新世紀能源 (NEE) 2004 Q3 法說會逐字稿

Good day, everyone, and welcome to the FPL Group third quarter earnings conference call.

Today's conference is being recorded.

At this time, for opening remarks, I would like to turn the call over to the Director of Investor Relations, Mr. Bob Barrett.

Please go ahead, sir.

Good morning.

Welcome to our 2004 third quarter earnings conference call.

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

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

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

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

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

A discussion of factors that could cause actual results or events to vary is contained in the appendix herein.

Moray?

Thank you, Bob.

Good morning, everyone.

FPL Group's third quarter reflect the immediate impact of three hurricanes that struck FPL service territory during the quarter.

These storms resulted in lost revenue and other impacts. which we estimate amounted to about 15 cents per share, of which 14 cents are reflect in this quarter.

We will provide additional detail later in the call.

Excluding the effect of the hurricanes, FPL had a good quarter, with continued strong customer growth and good operational performance.

FPL Energy again delivered very strong earnings growth, even though the summer in our two major market areas, New England and Texas, was mild.

We continue to benefit from having added significantly to our wind energy portfolio last year, and our operational performance continued at high levels.

Looking forward, we remain on track for delivering the levels of performance we had previously communicated, excluding the impact of the three hurricanes.

We had previously indicated a range of EPS of 5.05 to 5.15; accordingly, we now expect to complete the year with EPS of $4.90 to $5.00, including the estimated 15-cent impact for the storms, but excluding the impact of nonqualifying hedges.

Through three quarters, the nonqualifying hedge category has contributed to a one-cent loss to reported earnings. [INAUDIBLE] before the market opens would generate additional losses in the the fourth quarter; but of course, we cannot predict what additional mark to market movements there will be for the remainder of the year.

As always, our projections assume normal weather for the balance of the year.

We also indicated last quarter that we were optimistic that we would be able to achieve earnings in 2005 at as least as good as the 5.05 to 5.15 we estimated for 2004.

The events of the third quarter have caused us to rethink our expectations for Florida Power & Light, as I will discuss later in the call, but we believe a reasonable range for 2005 EPS at this point is $5.00 to 5.20 As you all know, 2005 will be a challenging for FPL because of the introduction into service of 1900 megawatt new capacity in mid-year.

In addition, after the storms this season, we now also see a wider range of uncertainty in our expectations for revenue growth.

On the other hand, the recent extension of the wind production tax credits reinforces our expectation that FPL Energy will continue to show strong income growth.

I will elaborate on the [INAUDIBLE] level of expectations, as well as the major drivers of the changes from 2004 towards the end of the call.

Now let's look at the financial results for the third quarter.

In the 2004 third quarter, FPL Group's GAAP results were 320 million, or $1.76 per shire, compared to 331 million, or $1.86 per share, during the 2003 third quarter.

Let me remind you that after we released third quarter earnings last year, the financial accounting standards board rescinded the effective date of FAS 150 , accounting for certain financial instruments with characteristics of both liabilities and equity.

FPL Group's and FPL Energy's GAAP net income as originally reported reflected adoption of the new standard.

As a result of FAS-B's actions, FPL Group's and FPL Energy's GAAP net income increased by 8 million after tax, or .05 per share after the conference call.

FPL Group's adjusted 2004 third quarter net income was 326 million, or $1.79 per share, compared to 326 million, or $1.83 per share.

Our adjusted results exclude the mark to market effect of nonqualifying hedges.

Please refer to the appendix to this presentation for a reconciliation of GAAP results to adjusted earnings.

FPL Group's management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting results to the board of directors and to the company's employee incentive compensation plan.

FPL Group also uses earnings expressed in this fashion when communicating its earnings outlook to analysts and investors.

FPL Group management believes that adjusted earnings provides a more meaningful representation of FPL Group's fundamental earnings power.

Earnings at Florida Power & Light were 275 million in the 2004 third quarter, down slightly from 277 million a year ago, and the earnings per share contribution was $1.52 compared to $1.55 in 2003.

FPL's quarter was dominated by the impact of an extraordinary succession of three hurricanes, each of which did major damage in parts of service territory, causing extensive power outages.

Roughly 3/4 of our customers lost power during at least one storm, and many suffered direct impacts from all three.

In total, we experienced approximately 5.4 million customer outages.

Employees and customers alike suffered damage to homes and personal property, and businesses were closed or disrupted for extended periods.

From the second week in August until the -- until early October, virtually all activity at FPL was dedicated either to preparing for storms or restoring service in the wake of the damage and destruction caused by them.

We are proud of the achievements of all our people, and grateful for the support we have received from our contractors and from the many other utilities who came to our aid.

The principal short term financial of the storms is a loss of revenue, as customers were without service.

We can estimate the lost revenue impact from the number of customers without service each day, and normal usage rates per customer.

In addition, we typically will see a modest uptick in uncollectible accounts, as resources normally dedicated to collections are diverted to support storm restoration activities.

It's worth noting that roughly 3/4 of FPL's employees were assigned to storm duties at some point during the quarter, and many FPL Energy employees based in Florida also helped out in various logistics support roles.

Without this massive allocation of resources, we could not have restored power as quickly as we did.

I'll talk more about our restoration efforts in a moment.

Overall, we estimate that the three storms will reduce FPL's earnings for the year by approximately 27 million, or 15 cents per share.

Of this, 14 cents appears in this quarter's results, with the remaining penny likely to affect the fourth quarter.

Apart from the 14-cent impact, FPL's results were good.

Customer growth continued strong, either apart from the hurricanes was neutral, and underlying usage growth appears to have recovered from the unfavorable trend of first two quarters.

