新世紀能源 (NEE) 2004 Q4 法說會逐字稿

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

Today's conference is being recorded.

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

Please go ahead, sir.

Welcome to our -- (technical difficulty) -- 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 2004 as a whole.

Lew 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 comments, our senior management team will be available to take your questions.

Before I turn it over to Moray, let me remind you that this earnings discussion is based on unaudited financial information and 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.

2004 was a challenging year for FPL Group, dominated by the impact of an extraordinary hurricane season here in Florida.

Despite the handicaps imposed by three devastating storms, which essentially nullified a normal year of financial growth at Florida Power & Light, we nevertheless were able to deliver solid financial performance overall although obviously not as good as we had expected in the beginning of the year.

That this is true is due largely to the outstanding performance at FPL Energy.

While perhaps not obvious from the GAAP segment reported results, overall we believe FPL Energy had its best year ever.

I shall have more to say about the divergence between our GAAP reported results and management's view of the economic performance of FPL Energy later in the call.

Excluding the impact of the hurricanes, FPL Group delivered earnings for the year consistent with the range of expectations that we originally laid out for you in October of 2003.

Our reported results are complicated by the presence of several unusual items, which I will describe in more detail, but by and large the underlying business performance was consistent with our expectations.

Florida Power & Light continued to show strong customer growth and, with the exception of the hurricane period, it's normal level of outstanding operational performance.

In the rapid succession of three damaging tropical hurricanes that hit our service territory between mid-August and late September, Florida Power & Light faced challenges never before encountered by any U.S. utility.

No U.S. utility has ever had to restore power to so many customers before, and our overall restoration performance benchmarked very well against other, lesser challenges.

Good progress made on our generation expansion effort at FPL.

Construction at our Martin and Manatee plants is on track to deliver 1900 megawatts of new capacity by mid-2005, consistent with the plans approved by the PUC in 2002.

In addition, we received several important regulatory approvals for the addition of 1100 megawatts of natural gas-fired generation at our existing Turkey Point site.

If approved also by the governor and the Cabinet, we will begin construction later this year with a projected 2007 in-service date.

At FPL Energy, we saw the large wind program -- (technical difficulty) -- begin to contribute significantly to earnings and the performance of the merchant portfolio, while still unsatisfactory relative to our long-term expectations, improved noticeably despite the absence of significant summer weather in our two largest markets.

The reliability of the generation fleet overall reached its best level ever and our conservative approach to hedging saw us move into 2005 with roughly 85 percent of our expected gross margin hedged against commodity-price volatility.

All this was achieved despite a below-average wind resource year measured across the entire portfolio.

As we've noted before, the performance of the wind portfolio overall will vary from year-to-year simply due to the random natural variability in the -- (technical difficulty) -- the operating performance over wind turbine portfolio, however, was consistent with what we would have expected given the wind resource available.

We begin 2005 with a healthy wind-development pipeline and solid expectations for building our portfolio further.

At the Group level, 2004 saw the free cash flow profile shift to a positive 339 million and this was an important factor in the Board's decision to make a mid-year adjustment to our dividend.

Combined with the February increase, the June increase provided a 13 percent increase in the quarterly dividend.

Our dividend payout ratio and yields are now more in-line with some of our peers while still providing us financial flexibility to invest in profitable growth opportunities.

Additionally, we expanded and extended our credit facilities and we now have 3.5 billion in revolvers of which 2 billion is a 5-year term.

If there is one area in which we've been disappointed, it is the evolution of the market for asset acquisitions.

As you know, we had hoped to be able to add to FPL Energy's portfolio through acquisitions, but we continue to believe that, in general, the prices others have paid for transactions that we have reviewed do not meet our return criteria.

As we look ahead to potential acquisition opportunities, we will continue to be highly disciplined in our approach to capital deployment.

Before going any further, I want to alert you to the presence this quarter and therefore for the full year of several unusual items that are included both in GAAP and adjusted earnings.

At the FPL Group level, these items by chance offset.

However, they do have a significant impact on the reported contributions from each of the business segments, which you will want to be aware of.

The first and largest of these items is a charge to earnings associated with the restructuring of the Marcus Hook steam contract.

I will discuss this in more detail when I discuss FPL Energy's results.

The other items all have a positive impact on reported results.

The resolution of a variety of tax issues led to a gain recorded primarily in the corporate and other segment.

We also recorded the receipt of proceeds from the settlement of shareholder litigation.

Finally, FPL Energy received a portion of its long-outstanding claim related to the Karaha Bodas partnership.

I will break out the impact of each of these items in a moment but first, let's review the overall financial results for the fourth quarter and the full year.

In the fourth quarter of 2004, FPL Group's GAAP results were 173 million or 94 cents per share compared to 145 million or 81 cents per share during the 2003 fourth quarter.

FPL Group's adjusted 2004 fourth-quarter net income and EPS were 175 million and 95 cents respectively, compared with 133 million or 74 cents per share in 2003.

Our adjusted results exclude the mark-to-market effect of non-qualifying hedges.

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

FPL Group's management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and for 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 provide a more meaningful representation of FPL Group's fundamental earnings power.

For the full year, FPL Group's 2004 net income was 887 million, or 4.91 per share, compared to 890 million, or $5 per share in 2003.

Excluding the mark-to-market effect of non-qualifying hedges, FPL Group's 2004 adjusted earnings were 890 million, or 4.93 per share, compared to 871 million, or 4.89 per share in 2003.

Again, please refer to the appendix of the presentation for a reconciliation of GAAP results to adjusted earnings.

Having stated the overall results for the quarter and the year, let me now emphasize that included in these numbers are the following effects -- first, the Marcus Hook steam contract restructuring had an after-tax earnings impact of -26 cents per share.

This item is also included in our reported and adjusted segment results for FPL Energy.

