been all through last year, we are putting in the things that we know and can see.

To the extent that we find additional attractive investment opportunities, they would be additive, both to results and to their implications on the financing side.

The next question is from Deborah Bromberg with Jeffries Jeffries & Company.

Hi, I was just wondering if you could generally discuss your outlook for '04.

I know you haven't provided guidance, but maybe if you could just talk about a couple of the key drivers, that would be of help.

Sure.

At this stage, I think that, since we base a lot of our expectations on forward markets, the forward markets for '04 are still pretty thin, I think it's a little dangerous to start setting specific numbers based on them.

What I would say, though, I is that as we look out to '04 and look at the fundamental supply/demand balance on the wholesale side, we may see some modest improvements in some regions, but we're still fundamentally going to be in the trough of the commodity price cycle.

So I think we can continue to see -- expect to continue to see volatility, but not huge improvement in it, not huge strengthening in the market.

So in terms of what that means to us, I think the key in in '04 will continue to be the same kinds of things that they have -- they'll be for us in in '03.

On the utility side, it will be continuing to deliver on operational excellence, take advantage of the natural growth we enjoy in Florida, and the results will flow from that.

On the FPL Energy side, it will be continuing to succeed with the wind portfolio, continuing to execute well against operational plans at Seabrook and in the rest of the portfolio, and then, you know, the remainder, we'll have to see what the interest rate environment is going to be like like.

So as I say, I'm not prepared to talk specific numbers, but those are some of the drivers I can see at this stage.

Thank you.

The next question is from Zack Schreiber with with Ducane Capital Management.

Hi, a follow-up on that.

As far as Seabrook goes in 2004, can you just update us as to what percentage of that unit in particular is hedged, again reiterate for us what the -- what NEPOOL power prices were that supported, I think your base case when you announced the acquisition in April'02, and where NEPOOL prices look in 2004 based on this uplift we see in gas prices.

If I recall, it was a gas price view that underlined a lot of that rationale in the first place.

Sure.

I don't have all those numbers, but I can give a few things.

I believe when we talked in the third quarter release, we had roughly 50% of Seabrook sold forward into '04.

That number is now approximately 70%, maybe a little higher than that.

Great.

All of those transactions have been done at least slightly above our original pro forma I frankly don't recall the exact pro forma number for '04.

We've seen in the fourth quarter a big run on gas.

Because NEPOOL is a gas on the margin market, that's meant the absolute value in power prices has gone up, that helps the Seabrook position.

I guess I would point out, we are not in the business of speculating on the short-term trend in gas prices.

I don't think we have any particular claim to fame.

So our approach has been to make sure that we hedge the risk that we have in the merchant position effectively.

So at this stage, I think through a combination of skill and truthfully, a little luck, we are just in an excellent position for '04 I'm also being signaled, the equivalent numbers for '05 are nearly 60%, and '06, close to 50%.

We've done well and we will continue to take our shots to get the right transactions done.

And again for '05, that was 60% and '06 it was 50%?

A little bit less.

High 50s for '05, and high 40s for '06.

I wanted to say congratulations to Lisa Kuzel as well.

Thank you.

The next question is from Thad Angstrom with Hamilton Investment Investments.

Just a follow-up, I didn't speak quickly enough last time.

For the 50/50 FPL Energy imputed numbers that you work with, what is the kind of beginning equity balance that I should be thinking about?

We're going to have to get back to you on that, if you could --

No problem.

-- call investor relations back, and we can work on the details.

No problem.

The last question is from Daniele Seitz with Salomon Smith Barney.

I was wondering if you could give us a hint as to your capex for 2004 since most of your construction will be tapering off?

It's for 2004, we will have, you know, continued strong spending at the utility.

We approximate 1.4, 1.5, we will be right in the mid-of the construction phase for manatee and Martin.

For FPL Energy it's difficult to say right now.

If I am completely consistent with what I articulated earlier, our program capex for FPL Energy for '04 today is, I suspect, less than 100 million.

There will be a little to be spent on the completion of the Marcus Hook facility which comes online in '04.

Since we have no programmed investments, other than that going into '04 at this stage, we have no commitments.

Uhm-hmm.

But then generally, would there still be [INAUDIBLE] unless you found an acquisition or something?

The first initiative for us that we will continue to pursue is building out the wind portfolio.

Uhm-hmm.

So we don't have any specific projects identified for 2004 at this stage, but we would certainly hope that the environment would be there that we could continue to build the wind portfolio.

But beyond that, yes, the next thing would probably be, you know, selective asset acquisitions.

Okay.

Thanks.

Thank you.

At this time, there are no questions in cue.

I'd like to thank everyone for joining us for our conference call, a reply of the web cast will be available on our website, www.fplgroup.com, and a taped replay of the conference call will also be available, beginning at 10:30 today.

To listen to the replay, dial (402)220-2306.

And the access code is 540-4542.

This replay will be available until 5:00 o'clock Eastern Time on January 31.

Again, thank you very much.