I should note that long-term weather statistics suggests that our 2004 experience is something like one in a 100-year event.

Turning to some of the more normal revenue drivers, growth in new customer accounts continued at a very rapid pace in the third quarter.

The average number of FPL customer accounts increased by 116,000, or 2.8% -- a faster pace of growth than we saw in the first two quarters of this yea,r and much faster than our long-term average of about 2%.

Customer accounts would have been around 120,000 if not for the loss of approximately 12,000 accounts immediately attributable to the recent hurricanes.

In terms of growth projections, we have previously indicate that we do expect growth to moderate somewhat.

In addition, we must now consider the potential impact that this hurricane season may have on future periods, which I will be talking about later in the call.

Overall, resale kilowatt hour sales grew 0.6%, despite the negative impact from the hurricanes.

Of this, 2.8% was due to customer growth.

We estimate the combined effect of the three hurricanes to have been about a negative 3.4%, with non-storm related weather impacts of negative 0.2%.

Underlying usage growth, mix, and all other effects netted to a positive 1.4%, which is much more in line with longer run trends than the levels reported earlier in the year.

It is important to note that our estimate of storm-related loss usage is necessarily simplistic, based on a combination of the expected average of daily usage per customer, and the number of customers without power for each day for each storm.

Trying to separate precisely the weather impact on the marketing during the days immediately before and after it's passage from normal summer weather is not productive.

For the 2004 third quarter, FPL's O&M expense, including amounts recovered through closes, was 323 million, up from 292 million in the 2003 third quarter.

Excluding the hurricanes, the primary drivers of the increase were nuclear maintenance and insurance.

Depreciation and amortization at FPL increased from 224 million in the third quarter 2003 to 227 in 2004, primarily due to more planted service.

Depreciation expense will continue to increase as we invest in generation and distribution expansion to support our revenue growth.

We expect that depreciation expense will grow modestly the middle of next year, when the expansions of Martin and Manatee come on line.

These projects will add about 1900 megawatts of generation, and are on schedule to be in service by mid-2005 at an expected cost of $1.1 billion.

To summarize, Florida Power & Light third quarter earnings per share were affected by the following: customer growth, positive 10 cents; storm impact, negative 14 cents; usage due to weather other than storms, negative 1 cent; underlying usage growth, mix and other, positive 6 cents; depreciation, negative 1 cent;

O&M, negative 6 cents; all other, including AFUDC and share dilution, positive 3 cents -- for a total 3-cent decline for the quarter.

Before leaving FPL, I would like to take a moment to discuss our storm restoration effort in a little more detail and explain the impact on our funded storm reserve.

Thanks to advances in weather forecasting, we can now expect in most cases to have good warning of the approach of a hurricane.

Our preparation begins approximately three days in advance of anticipated landfall.

Based on projections at that point, which are constantly updated thereafter, we estimate the likely impact on our system, and plan our restoration effort accordingly.

This planning includes allocating materials and supplies, calling on other utilities for assistance, selecting the location of staging areas to be used for the restoration effort, securing logistical support; and most importantly, preparing the allocation of restoration crews to areas likely to be affected.

As the storm moves through, we begin our restoration effort, recognizing that crews cannot safely work until winds have died down to no more than 35 miles an hour, which may take many hours.

Much initial restoration in less-damaged areas can be affected by switching power around outages, and our process is designed get the greatest number of customers back quickly, subject to the need to devote resources to critical customers like hospitals, fire stations and police stations.

As the restoration progresses, we relocate crews to work the most challenged areas, after dealing first with the easiest tasks.

At this point in the restoration effort, we may have 10 or more staging areas, like those shown here, to handle the daily flow of work.

Crews receive their daily work orders and new supplies here.

They also eat breakfast and dinner here.

The staging area is the hub of the local restoration effort, providing all logistical support to 500 or more crews.

Because of the nature of the restoration process, the typical restoration curve illustrated here, shows very rapid restoration early on, gradually slowing in productivity as our crews move from fixing problems affecting thousands to fixing a small cluster of customers or an individual service.

As you can see, we were able to restore about 90% of customers affected within a week.

The shape of the restoration curve, the total time to restore and the total cost are driven by three major factors: The nature and extent of the damage, the efficiency of the process, and the scale of resources that can be usefully applied to the restoration effort.

In general, we seek to allocate as large a scale of resources as we can, subject to limitations on how many crews we can draw in from other geographical areas, and how many we can usefully deploy in a particular local area.

This minimizes total restoration time.

In this respect, the enormous scope of Frances, which caused outages in every county that we serve, presented a special challenge, as there are practical limits to how many crews we can call upon from other utilities.

Our overall restoration performance in each of the three storms was good.

We significantly outperformed the Department of Energy projection for restoration times, and our benchmarking data shows that our competitive performance was excellent.

Let me turn now to the financial impact of the storms.

First and most obviously, each of the storms had a significant impact on our poles and wires infrastructure.

While in most cases we were able to restore service by installing new transformers and wire, there were areas of our territory that essentially had to be rebuilt.

While we have not completed the final accounting of all restoration costs for the three hurricanes, to date, we have accrued a total of approximately $650 million, recoverable from the storm reserve.

These exceed this value of the reserve by approximately $300 million.

After finalizing and auditing these number, we intend to seek recovery of the excess costs in a manner consistent with Florida Public Service Commission directors.

The PSC order of October 8th reiterated that prudently incurred restoration costs are recoverable.

The exact timing and manner of recovery have yet to be determined.

The second major impact of the storms was the loss of revenues due to customer outages and weather.

We estimate that our revenues were reduced by approximately 36 million in the third quarter.