The second item is income taxes and primarily relates to certain state tax benefits resulting from FPL Energy's growth throughout the United States.

This, as well as the resolution of other tax issues, have an after-tax earnings impact of positive 16 cents per share and are reflected in the reported and adjusted results for the corporate and other segment.

Third, the settlement of shareholder litigation resulted in an after-tax earnings impact of positive 7 cents per share and is reflected primarily in FPL O&M expense.

Immaterial amounts appear in the other segments.

Finally, FPL Energy received a portion of its claim related to the Karaha Bodas project partnership.

This item resulted in an after-tax earnings impact of positive 3 cents per share and is reflected in FPL Energy's earnings reported adjusted results.

As you can see, these items net out to 0 at the Group level but they have a significant impact on each of the segment results.

Earnings at Florida Power & Light were 164 million in the 2004 fourth quarter, or 90 cents per share, up from 122 million or 68 cents per share a year ago.

Included in the 2004 amount is the 7 cent benefit from the settlement of shareholder litigation.

For the full year, FPL earned net income in 2004 of 749 million or 4.14 per share compared to 2003 net income of 733 million or 4.12 per share.

Again, 2004 results include the positive 7 cent impact of the shareholder litigation.

Growth in new customer accounts continued at a strong pace in the fourth quarter.

The average number of FPL customer accounts increased by 94,000 or 2.3 percent.

This was somewhat below last year's fourth-quarter growth level but still very strong compared with historical levels.

Clearly, the hurricanes had a negative impact on customer growth, but we are optimistic that the effect will be moderate and not long-lived.

Turning to the full year, the average number of FPL customer accounts increased by 107,000 or 2.6 percent, a faster pace of growth than our long-term average of about 2 percent and more customers added in a single calendar year that at any time since the late 1980s.

We continue to believe that the medium to longer-term prospects for growth in our service territory remain good and therefore we must be prepared to continue our extensive investment program while remaining tactically flexible for the short term.

Overall, retail kilowatt-hour sales grew 2.2 percent during the quarter.

Of this, 2.3 percent was due to customer growth.

Usage growth associated with weather was down 2.3 percent quarter-over-quarter, as last year's fourth-quarter weather was slightly above normal while this year's was slightly below normal.

Underlying usage growth mix and all other effects netted to a positive 2.2 percent, which is much better than the levels reported in the first half of the year.

For the 2004 full year, retail kilowatt hour sales were down 0.2 percent, customer growth was a positive 2.6 percent, usage per customer was down 2.7 percent for the full year with a positive 0.5 percent associated with underlying usage growth and a negative 3.2 percent associated with weather-related usage.

Of the weather-related usage, only about a third was the impact of the hurricanes.

The remainder was simply unfavorable comparisons to a very strong 2003.

Excluding the hurricanes, 2004 was a slightly below normal weather year overall.

For the fourth quarter, FPL's 2004 O&M expense was 290 million, down from 350 million in the 2003 quarter.

Two factors account for the bulk of this difference, the favorable impact of the shareholder litigation settlement and certain reductions in O&M related to clauses.

As a reminder, O&M related to clauses has no impact on net income.

Apart from these two effects, there were smaller impacts associated with the timing of plant outages, improved workers' compensation experience, and certain legal expenses.

For the year, FPL's O&M expense was 1,228 million (ph), down from 1,250 million (ph) in 2003.

The major driver of the decrease was the receipt of funds associated with the shareholder litigation.

In addition, the absence of certain legal expenses benefited results.

We had indicated that we expected O&M per kilowatt hour to remain roughly flat in 2004 and excluding these items, this was in fact the case.

As expected, we continue to see pressure in the areas of nuclear maintenance, insurance and health care.

Looking forward, we see continued upward trends in nuclear maintenance, insurance and employee-related costs.

We also expect to see some increases in fossil generation O&M as a number of our older units go through major overalls.

We expect continued modest efficiency improvements in most other areas.

Depreciation and amortization at FPL decreased 3 million from 232 million in the fourth quarter of 2003 to 229 million in 2004, as a result of certain items being fully depreciated, quarter-over-quarter.

Our distribution and construction program was somewhat delayed by the impact of the hurricanes and plant and service growth was lower than it otherwise would have been.

However, for the full year, depreciation was higher by 17 million at 915 million compared with 898 million in 2003, reflecting continued growth of plant and service.

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

The latter half of 2005 will see the introduction of the Martin and Manatee expansions, which will affect depreciation more substantially as we have previously discussed.

To summarize, Florida Power & Light's fourth-quarter earnings per share were affected by the following -- customer growth, positive 6 cents; usage due to weather, excluding storms, negative 6 cents; storm impact, negative 1 cent; underlying usage growth, mix and other, positive 7 cents; depreciation, positive 1 cent; shareholder litigation, positive 7 cents; other O&M, positive 10 cents; and all other, a negative 2 cents for a total of 22 cents for the quarter.

For the year, Florida Power & Light's earnings per share were affected by the following -- customer growth, positive 31 cents; usage due to weather other than storms, negative 28 cents; storm impact, negative 15 cents; underlying usage growth, mix and other, positive 7 cents; depreciation, negative 6 cents; shareholder litigation, positive 7 cents;

O&M, positive 3 cents; and all other, positive 3 cents, for a total positive 2 cents at FPL for the year.

Before leaving FPL, I would like to update you on the status of our storm restoration costs.

As you know, the costs of restoring power in the wake of Charley, Frances and Jeanne significantly exceeded the pre-existing balance of our storm reserves.

At the time of the third-quarter earnings release, we projected that the total cost would be about 710 million.

This projection was based largely on estimates as invoices for the majority of the costs had not been received at that point.

We are now in a better position to say what the final costs will be.

As of year end 2004, we have accrued a total of 890 million.

Of this, approximately 93 percent is based on invoices received, although not all invoices have been finalized or audited.

A small portion represent estimates of the cost of work not yet performed but still needed to restore the system to its pre-hurricane condition.

The excess of the total accrued costs, 536 million, has been deferred.

On January 18, the Public Service Commission granted approval for FPL to begin collecting the under-recovery starting in mid-February, subject to refund pending the outcome of prudency (ph) hearings.

The PSC has also scheduled hearings for mid-April on the recovery of the storm costs, and these will be preceded by service hearings at various locations within our service territory.

Turning now to the wholesale generation business, FPL Energy's 2004 fourth-quarter reported results were negative 11 million compared to positive 38 million in last year's fourth quarter.

Adjusted earnings, which exclude the effect of non-qualifying hedges, were negative 9 million compared to positive 26 million last year.

For the full year, FPL Energy's reported earnings were 172 million or 95 cents per share, compared with 194 million or $1.09 in 2003.

Adjusted earnings were flat at 175 million or 97 cents per share compared with 98 cents last year -- as entire periods we provided in the appendix more detail on the balance sheet impact of expected future reversal of currently marked transactions.

As of 12-31-04, there was a net after-tax total of 22 million in derivative assets, representing gains that have been recorded in the non-qualifying hedges category of which we believe are more usefully considered in the context of future periods' performance.

Other things equal, these gains will turnaround in future periods.

If there were no new transactions and no movement in market prices, we would expect 17 million to reverse in 2005 and the remainder in future years.

The major driver of reported fourth-quarter results at FPL Energy was the Marcus Hook contract restructuring, which I will discuss in more detail in a moment.

The Marcus Hook restructuring and the Karaha Bodas payment reduced EPS by 23 cents.

All other factors increased FPL Energy's EPS contribution by 4 cents, reflecting good growth.

The fourth quarter is typically not large for FPL Energy and thus relatively small items can have a large impact on year-on-year comparisons.

Relative to the 2003 fourth quarter, new investments contributed 1 cent to EPS growth with contributions from new wind assets being partially offset by drag from a new merchant asset.

The contribution from the existing portfolio increased by 11 cents, primarily a consequence of not having a refueling outage at Seabrook this year as well as improvements among our older assets associated with prior contract restructurings.

This was partly offset by weaker contribution from the wind portfolio, owing to decreased wind resource, which I will detail in a moment.

Asset optimization trading activities were essentially flat.

Interest expense reduced EPS growth by 3 cents, and all other factors netted to negative 5 cents.

Last year's fourth quarter benefited from the breakup fee and we also had unfavorable tax comparisons this year.

Overall, we were pleased with the fourth-quarter performance.

Although obscured by a variety of other factors in our reported results, the business continued to deliver good operating performance and the fourth quarter rounded out an exceptional year.

For the full year, FPL Energy's adjusted earnings were down 1 cent.

However, this is due primarily to the impact of the Marcus Hook contract restructuring.

This and the Karaha Bodas payment reduced EPS by 23 cents.

All other factors increased FPL Energy's EPS contribution by 22 cents, reflecting contributions from new investments and strong performance from existing assets and setting a new base from which we expect to grow in 2005.

Project additions contributed 17 cents, strong contributions from new wind being partially offset by losses associated with new merchant capacity.

The existing portfolio was up a remarkable 32 cents, driven by several factors.

While the absence of a refueling outage at Seabrook was the largest, all segments of the portfolio saw better performance.

Improvement in (indiscernible) was particularly noticeable, aided by higher gas prices and volatility in the oil/gas price ratio, which benefited our oil assets in May.

The existing portfolio also benefited from the commencement of a contract on the remaining 50 percent of the capacity at the Calhoun peaking facility in Alabama.

The contribution from ERCOT was up slightly despite the absence of any meaningful summer weather, and this segment of our business exceeded our expectations for the year.

Asset optimization and trading activities were up 1 cent in 2004 compared with 2003.

All other factors netted to a negative 28 cents, of which 19 cents is higher interest expense associated with the growth of our asset base.

FPL Energy's performance was in fact stronger than may be apparent because it was achieved despite a year of slightly below average wind resource.

As this chart shows, the wind speed index for the full year was 3 points below its long-term reference value, while the fourth quarter was a full 5 points below average.

For the full year, given the current size of the wind portfolio, a 1 point difference in the wind index translates into roughly a 4 cent different in EPS contribution.

In other words, FPL Energy's financial contribution would have been about 12 cents higher in 2004 had the wind blown at its long-term averages.

Of course, we fully expect variability in the wind index.

Some years will be higher and some years will be lower, but the drivers of year-to-year variability in wind resource are random and not indicative of long-term valuation.

Thus, as long as our projects are delivering output consistent with the availability of wind resource, we can be confident that, over the long haul, they will contribute the levels of value that we expect when we may make our investment decisions.

In this regard, we're pleased to note that our operational performance continues to be very strong and our wind portfolio beat its availability and reliability targets for the year.

As in previous periods, we have provided more detail on the composition of the wind resource index in the appendix.

In the judgment of FPL Group executive management, 2004 marked the best year yet for FPL Energy.

Although Marcus Hook and Karaha Bodas together decreased EPS by roughly 23 percent, all other factors improved results by a remarkable 22 percent despite the earnings drag of about 25 cents from the gas-fired combined cycle assets.

Yet these assets contributed positively to cash flow and economically represent call options on SPARC spread that we expect to expand in the years ahead.

We integrated into the portfolio nearly 1000 megawatts of new wind capacity, all of which contributed to growth and as I have just indicated, had outstanding operational performance.

Seabrook Station had another superb operational year, contributed strongly to current performance and benefited from the run-up in gas prices through higher value hedges in the out years.