We always expect to experience weather variability, and the third quarter usually contains more revenue variability than other quarters; however, the revenue lost in the storm was far greater than what we might normally expect.

Turning now the wholesale generation business.

FPL Energy's 2004 third quarter GAAP results was 61 million or 34 cents per share, compared to 63 million, or 35 cents per share in last year's third quarter.

FPL Energy's results, excluding the effect of nonqualifying hedges and the cumulative effect of adopting the accounting standard, was 67 million or 37 cents per share, compared to 58 million or 32 cents per share last year.

As in prior periods, we have provided in the appendix more detail on the balance sheet impact and expected future reversal of currently marked transactions.

As of 9-30, 2004 there was a net total of 24 million in derivative assets, representing gains that have been recorded and disclosed in the nonqualifying hedge category in prior periods, but which we believe are more usefully considered in the context of future periods' performance.

Other things equal, these gains will turn around in future periods.

If there were no new transactions and no movement in market places, we would expect 11 million to reverse in the fourth quarter, and the remainder in future years.

FPL Energy's 2004 third quarter again showed performance, with growth in adjusted earnings of 16%.

New projects added 3 cents per share, with strong contributions from our new wind portfolio, being partly offset by losses from Blythe, a combined cycle gas merchant project located in California that came into service in December of 2003.

Earnings from existing assets were up 8 cents per share.Results benefited from the commencement of the contracts of the remaining 50% of the capacity at Calhoun peaking facility in Alabama, as well as from improved performance in ERCOT.

We were pleased with the performance both in ERCOT and in NEPOOL, where earnings were flat with last year, as neither region experience anything approaching a normal summer, with cooling degree days being 10% below normal.

Our wind portfolio saw fairly typical resource conditions, with the portfolio wind index averaging in at 101, as indicated in the appendix.

Asset optimization and trading activities were down 1-cent per share compared with last year, and there were no contributions from development and asset restructuring activities this quarter, producing a comparison of negative 2 cents versus last year.

Higher interest expense due to the expansion of the asset base since the third quarter of 2003 negatively affected results by 3 cents per share.

All other factors netted to zero.

I would like now to update you on our hedging progress.

I would encourage you to access the slides that are available available on our website, www.fplgroup.com, under the investor section, since I will not review every number on the slide.

These slides were also e-mailed to our knelt distribution list with the press release.

As of the end of to the third quarter, we now have 74% of our 2005 available capacity hedged, which translates into more than 85% of our expected gross margin, assuming that remaining open positions were marked to current market forward curves.

During our second quarter call, we indicated that we did not expect to add greatly to our hedges unless market conditions were unusually favorable.

For the last couple of years, the summer has not proven to be a particularly good time to add to hedges; nevertheless, during the third quarter, we have increased our 2005 megawatt hedge in ERCOT from 52% at the end of the second quarter to 69% at the end of the third quarter.

We saw prices in the north zone of ERCOT offer good opportunities at times during the third quarter, and we were able to take advantage of this.

I should again remind you that our "Other" category in 2005 reflects the megawatts of the Marcus Hooks facility, but as is our normal practice, we do not expect to execute significant hedges against this asset until it is fully tested and operational.

As a result of our success with our hedging program, we are now essentially at our target for going into 2005.

Consequently, we would not expect to increase the overall hedge position greatly in the fourth. quarter.

However, if attractive opportunities present themselves, we are still well positioned to take advantage of them.

In addition to our progress for 2005 hedging, we continue to layer in some hedges for 2006 and 2007 as opportunities present themselves.

The roll-off of some of the early Seabrook hedges during this period provides us additional upside at current market prices, as we indicated during the second quarter call.

Our wind development efforts have continued to move forward, and we were delighted to see Congress pass and the President sign into law the extension of the Production Tax Credit program which had expired at the end of 2003.

The program now runs through the end of 2005.

We have several projects ready to go, including the 106.5 megawatt Oklahoma project announced earlier this year, and the 114 megawatt Callahan project in Texas announced earlier this week, and we have released construction orders for approximately 240 megawatts of capacity already.

Because of the late date of the PTC extension, we will be limited in how much capacity we can install in 2004, but we now expect to add 250 to 750 megawatts by the end of 2005.

To summarize the 2004 third quarter: FPL contributed $1.52, FPL Energy contributed 37 cents, and Corporate and Other contributed a negative 10 cents.

That is a total of $1.79, compared to $1.83 in the 2003 third quarter on an adjusted basis.

The Corporate and Other category was negatively impacted by a one-cent loss at FPL FiberNet, with the remainder being mostly higher interest expense.

We expect FPL FiberNet to be slightly diluted to earning this year, while continuing to throw off modestly positive cash flow.

To wrap up 2004, we continue on-track for delivering the levels of performance we had previously projected, excluding the impact of the three hurricanes.

We now expect to complete the year with earnings per share of 4.90 to $5.00, including the estimated 15-cent impact from the storm.

We expect contributions from Florida Power & Light of 4.10 to 4.15, equivalent to the 4.25 to 4.30 pre-hurricane impact that we had previously laid out, for FPL Energy of $1.15 to $1.25, and a drag from Corporate and Other of 35 to 40 cents per share.

Our expectations continue to assume normal weather for the balance of the year.

Also as a reminder, our outlook always excludes the effect of adopting new accounting standards, as well as the mark to market effect of non-qualifying hedges, neither of which can be determined at the time.

Turning now to the outlook for 2005.

You will recall that in our last earnings call, we gave a general indication of our expectation that 2005 EPS would be better than 2004, notwithstanding the obvious challenges of the effect of new generation at FPL and share dilution at FPL Group.

While we still believe that this will be the case and are setting internal targets accordingly, we have to acknowledge that there is now a much greater range of uncertainty around next year's earnings at FPL than we would normally expect.

We simply do not know what impact this extraordinary hurricane season may have on short term revenue growth.

And of course, revenue growth at FPL is the biggest single driver of earnings growth overall for the group.

We feel very confident in the prospect for FPL Energy next year.

Our wind development efforts are very much on track and our financial strength is excellent, but the near term outlook at FPL is much more uncertain.

Overall, we're setting out the following ranges: At FPL, 3.95 to 4.10; at FPL Energy, $1.30 to $1.45; at Corporate and Other, a drag of 30 to 35 cents per share.

Together, these suggest a range for FPL Group EPS of $5.00 to 5.20.

As always, these exclude the effect of adopting new accounting standards, as well as the mark to market effect of non-qualifying hedges, neither of which can be determined at this time.

Let me remind you also that the starting point for our expectations on the FPL Energy side is always our current contractual commitments, coupled with marking the merchant component of the portfolio to market, based upon current forward curves.

Our baseline expectations of course assume normal weather, both at the utility and FPL Energy, and operating performance consistent with our historical levels.

Our chief area of uncertainty is the impact that this hurricane season may have on short term growth at FPL.

We remain very confident that over the medium and longer term, the Florida economy will continue its well established trend of growth, as the economic and demographic drivers remain as before.

Florida continues to be an attractive place place to live and to conduct business.

It is increasingly a hub for trade and finance related to Latin America and the Caribbean Basin, and its economy continues to diversify from its historical roots in agriculture and tourism.

We have reexamined FPL's history after Hurricane Andrew, and can see no strong evidence of a significant downturn in customer growth.

However, we recognize that this is not necessarily a good guide to what we may experience next year after an unprecedented and obviously well-publicized hurricane season.

We know that the national media do not always present a balanced picture of events in Florida; however, we are well aware that the state is vibrant, and very much alive and kicking.

We are also aware that some people in other parts of the country may not have an impression of the reality here.

For all these reasons, we are approaching 2005 with a degree of caution.

Our baseline expectations at FPL do call for a slower rate of customer growth than in recent year, and the range is wider also.

FPL also will bring into service 1900 megawatts of new capacity at our Martin and Manatee sites.

These these projects, despite challenges from hurricanes, remain on track for their June 1st, 2005 in-service dates.

A competitive RFP process established that these were the lowest cost sources of new capacity; but in the short term, they clearly will pressure profitability.

The overall effect next year, taking into account depreciation, interest expense and the reduction in AFUDC once they enter service, will be a drag of 15 to 17 cents per share.

Another item that will negatively affect next year is the run off of the pension transition credit.

This amounts to approximately 8 cents per share, of which 6 cents is at FPL.

While this has no cash impact, it is a drag on earnings growth.

We project O&M, excluding the pension credit, to grow in the 1.5 to 3% range, which will negatively impact EPS by 6 to 12 cents per share.

The existing capital expenditure plans will increase depreciation expense by 4 to 6 cents.

Finally, all other factors, including share dilution, AFUDC, interest and property taxes will negatively impact results by 13 to 17 cents per share.

Together, these drivers suggest at EPS range of 3.95 to 4.10 for FPL in 2005.

Comparatively speaking, we see a clearer picture on the FPL Energy side.

First, 2004 to date has been a slightly below average year overall for wind resource, though better than last year.

Returning to average conditions should add four to five cents per share.

Normalizing for the impact of a power and gas restructuring contract and the sale of Bastrop earlier this year will impact earnings by a negative 1 cent.

Next, with the extension of PTCs through December of 2005, we expect to be able to add between 250 and 750 megawatts of new wind capacitity.

Depending on exact timing, this should add 11 to 17% to earnings.

Third, a spring refueling outage at Seabrook, which will be partially offset by the planned net-72 megawatt uprate will reduce results by 3 to 5 cents.

Fourth, certain contract restructurings previously disclosed will have ongoing positive effects, and for 2005 this will add about six to eight cents.

We also expect new restructuring activities to positively impact results by 5 to 8 cents.

Partly offsetting these will be increases in interest expense, reducing the growth in earnings by between 14 and 20 cents.

A variety of the other smaller items should at about 6 to 11 cents per share.

Putting all of these factors together suggests a reasonable range next year of $1.30 to $1.45 per share.

As always, the variation in the drivers just listed do not form the only sources of potential variability of future result.

We have included in the appendix a slide giving rough ranges for some of the major drivers of variability, of which wind resource natural variability is significantly the largest.

Overall ,we are not anticipating dramatic changes in spark spreads next year.

In fact, we are assuming that the market driven performance of the existing portfolio will be roughly similar to this year.

As such, a comment on our gas fired merchant assets is warranted.

We have said for some time that these assets are generally cash positive, while a drag on earning.

Then is relevant for two reasons.

First, these projects have real economic value when evaluated on a discounted cash flow basis.

However, because they currently are a drag on book earnings, simple P/E valuation implies negative equity value.

We believe this is fundamentally incorrect.

Secondly, as merchant markets return to equilibrium, the margins on these assets will expand.

This upside essentially is a free option, since the assets are already paid for, and options always have positive value.

We estimate for 2005 that the gas fired merchant assets will reduce earnings per share by 30 to 40 cents.

To summarize, 2005 will be challenging, but we remain optimistic that we will provide earnings growth over 2004.

Our focus on fundamentals, emphasizing cost competitiveness, high-quality, reliable service, operational excellence and a strong balance sheet continues to serve us well.