Our major markets showed modest signs of improvement over 2003, supporting our belief that we can look forward to slowly improving market conditions.

FPL Energy contributed about 700 million in operating cash flow and more than 260 million towards free cash flow.

We maintained our disciplined approach to Risk Management and were effective in hedging our portfolio as we wished going into 2005.

Finally, while we were stymied for much of year in new wind develop by the delays in extending the PTCs, we continued to work on our new project pipeline and were thus able in short order to initiate new projects once the PTC extension was passed by Congress.

We already have approximately 220 megawatts of new wind capacity under construction and fully expect to get more completed before the end of this year.

All together, we have set a strong base for 2005 and beyond.

Let me now turn to the Marcus Hook restructuring.

As we previously discussed, development of asset restructuring activities are a recurring part of our business, although it is often difficult or impossible to predict what specific opportunities will emerge.

FPL Energy is actively involved in the optimization 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 be physical or contractual.

Since these activities are a recurring part of our business, we believe it is appropriate to include their impact in our adjusted numbers, regardless of whether the transaction results in an upfront gain or loss.

However, this does require us to provide you additional detail so that you can understand the specific impact of major transactions, which we recognize that different investors may treat differently for valuation purposes.

It is important to note that our restructuring activities are essentially discretionary.

That is, we can choose whether or not to enter into any particular agreement.

Accordingly, where we have a transaction with an upfront cost, we could always choose to report better short-term results by not doing the transaction.

If we do not, it is because we believe the transaction has real value to shareholders despite the upfront costs, since we only choose to enter those that we believe are value-accretive.

That is the case with the Marcus Hook transaction.

To understand this transaction requires a little background.

When the Marcus Hook project was initiated in the late 1990s, it entailed a steam contract which brought significant benefits in the then-prevailing market conditions.

When cogenerating, Marcus Hook has a very low heat rate, making it the most efficient generator in our fleet.

Thus, the steam contract is valuable when the plant is operating and expectation was that the plant would have high-capacity factors.

When not operating, the steam obligation is fulfilled through an auxiliary boiler.

Today, market conditions are different.

With the plant being uneconomic to dispatch during off-peak hours and the auxiliary boiler to be fueled during those hours at today's gas prices, it is valuable to FPL Energy to be relieved of the steam obligation when the plant is not running.

This is what the contract restructuring achieves.

In exchange, we've made an upfront payment and transferred the auxiliary boiler to the customer.

In economic terms, the transaction is straight forward.

There is an upfront after-tax cash cost of about 30 million and an upfront after-tax book income effect of about 48 million.

In future years, there will be cash and book benefits equivalent to about 2 to 3 cents per share.

It is therefore much like any other investment.

However, unlike other investments such as an investment in a new physical asset, proper accounting requires the costs in this case to be booked essentially all upfront instead of spreading them over the future periods when the benefits will be received.

Thus, the impact on current-period reported results is quite different.

While we are naturally disappointed (inaudible) the market conditions should have changed so much that our original expectations of the project are no longer valid, we believe it is best to recognize the new market conditions and move on, positioning the project better for the conditions we see today and for the likely future.

We are clearly better off having the flexibility to dispatch the plant only when economic without the drag of a now high-cost steam obligation.

This restructuring also simplifies the contractual framework controlling the ownership of the plant.

Let me now update you on our 2004 contract coverage at FPL Energy.

I would encourage you to access the slides that are available on our Web site, www.FPLGroup.com, under the Investors section, since I will not review every number on the slide.

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

I'm pleased to report the we ended 2005 well hedged against commodity price fluctuations.

Overall, our contract coverage on a capacity basis for 2005 has increased from approximately 74 percent at the end of the third quarter to 78 percent at the end of the year.

As a reminder, we generally like to have roughly 75 percent of our capacity hedged for the next twelve months.

More importantly, more than 85 percent of our expected gross margin from our wholesale generation fleet is now protected against fuel and power-market volatility.

To summarize the 2004 fourth quarter, FPL contributed 90 cents, FPL Energy contributed a negative 5 cents, and -- (technical difficulty) -- a positive 10 cents.

That is a total of 95 cents compared to 74 cents in the 2003 fourth quarter on an adjusted basis.

The corporate and other category was favorably impacted this quarter mainly by the resolution of a number of tax issues, by certain state tax benefits resulting from FPL Energy's growth throughout the United States.

Together, these added about 16 cents per share, which is partially offset by a 2 cent loss at FPL FiberNet as well as by interest expense at the Group capital level.

To summarize the results for the year 2004, FPL contributed 4.14, FPL Energy contributed 97 cents, and corporate and other contributed a negative 18 cents.

That is a total of 4.93, representing a total increase of 4 cents over the same period in 2003 on an adjusted basis.

The corporate and other category was negatively impacted by a 5 cent loss at FPL FiberNet, with the remainder being higher interest expense offset by the 16 cent effect of the tax items previously mentioned.

FiberNet continues to be a modest earnings drag but net cash flow positive through this difficult period for telecommunications markets.

Excluding the favorable tax effects, the corporate and other segment full-year result was consistent with our original expectations.

Turning now to the outlook for 2005, we see no reason at this stage to change the outlook week gave during the third-quarter call, which set 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 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 also that the starting point for our expectations on the FPL Energy side is always our current contractual commitments, coupled with marketing and merchant components of the portfolio to market based upon current forward curves.

Our base-line expectations of course assume normal weather, both at FPL and at FPL Energy, and operating performance consistent with our historical levels.

Let me remind you of some of the drivers for 2005.

We expect the year to be challenging primarily because of the steep hurdle that FPL will need to clear in the second half after the introduction of the Martin and Manatee expansions.

Nevertheless, we remain optimistic that we will see earnings growth over 2004.