We expect good revenue growth at Florida Power & Light, but we will be challenged by the addition of the Martin and Manatee projections.

At FPL Energy, we expect to benefit from a strong build out of new wind projects, an uprate of capacitity at Seabrook partially offset by the refueling outage, and a modest drag from the Marcus Hook new merchant fossil unit and increased interest.

At Corporate, we anticipate modest earnings dilution, but positive cash flow from FiberNet, coupled with moderately higher interest expense.

We expect to issue about 9.3 million shares in association with the conversion of the equity units in February; and dependent upon cash flow and investment opportunities, we expect to be able to repurchase some common stock in 2005.

Altogether, these effects should lead to moderate growth in EPS.

We continue to enjoy a very strong financial position, and while we have been disappointed so far in the asset acquisition market, we will maintain our patient and disciplined approach, which will mean additional upside if we are successful.

And now, we will be happy to answer your questions.

Thank you.

Thank you, the and answer session will be held electronically today.

If you would like to ask a question, please do so by pressing the star key followed by the digit 1 on your touch-tone telephone.

If you are using a speakerphone, we do ask that you pick up your handset, or to check your mute function to make sure that your signal can reach our equipment.

We do ask that in the interest of time, that you limit yourself to one question and one follow-up question.

Once again, that is star 1 on your touch-tone telephone if you do have any questions.

And we'll pause for just a moment to give everyone the opportunity to signal for questions.

From SAC Capital, we will hear from Ashar Khan.

Hi, good morning, Moray.

Good morning, Ashar.

Moray, could I just -- going back to what you said in the end.

You said you would be issuing 9.3.

If I saw on your slide, you said dilution would be 3 to 4 percent -- that's about nearly 6 million shares.

So can we assume for next year that you're buying back about 2 or 3 million shares, as you've given us these evenings guidance for 2005?

I think I put a somewhat larger range about that.

It's not only the number, but also the timing of repurchase.

The biggest uncertainty here is really what the cash flow profile ends up looking like for next year, which is, frankly, a little for complimented than we would normally have.

And let me explain why.

First of all, we have the tax implications of the hurricane losses, which imply some carrybacks, and sort of short term cash infusions that partially offsets the obvious cash costs and the carrying costs of the hurricane under recoveries.

We don't know what the exact timing of recovery of the under recovered storm balances will be, so there's a lot of uncertainty there.

We've also got the normal uncertainty about the fuel cost position at FPL, so all of those present a greater degree of uncertainty in cash flow profile than we would normally have, which could well affect the timing of anything that we might do.

And then, in addition, the biggest single driver is really what we end up spending and when we spend it in terms of CapEx or the wind program.

Obviously, 250 to 750 megawatt range is the difference between roughly 250 million and 750 million of capital, so depending where we are and when we are, that will have a big effect on any repurchase plans.

So the number that you cited is certainly one reasonable possibility, but I would put a somewhat wider range around that.

I think it's extremely unlikely that we will repurchase all 9 million, however.

Okay, and just based -- if I can have my follow-up question -- just based that you've already announced 240 on the wind, why shouldn't you be hitting the higher end of the 750, just looking at the year?

I'm just trying to say shouldn't you be coming at the more higher end of the range?

I think we have a very good shot to be at the higher end of the range.

Given what we've just announced, I think we're in pretty good shape for the low end of the range at this stage.

So -- but exactly when those megawatts may come in is still to be determined.

I think to realistically, if we're going to be at the 750 megawatt range -- end of the range -- a good portion of those megawatts will be in late in the year, so I think we have some things that are ready to go, that hopefully should come on line in the first quarter or second quarter, but if we're to get to the 750, it's probably going to be the latter part of the year,.

But we feel very good about the development pipeline.

As we've indicated before, we have a very strong pipeline -- probably the strongest development pipeline that we've had at this equivalent point in going into a year.

Thank you very much.

Up next we'll hear from Greg Gordon with Smith Barney.

Good morning.

Good morning.

How much of your restoration costs would you estimate is going to be new capital for replacing destroyed transmission and distribution?

Typically in these -- it depends on the type of storm, first, but typically in these storms, you would expect to see somewhere in the 60 to 70% range.

The new capital.

Do you expect that all to be spent before year end, or is some of that going to roll over into first quarter and second quarter next year?

Well, essentially the money has been spent, because what we're talking about the is restoration effort, so it's man hours in effort replacing equipment.

So the work has already been done, the commitments have been made.

We don't have, in many cases, all of the the invoices from suppliers and utility partners yet, so over the next couple of months, we'll be going through and scrubbing all of those.

That's essentially new rate base, right?

I mean, that's under appreciated assets that you put in to replace assets that had pretty long lives?

No, that would have no effect on rate base.

The -- these are simply the costs of -- associated with getting the system back to its previously -- previous operational state, so that the recoveries essentially are like recovering insurance proceeds.

The model for the storm fund has always been the norm of that insurance program.

And then on FPLE, I think you said your guidance is premised on the unhedged portion of the capacity for '05, in current marks to current market?

That's correct.

In 2006, you also said Seabrook had some legacy hedges that come off.

Could you refresh our memory on how much comes off, and at what those hedges are currently at?

Yeah, the big effect is actually in 2007.

Seabrook is pretty substantially hedged through 2006 with some older hedges.

I don't quite recall what the numbers are -- I'll ask Jim to comment in a moment.

But a lot of those hedges drop off at the end of 2006, and we -- as we have been starting to layer in hedges for 2007, they have been substantially higher prices.

So are you selling units contingent, or are you selling firm?

These are firm.

Yeah, the -- for example, the 2005 hedges were around the $40 around the clock range, and current prices, or current forward prices, are in the high 50s, low 60s, I believe.