We continue to believe that there is a greater range of uncertainty around this year's earnings at FPL than we would normally expect.

We are encouraged by the recent data on customer growth and the latest housing start data within our service territory, but none of us can predict with certainty what impact the extraordinary hurricane season may have on short-term revenue growth.

We will be challenged at FPL by the addition of the Martin and Manatee plants and continued pressure on O&M.

As we've mentioned before, December 2005 also marks the end of our current revenue-sharing agreement.

We have indicated that, while we will pursue a negotiated settlement, we will also be preparing to file a rate increase request.

The first step in that process is notifying the Public Service Commission of our intent to file 60 days before the formal filing.

This triggers a resource-intensive process that will last roughly eight months.

We expect to file our test-year (indiscernible) later this morning.

At FPL Energy, we expect to see growth from new wind projects and operated capacity at Seabrook partially offsetting a refueling outage in the spring, a modest drag from the Marcus Hook new merchant fossil units, and increased interest expense.

At corporate, we anticipate modest earnings dilution but positive cash flow from FPL 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.

Included in the appendix of this presentation is an exhibit that provides some ranges of expectations for 2005 for selected cash flow items.

As you know, we do not provide specific quarterly expectations, as many things can happen that affect the timing of investments within a given year.

However, let me make a few remarks as we start the year about a few factors likely to drive the pattern of earnings comparisons with 2004.

Overall, we would expect the first quarter to be favorable for FPL since last year's first quarter was affected by mild weather.

We expect FPL to be down in the second half of the year after the introduction to service of the Martin and Manatee expansions, although the third-quarter comparison should be aided by the 15 cent impact that the hurricanes had last year.

FPL Energy is likely to have a challenging comparison in the second quarter, owing to the refueling outage at Seabrook and the positive impact from new wind construction is likely to be concentrated in the second half.

Having said that, let me again emphasize that many factors can cause a particular quarter's results to swing one way or the other and in practice, the biggest driver of quarterly performance is weather, whether wind at FPL Energy or temperature here in Florida.

Overall, we believe a weather-normalized range of $5 to 5.20 is realistic for our businesses this year.

Now we will be happy to answer your questions.

Thank you.

The question-and-answer session will be held electronically today. (OPERATOR INSTRUCTIONS).

SAC capital, Ashar Khan.

Good morning and congratulations, being the first out of the box (ph).

Moray, you mentioned that you're going to be filing the intent for the rate case later today.

Will that have any numbers or is it just an intent filing?

It will have some indicative numbers, although we are by no means through the process of computing exactly what the '06 and '07 years are going to look like and therefore being in a position to file the minimum filing requirements.

That will come in the march timeframe.

But we can certainly see some of the drivers.

I think we are talking about a likely range of revenue increase in the 400 to 450 million, that sort of level, which would mean that our base rates would still be lower than they were in '99 and in fact lower than they were back as far as 1985.

Some of the major drivers are very obvious.

I mean, the full-year revenue requirement impact of Martin and Manatee by themselves is approximately 200 million.

We also will be looking to increase our ongoing accrual to the storm fund.

We have the addition of Turkey Point coming in 2007; that's on a full-year basis of revenue requirement on the order of 130 million, and a series of other things.

So some of those will be laid out in the latter.

Now, obviously some of that is offset by general revenue growth but with a base revenue of about 3.7 billion growing normally at about a little over 3 percent a year, that means regular topline growth in the range of 120 million a year.

Obviously, it doesn't compensate for those unusual growth drivers.

I appreciate it.

If I can just follow up, Moray, you had mentioned in December that there was a chance of some wind financing which could open up certain proceeds for the buyback.

Is there any update to that?

Could you provide us a further update whether you can come in at the higher end of your wind range that you had provided us last year?

On the wind, I'm going to ask Jim to address that.

Let me talk about the other piece of it first.

I had indicated in December that a piece of our plant going into 2005 was to do another portfolio financing on a group of wind projects.

That will be an important element in the overall plant and our ability then to create free cash flow to affect any share repurchase, given that we expected to be investing in new wind as well this year.

That remains the case.

We are well along in that process and I'm pretty optimistic that we will get something done hopefully before the end of the first quarter.

We would expect that it would look much like the previous portfolio financing, so we take a group of wind projects, put them together in a portfolio into a capital market transaction.

Let me turn over to Jim on the wind development.

On the development pipeline, we feel very good.

It's a strong pipeline.

We have lots of projects that we're working very hard on.

You know, we continue to feel very good that we will be in the range that we gave you last time, which was 250 to 750.

Obviously given that we have more than 200 megawatts under construction, we will be well within that range.

Thanks very much.

It may be worth adding that I think the 220 that are under construction will come in in the first half of the year but everything else that we do beyond that is likely to be late in the year, and there may be some issues with just equipment availability that could limit us more, frankly, than development opportunities.

Paul Patterson with Glenrock Associates.

I wanted to touch base with you on FPL Energy and your 2005 guidance.

If you add back Marcus Hook and you -- sort of give you wind normalization, you're already pretty much into your number or your guidance number for 2005.

I know that you've got a refueling at Seabrook, but could you elaborate a little bit more on what else might be affecting?

I mean, you've got new wind projects coming online, which would be positive.

What might be dragging your earnings in that business?

Well, there are a couple of things.

You'll have earnings drag from Marcus Hook coming into service and increased interest expense.

I think the best way to address that is to direct you back to actually the third-quarter release where we laid out the expectations, which we're not changing today.

We have in there some bridge charts that show you how we get from, at that point, what was expected in 2004 performance but it has the drivers in there, so I think that will be good place to go to.

That's available on the Web site.

Okay.

Just a follow-up on storm damage, you guys mentioned, both in the press release and in your comments today, about the impact, the impact on short-term revenue growth from this damage.