But you're not selling at a discount to that curve to get unit contingent contracts, you're --

No, no, that's one of the advantages of having the portfolio of assets in New England, as we were always able to get the most out of the them and so forth.

Jim, did you want to comment on that?

Yeah, only that I think as we said the second quarter call that the delta between '04 and '07 at Seabrook, if you just mark what we have already hedged, as well as the current markets for '07, it is somewhere between 80 and 90 million dollars.

And that include the impact of the upright.

Up next from Morgan Stanley, we'll hear from Carrie Stevens.

Hi, two questions.

First thing on FPL Energy, it looks like quite a bit of the group between '04 and '05 is coming from contract restructuring, and then "Other".

I believe this year you haven't had that much success with the restructuring, so I'm curious why you think that's going to improve next year, and can you give a little bit better definition to what's included in this 6 to 11 cents of "Other"?

On the contract, I would just, you know, give the hypothesis that we haven't had much success this year.

We had very large restructuring early in the year.

In addition, -- let me just distinguish.

There are two lines there on the chart.

One is kind of the ongoing effects of some prior restructurings.

Yes, I understand.

As we've always indicated, each of these things is a different -- some of them have significant up front impact, some of them have more significant ongoing impact.

So in this case, this is really the result of sort of freeing up capacity on one of the projects, which has a good ongoing impact.

The second item is sort of additional restructuring opportunities.

That's actually as a proportion of the total, very much less than we have, on average, you know, delivered from those kinds of activities over the last you know, two, three, four, five years.

And it's fundamentally based on the activities that the team is working on.

As we've also previously indicated, you work on a number of these things, and some of them take a long time to progress, but we feel pretty good that we will have some positive impact from that set of activities, as we have in just about every prior year.

The "All Other" line is line is really a hodgepodge of different little things -- including, for example, in 2003 and 2004, some of the wind assets in West Texas have been affected by transmission constraints, which go a way in '05, as additional transmission is being constructed, so there's a little pick up there.

There's some expected pick ups from some of the partnership projects, where we had issues with partners in prior years that have been resolved, or are likely to be resolved, that we think will come into that next year.

It's just a variety of small things.

All right, and then for a follow-up, given the higher CapEx for wind and possibly the short term need to finance at the utility, I was wondering if you could just comment on external financing needs in 2005, and what -- you know, what is the thinking about how you would kind of fund some of these gaps, especially considering you're thinking about buying back stock?

Sure.

The -- if we hold aside some of the kind of short term complications of the hurricane and its tax impacts, and things like that, just look at the basics for next year, we're talking about, you know, somewhere in the mid-900s of income, maybe 1250 of depreciation, 400 to 500 of normal deferred income tax and other things, so giving us operating cash flow somewhere in the 2.5 to 2.7 billion range, let's say.

Against that, let's take the middle of the wind range, say 500 megawatts, you've got 1.6 billion of CapEx at FPL, maybe 500 million at FPL Energy, so that gets you 2.1.

You take the dividend as 500 million.

So you can basically see that on a kind of ongoing basis, we're a free cash flow wash at that point.

So that basically means that from a cash flow perspective, cash to -- for repurchasing has to come from existing assets.

You will recall that we have had significant success with raising limited recourse or nonrecourse financing on the wind assets.

We have very substantial portions of the wind portfolio that have not been levered yet; and obviously, we've got new assets coming in to -- that will be coming in in 2005.

So we are definitely looking to repeat some of the success we've had with the wind financing, and would certainly look for that to free up the majority of the cash for repurchases.

Moving on from Bear Wagner, we'll here from Andy Levy.

Mr. Levy, your line is open.

Hearing no response, we'll move on to Michael Goldenberg with Luminous Management.

Good morning, guys.

Good morning.

Hey, I don't know if you guys have touched upon this, but A, you can get us the timing for your rate case, and B, if there is any assumptions regarding the rate case in 2005 guidance.

I'll ask Armando to comment in a minute, but let me just say that pretty much everything at FPL -- no, not pretty much everything.

Everything at FPL has been affected by the hurricane.

So virtually everything that we do we are in catchup mode right now, and preparation for rate case is no different than that.

So I would say first of all that everything has been pushed a back a little bit.

I don't think there's any fundamental difference in -- relative to what we've talked about the past, but I'll let Armando comment on that.

The existing rate agreement expires at the end of '05, and so we would be looking at going through rate case proceedings sometime in the second, third quarter of '05, so that the new rates would go into effect at the beginning of '06.

Now, a lot of the drivers of the rate case will be the additional plant -- the 1900 megawatts that Moray talked about, 1.1 billion going into the rate base -- and then we'll have some additional O&M items, principally fossil, nuclear, and employee-related costs.

Having said that, we still have not ruled out the possibility of -- at some sort of negotiated agreement, albeit it maybe a very difficult one, but certainly something that is an alternative that we plan to pursue in parallel.

Just to follow up, a you don't assume any rate changes because you don't assume a settlement, and basically if there is no settlement, the new rates begin -- come into effect January '06, so there's absolutely no assumption on the rate case?

Right, even if we had a rate settlement, it would not go into effect until the beginning of '06.

And going back to Moray's point about the storm delaying things, when would you expect to file now?

We haven't really decided that.

We had a certain time line we were following.

We're kind of revisiting it based on the impacts of the hurricane.

Having said that we our -- we think we still would be in a position to have a rate case that would allow us to have new rates in '06, but the exact timing is still -- we're still kind of, frankly, reviewing it right now.

Yeah, I think -- I mean I've warned people before that we would -- even before the hurricanes, we fully expected to take advantage of all of the time available to us, and therefore it was quite likely that we would not have not have a resolution until late next year.

I would have to say that that comment now needs to be emphasized.

I think all things considered, we are a little bit behind where we had hoped to be, but we still have the, you know, the value of time here, so I think it's more important to get the best outcome that we can, and if that takes us going up to the -- if necessary, the fourth quarter of next year, then that's what we'll do.

Moving on, from Merrill Lynch, we'll here from Steve Fleischman.

Yeah, hi, Moray.

Good morning, Steve.

Thank you for providing more detail on the cash plant impacts, first of all.

Secondly, could you give us the trailing ROE at the utility, and since you've now given a '05 kind of forecast range for the utility, can you give us any sense of, you know, on that forecast range and on the higher rate base with the plants, where the ROE roughly settles out?

Yeah, for '04, we're going to come in, you know, in the mid-12s, 12.5, 12.6.

For '05, based on the ranges we've thrown out here, we would be in the mid-11s.

And obviously, on a constant rate basis -- not rate base -- constant rate basis in '06, with the full year effect in Martin and Manatee, that would, other things equal, decline somewhat.

I haven't looked that that in a straight line, but --

Okay, when you said mid-11in '05, is that kind of an average rate base or is that including kind of full rate basing on those plants?

No, that -- as reported, that's as we would report on a regulatory basis, which would effectively mean you would are half a year of Martin and Manatee in there, which is why I would say on a full year basis it would be [INAUDIBLE] 11 or slightly below 11.

Okay, so the ROE has come down dramatically.

Yes.

Going into the [INAUDIBLE].

Absolutely.

Okay.

And then one follow-up question with respect to this kind of hurricane impact thought process, you mentioned the history has been that you haven't really had a negative impact.

Could you -- since Hurricane Andrew was a pretty high-profile one, can you just remind us what happened in the year or so after Hurricane Andrew?

Well, actually Hurricane Andrew hit in '92, September of '92. '92 actually saw a significant decrease in customer growth relative to '91, but that preceded Andrew, and was much more driven, we think, by recession. '93 -- I think we -- I want to say both '92 and '93 were at about the 70,000 new customer level.

Maybe a little more, maybe a little less.

And then after that, through the '90s, the customer growth levels gradually picked up again.

So it's difficult to argue that there was any immediate -- hang on, I've just been given the numbers.

The '92 customer growth was actually 55,000, '93 was 69,000, '94,000 was 72,000, then it was in the 60,000s for the middle part of the decade.

So you can see, it's hard to argue that on that basis, for that one event, there was much of an impact.

I think what causes us some hesitation is simply that as high-profile as Andrew was, it still only affected a relatively small part of the state.

And just judging by some of the comments that we get from our friends who live in other parts of the country, the perception, at least, of this year's hurricane season and what it implies about Florida seems to be a little more extreme, and much more extreme -- that's actually warranted by the facts.

So all of that to us says, I think, the best thing is there's just more uncertainty about revenue growth next year.

In addition to just impact on customer growth, obviously, there's impact on usage, economic conditions, and people are, you know, rebuilding,.

Is that going to have an impact on the -- you know, their spending patterns, things like that, which we just don't know about.

So I think the best think to say is we're a little uncertain -- more uncertain about the short term, but still feel good about the medium to long term growth.

Up next from Hamilton Investments we'll hear from Scot Engstrom.

I just wanted to follow up on that word uncertain, as well.

I guess there's two ways to -- when you say uncertain, two ways to think about it.

Does it mean -- does uncertain mean that there's downside to kind of the forecast you've given us for FPL, or you've maybe chosen some conservative forecast, and there's just in your mind an equal amount of upside as down side, and is the uncertainty specifically related to customer growth, or are there other things that are encompassed in that uncertainty?

To the latter point, the uncertainty is more than just customer growth.

I would say it's overall revenue growth -- customer usage, as well as customer growth.

In the range that we have shown here in the chart, the low end of the range is, I believe, about 1.9% -- equivalent to about 1.9% on weather normalized basis -- and the high end of the range is, you know, let's say probably the high 2s.

That is lower than we have, you know, seen over the past few years.

But it's also a wider range going into a year than we would typically feel, you know, pretty confident in.

So I think it's a little bit of both.

We have taken down our base expectations, so is there -- is there a case that, you know, if everything proceeds at the same customer growth level and usage level -- usage growth levels that we've seen in the past few years that we'll be above the top end of that range?

Absolutely.

But as I say, we just are a little less certain about what the revenue growth may be.

Okay.

And then just couple of drill down questions on Martin and Manatee.

The -- with 1.1 billion coming in of new assets kind of mid-year next year, is it roughly in the range of 15 to20 million of new depreciation?

Does that sound right for half year impact?

Let's see.

It's about 27 million.

Okay, and then the associated capitalized interest that goes away next year.

Realizing, again, it's going to be sort of a half year impact.

Yeah, the interest component at AFUDC components is like a couple of pennies per share, and the equity. -- let me be more precise.

We said, you know, about 15 to 17 cents a share.

Of that, let's take the mid-point, assume it was 16 and add about 9 is depreciation. 2 is the debt side of of the AFUDC -- capitalized interest -- and 5 is the equity side of AFUDC -- those are in order of magnitude -- plus or minus a penny.

Up next from Maxcore Financial, we'll hear from Danielle Seitz.

Most of my questions have been answered.

I just was wondering for the rate case for the presentation of the type of revenues you are going to be needing in the rate case, do you assume somewhere around between 150 and 200 million of rate increases that you will need to cover the cost of the declines?