Could you elaborate a little bit more on that and could you just also say whether or not there's any storm damage expected or unusual kind of items in 2005 guidance?

On the first part, we discussed with the third-quarter call that we did expect to see some tapering-off in the short term of customer growth, but that we really weren't quite sure what to expect, going into 2005, because we'd never experienced a hurricane season like we had in 2004.

We have, in fact, seen some slowing down in customer growth, no question, in the fourth quarter and I think the numbers that we showed here today indicate that.

But the sort of leading indicators -- housing starts -- we had some discussions with real estate developers; we always keep in touch with the real estate developers to see what they are seeing coming down the pike.

All of those seem to be fairly positive.

So you know, we continue to expect that there will be something of a slowdown, but that will be fairly short term in nature.

For the longer term, we still feel like the basic drivers, the reasons that Florida is growing, a healthy attractive economy and obviously that natural environment down here -- when we don't have a hurricane -- are very positive, so we expect to see the sort of medium to longer-term growth in sort of the 3 to 3.5 percent range that we typically have.

But there's just more uncertainty about this year.

In terms of the 2005 numbers, built into those is the expectation of "normal weather."

Now, when we talk about normal weather, we exclude the impact of tropical storms, so it's average temperatures and no tropical storms.

Obviously, if we have another one, we will have some issues, but we are keeping our fingers crossed that we've seen the last of those for awhile.

From Smith Barney, Greg Gordon.

A question and then probably a quick follow up on FPL Energy -- you did mention that, with normal wind resource conditions based on your historical analysis, all things being equal, you would have done 12 cents better?

Correct.

But you also mentioned that you had some what might be considered unusual volatility in oil earlier in the year that benefited you and (inaudible).

Can you quantify how much that was?

I don't have a number for that piece.

That piece alone is not huge, but as you know, we don't expect a lot out of the oil-fired assets in Maine (ph) but this year, there were periods where we were seeing oil-based SPARC spreads on the order of $10 a megawatt hour for at least a month or two, which were able to lock in.

Then the oil/gas ratio flipped the other way, so we were able to buy those positions back.

That's all part of the asset-optimization activity.

We probably won't have those next year, but that's probably not more than a couple of pennies.

Great.

Actually the follow-up question is, when you look at the underlying rate structure at FPL, with the fuel rate increases that you've had to pass through because of rising gas costs and now collecting for the deferred storm costs, can you give us a ballpark as to how much is sort of in rate increases customers have seen over the past 12 months, as you go into this rate filing where you are asking for incremental revenue increases?

I don't quite remember the exact percentages, but the storm cost premium, if you like, is basically a couple of bucks on the typical bill of around close to $90 now, so that's not huge.

If you take the base rate increase that we are talking about, let's say it's in the 400 to 450 range, when you express that as a percent of the total bill, it's relatively modest.

What I would say is that, even with the recent run-up in fuel prices -- and obviously, we have an adverse fuel mix relative to the industry average -- our total rates, base plus clause combined, are still below national averages.

So I think, if you are thinking in terms of overall customer competitiveness, while we are certainly not happy with the trend on rising fuel prices, I think we still are in a relatively good position.

From Loomis Management, Michael Goldenberg (ph).

Good morning, guys.

I just wanted to talk more about the rate case and the process as you see it, specifically in terms of timing, if you can just take us from today until I guess January '06?

Sure.

The test-year (indiscernible) kicks off a 60-day window.

At the end of the 60-day window, which is obviously the latter part of March, we will then have to file the MFRs, the minimum filing requirements; that's all the data that basically we lay out to support the case.

Direct testimony will be filed.

We will then enter a period in the late spring/early summer of extensive discovery, where we will be responding to document requests and interrogatories and producing a massive amount of additional information.

I'm sure there will be some depositions of witnesses through that period as well.

In the summer, the Public Service Commission will hold service hearings around different parts of our service territory to get customers' input on the quality of our service and our reliability.

Then we would expect to have a formal rate hearings later on in the summer in the August time frame with a ruling if we go all the way through the process late in the year, new rates ready to be in effect for 1-1-06.

That will be the full formal process if we go all the way through.

As I indicated in the prepared remarks, we are fully prepared to look for a negotiated solution at any point along the way, but also, as we've indicated in the past, I think realistically we should expect to go through full hearings in the August time frame.

We feel very confident in the case that we have to lay out.

The drivers that we are talking about are real; they are well-understood.

Martin and Manatee, for example, have been through regulatory processes by which they were recognized as the low-cost solution to the need for new capacity, and we fully expect to come in on schedule and on budget, delivering those projects.

So, the drivers are pretty straightforward.

Thank you very much.

That was very helpful.

Just a couple of follow-ups -- so the amount that you are requesting, just the raw amount, that will be known in March with your minimum filing requirements, is that it?

Correct.

So that's kind of the rate filing?

Correct.

When will the staff come out with recommendations?

The staff recommendations would come out after the full hearings in August, so they would be in the early to mid-September time frame, most likely.

Steve Fleishman with Merrill Lynch.

Good morning, a couple of questions.

First, with respect to the rate case, can you give us a sense if, in this intention filing, you will provide the test-year kind of ROE?

No, that would not be in there, I don't think, as I recall.

Okay.

What was the ROE at the utility this year and kind of what are you seeing maybe for a test-year ROE?

'04 regulatory ROE is 12-8.

As we've indicated before, we see that headed down, so next year, based on the numbers that we've put out as expectations, we'd be looking in the 12 to 12-2 kind of range.

Then in '06, with rate relief, we would see it drop further, probably well below 10.

Below 10 percent?

Yes.

Okay.

The second question is, just the 30 to 40 cents of merchant losses you provided in your '05 guidance previously out of your gas-fired merchant plants, is that still a good range?

Yes.

For next year, I think that's fair.

Probably you'll be a little bit more than this year, because you've got the addition of Marcus Hook.

Just one last question on the LNG project -- how are you feeling kind of competitively on that project versus some of the others proposed in the Bahamas?

I don't think that we have enough information to know at this stage.

I think, on the LNG, what I would say is we continue to believe that there is an important opportunity for diversifying the fuel base and the physical fuel reliability in Florida, so we would really like to see something done.

We think it would be a good thing for customers here, but we are not yet far enough to know really about the relative economics of different alternatives.

From Talon Capital, Steven Roundtop (ph).

Good morning, everyone.

A quick or two sort of related questions on the '04 to '05 Bridge.

The Marcus Hook, I know in November when there were some analyst meetings, you guys mentioned in the '04 to '05 bridge a 17 cent charge for power (indiscernible) gas contract restructuring.

Was that the Marcus Hook or was that an incremental contract restructuring?

I'm not sure what the -- I think that's a bridge back from the first quarter.

In the first quarter, we had a gain on the restructuring.

The short answer is it was not the Marcus Hook thing because we did not know anything about the Marcus Hook thing at the time we did those numbers.

Okay.

Then in a related way, your '05 projection for FPL, 3.95 to 4.10, includes normal weather and obviously no tropical storms, so the two of those combined for '04 were about 43 cents a share, so your '05 guidance assumes that those will be more than offset by cost pressures, which you will at some point -- (multiple speakers).

No, wait.

I'm not sure where you're getting the 43 cents per share.

The hurricane impact for this year was about 15 cents.

The weather impact for this year was --.

28?

No, no, no.

I'm not sure where you're getting that.

This year's weather was below -- 2004 weather was below formal to the tune of, I want to say, 3 or 4 cents.

If you're looking at the bridge from '03 to '04, '03 was significantly stronger.

That may be what you are picking up.

Okay, so the actual variance in normal was only about 3 cents?

Correct.

Okay, so you've got about 18 cents, and that will be more than offset by cost pressures in '05, which you will at some point recover through the rate case?

Yes, that's correct.

Thomas Hamlin with Wachovia Securities.

Good morning.

My question has to do with Martin and Manatee.

Do you have an estimate of what the annual depreciation and O&M costs would be when those come into service?

Is that a mid-year in-service date?

It's a mid-year in-service date.

I don't have those right off-hand, Tom.

We will be happy to get them to year.

I know we've disclosed them before.

As I said, the full-year revenue requirement impact is about 200 million -- (multiple speakers).

That's grossed up for income taxes and things?

Yes.

We've also indicated that, for '05, the negative impact, just in the second half, is about 15 to 17 cents, and of that, 9 is depreciation and the remainder is interest in AFEDC (ph).

That helps.

Thank you.

From Natexis, Gordon Howald.

Actually, you've got Paul Clegg (ph) on the line.

Could you just go into more detail on the state tax issues at FPLE?

What exactly where the issues there, and is any of that impact going to be ongoing?

The answer to the second part is probably not.

I think the simplest way to think of this is it's kind of a true-up on our average state tax rate.

When we originally accrue, we have to make some assumption about what essentially the mix of business is going to be and then later on, as we go through the IRS filings and actually resolve the actual amount, there's always a difference.

That ultimately ends up affecting FPL Group, even though it's driven by -- to a great extent, it is driven by changes in the business mix at FPL Energy.

I realize that's a little complicated to go through but the FPL Group is the unitary filer.

So, as it has turned out over the last couple of years, because of the way the business has grown -- (technical difficulty) -- the mix shift of our income has been favorable from a state tax point of view.

In other words, we had accrued more in the past than we actually needed to, and so we have gone through -- with the current return data, had trued that up and that's basically the bulk of that effect.

There's also some smaller amounts (inaudible) just the resolution of certain outstanding issues with the IRS but regrettably, I don't see that continuing on.

Okay.

Maybe just a quick follow-up to Ashar's question at the beginning on wind development.

You mentioned some potential equipment issues.

Could you touch a little bit on that?

Is that a function of the dollar?

Are they costs issues or are they really availability issues?

Well, it's a little bit of both.

As you can imagine, with the dollar where it is, it puts the European manufacturers at a significant economic disadvantage.

Obviously, there are limits to the production capacity of our primary U.S. source.

So, both from the turbine point of view and some of the major equipment, we are optimistic that we could get to the high end of the wind rate but I just wanted to flag, that might be one thing that would hold us back.

From Credit Suisse First Boston, Laura Blanco.

Good morning.

I just have two questions.

The first one is if you could just single out the most important single factor in your guidance for next year.

I'm sorry, could you repeat the question?

The most important single --.

(indiscernible) factor, like what's going to take you to the high end of the range of your guidance next year?

If you just have to single out where you see the biggest opportunity?

I think, at this stage, I'm not sure I see any single factor that would necessarily cause us to be at the high end of that range.

We have included, in the appendix, as we've done in the past, of what I call the plus-and-minus charts, which show some of the major drivers, particularly for FPL Energy.

So the rest, I think there's just -- the range just captures the natural level of uncertainty that we have about each of the different major drivers at this stage in the year.

So, to the extent that all or a combination of them come in a little better than average, we will be at the higher end of the range and vice versa.

I can't put my finger on any one or two things that we are looking to do that would cause us to be at the high end of that range.

Just in terms of relative magnitude, the biggest single swing factor is always weather, both wind at FPL Energy and temperature at FPL, which is why obviously we do weather-normalized expectations, so that could well swamp this range entirely.

For the factors that are in there, I would say of the ones that are kind of within our control, the one that would be most helpful is to be at the high end of the wind range early in the year.

Otherwise, commodity price fluctuation -- even though we are well-hedged, there is still some room for variability there.