We have not -- as far as figuring out what the full revenue requirement would be, and I think it would be dangerous for me to, you know, start to --

I was just was isolating that.

And also, as far as the insurance, could you explain how you are recovering that and rebuilding the insurance reserves, and if it's going to -- it is going to be part of your rate case, I am assuming.

Did you have a sense of just for that alone [INAUDIBLE]

Yeah, let me make sure everybody understands the distinction between two components here.

As we indicated, approximately 300 million of underrecovered cost have already been incurred.

We will be applying for recovery in a time and manner yet to be determined for those pieces.

That's fully consistent with the existing rate stipulation.

Then the second component is, what do we do about rebuilding the storm reserve, which was at about 350 million prior to these hurricanes.

On that subject, we frankly have not come to a conclusion yet.

We're looking at number of different alternatives.

Not surprisingly, there are other companies who are facing the same sort of issues, so I think there are a variety of alternatives, but it certainly could be one thing which is included and rolled into the rate case, but it could be something that we treat separately.

Okay.

And just not to beat it to death, just a quick question.

Customer growth per year, is it 30 to 40 cents, or is it more than that, that you usually account for on the normal basis -- increasing EPS?

I'm not sure -- offhand, I'm not sure.

We've got 24 to 34 cents of total revenue growth.

I honestly don't know of that how much is the customer growth portion.

Moving on from Wachovia Capital, we'll hear from David Rumhouse.

My questions have been answered.

Thanks.

From Prudential, we'll hear are here [INAUDIBLE].

Good morning, gentlemen.

Good morning, [INAUDIBLE]

Concerning customer growth, could you guys remind us what the seasonal pattern of people moving to Florida is?

Like how late in '05 would we get a sense of what the hurricanes have actually done to '05

I think we'll get a sense all the way through.

The seasonal pattern is not kind of what it once was, with a lot of the influx being nowadays families with parents in their, you know, middle years, maximum income earnings years.

You've got a lot of people who come down in the summer in order to be ready for the school year, but you also have people who come down, you know, pretty much all the way through the year.

So I think it's just something we're going to have to be monitoring month by month; but at the moment, because I can't say that there would be any particular seasonal pattern that would kind of tell us one way or the other.

Okay.

Okay.

Thanks.

And then on a slightly unrelated question to that, on the restructuring business, how is that business impacted by commodity prices?

If we stay in this high price environment for gas and as that affects power, does that increase the willingness of counter parties to do these deals, or is it pretty indifferent?

Obviously, it depends on the specific situation, but in many cases, it makes the deal more attractive to both parties, so it makes counter parties more willing to do it, because there's more value to be opened up.

But it depends both on, you know, gas price prices and spark spreads, the balance between on peak and off peak, so it depends very much which market you're in.

It's hard to give a definite answer.

They can be -- some it can make it worse.

I would say in general, it probably gives a little stimulus to it.

Okay.

Great.

Thank you.

And we'll take our final 67 from Zach Schreiber with Duquesne Capital.

Hi, Moray. [INAUDIBLE] Just following up on the restructuring business at FPLE.

You spoke about sort of year over year.

Is there any way we could take a step back and sort of just remind us as to what the base level for that business is embedded in the '03 for FPLE?

The base level in '03?

Yes, sir.

I could get you that number.

I don't recall it off hand.

I'd have to go look at what specific deals were done in '03.

You know, looking back, it has averaged in sort of the 10 to 15% of FPL Energy's net income for the last few years.

We said, I think, by the last year or the year before, that we saw it sort of gradually declining as a percentage, just because the other stuff was getting bigger.

But there continue to be opportunities there to work on specific projects, either of our own or third party.

Got it.

Moray, the only thing I would add to that is what's laid out on the slide as the impact of previous restructurings is fundamentally improved earnings at the assets where the contracts were restructured, so really -- really what that represents is the benefit to the assets an a going forward basis of those contract restructurings.

Got it.

And can you just talk about where we are on the regulatory front?

There's been, you know, obviously, some legislative efforts in the spring, now hearing about some single issue, legislative issue -- or legislative items in terms of securitization of the storm fund?

I think you mentioned to us last spring that while this legislation didn't pass, it was helpful in kind of getting a dialogue going.

I mean, how does all of that tie into these ongoing sort of regulatory processes, and is that something that we ought to be expecting to see something, you know, in '05?

Let me provide some sort of observations.

First of the all, it is likely that we will have a special legislative session in December.

That will be heavily focused for the state on hurricane and related issues; including, most importantly impact on revenue.

But there's a lot of the issues associated with you know, how to sort of rebuild the state's reputation, state tourism, things like that.

Then we'll have the regular legislative session in March and April of next year.

You mentioned securitization -- that is one of the options that we're definitely looking at for reestablishing, you know, the base value of the storm fund, or an appropriate base value of the storm fund -- or an appropriate base value of the storm fund.

It has pluses and minuses.

I don't know that we're far enough to know whether we like it or don't like it right now.

So I think either in the special legislative session, or more likely in the regular legislative session, it's certainly conceivable that something affecting our industry could come up, although I would say it's probably less likely than we had thought prior to the hurricanes, just because the hurricanes have introduced so many other issues that the legislature is going to need to address.

So again, I wouldn't rule out the possibility of some kind of legislatively-enacted, you know, rate settlement, if you like, affecting '06, and beyond, but I also wouldn't put it very high up on the list.

And that appears to be all the question we do have.

I'll turn the conference back to you, Mr. Barrett, for any closing remarks.

Thank you, and this concludes our call for this morning.

Thank you for joining us.

That does conclude our teleconference for today.

We'd like to thank you all for your participation.

You may now all disconnect.