My second question is more of kind of like a long-term view.

When (indiscernible) your call options on your merchant generation to start creating more value, start having more value?

Yes, start picking up.

Again, anything we say here is ultimately just speculation.

We've indicated before that we don't really see the market strengthening significantly until towards the end of the decade.

I think we were pleased that '04 ended up being stronger than '03.

We thought, going into it, we thought that '04 would be kind of about the same as '03, but we did see some signs of tightening, but I don't want to mislead people; it's not like these markets are coming back hard and strong.

If you look out to the next few years, we don't see a lot of new capacity additions.

We do see, given the economy, some continued growth in demand, which should gradually absorb reserve origins but reserve margins are pretty high.

I mean, some of them are still in the 30 percent range, so if you have a couple of percent of net growth through demand growth and really no new capacity additions, it still takes several years before those come down into the lower 20s, which is where I think you have to get to before you're going to see significant volatility.

So what that means to me is that we can expect, increasingly in subsequent years, to have sort of short periods where the markets get a little part, perhaps driven by summer weather.

Then as the years go by, those periods would gradually become a higher proportion of the total year.

But as I say, I think bottom-line, you know, not until towards the end of the decade before we really see some strong action.

Are you speaking to your portfolio, or are you still considering some transaction (indiscernible)?

We certainly always view the portfolio dynamically.

We are always reviewing it every year for what fits and what doesn't, given the current market conditions, so I think that's ongoing but there's nothing that we have right now.

Ani Zale (ph) with Alliance Capital.

Good morning.

Just one question -- do you -- are there any upcoming contract restructurings that you expect?

We are currently working on another significant one that is similar in nature to the one that we've closed in the first quarter of this year -- i.e., it's some freeing of capacity, but there is still plenty of uncertainty about that.

What kind of timing -- are you working on this through this whole year?

We are actively working it.

I can't say when it might come to fruition.

It won't come to fruition unless we can establish commercial terms that we are comfortable with.

From Duquesne Capital, Shot Stryder (ph).

Hi.

It's Max Schreiber from Duquesne Capital Management.

First of all, congratulations on a solid quarter and a solid year.

I just was wondering if you can talk about some dynamics going on in Texas in ERCOT.

For the last four years, you've been telling us that some of these projects -- I think it's (indiscernible) 1700 megawatts and (inaudible) would in fact have had some transmission and capacity value and so it's very well situated on the grid and so forth.

I think for three or four years, we've been not really paying much attention to that. (indiscernible) on that and some of the stuff going on in Texas in terms of creating capacity market and total pricing L&V (ph), maybe you were right and maybe we were wrong.

Can you sort of talk about that and also overlay some of the mothballing that we are seeing in Texas?

I mean, it should theoretically be positive but yet you've got a very thick -- call it 7000 heat rate plant so does it have any impact or does it not have any impact?

Or does it sort of have an impact in so far as it increases the risk of being caught short, the people aren't willing to pay a higher premium on 7000? (indiscernible) just protect themselves?

I'm going to as Jim to comment as well, but let me say a few remarks first.

We are seeing, pretty consistently over the last few years, a differential between the North zone and the South zone, which makes economic sense.

It has probably averaged 3 or $4 a megawatt-hour in pike periods.

Obviously, it gets higher and in slack periods, it's lower.

But that's been nice in a period where SPARC spreads in the rest of Texas have been in, like, the mid-single digits.

That can be the difference between being reasonably content with an asset's performance and being very unhappy.

We do see some benefit from plant retirements but mostly, that takes away from the right-hand end of the dispatch curve and as you say, there's a pretty solid wall in there in Texas in general of attractive heat-rate units.

So that really to me says that you have to see a pretty significant improvement in the supply/demand balance before you're going to get big movements in price.

But other things equal, it's certainly helpful.

Let me see if Jim has anything to add on the dynamics of ERCOT.

I think, in the 18 months that Fornie (ph) has been operating, we've consistently gotten a premium there.

I think we will continue to see it being a premium.

I just think, on the market design, in Texas, all I would say is that is obviously important to us.

We are actively working it; we are an active participant in the discussions around what's going to happen there.

And time will tell.

But we are optimistic that our portfolio is going to have long-term value there.

We like our assets.

I'm just asking, though, if L&P (ph) (indiscernible) pricing which is a -- very actively being -- is an actively debated topic right now down in ERCOT at both the Legislature and at the Public Utility Commission at ERCOT itself, were that to come into effect I think by early '06, which is the current time plan, what would that mean economically to you?

Is that capacity value already effectively embedded in the energy price that you get, or would it be additive?

If so, would it be substantially additive?

I think we have to be a little careful on time here.

Let me just say that we believe that, as long as the market rules are reasonably economically rational, we will not be hurt.

I would not expect any huge windfall from any changes in the market rules and I would certainly hope that we wouldn't be inappropriately disadvantaged.

That's why it's important for us to participate in the regulatory process.

But I don't expect it to be a big factor one way or the other.

I think we probably have time for two more questions.

From Columbia management, we will hear from Leslie Rich.

I'm wondering if I could ask you to repeat -- and I'm sorry -- the drag on earnings from the gas-fired generation in 2004 and your projection for '05?

Let me make sure I have the numbers right.

It came in, in 2004, at about 25, 26 cents a share, and I think for 2005, we previously said 30 to 40 cents a share.

Certainly, that's consistent with what we would expect in the plan that we put together and is baked into the earnings range in the expectations that we set out.

Separately, do you have any thoughts on the proposed legislation for securitization of the storm costs in Florida?

I don't really have much of an update on that.

Obviously, the legislative session kicks off at the beginning of March.

It's certainly still an avenue that we are pursuing.

The positive would be that it has a smaller impact on the customer bill, but to get anything through the Legislature, obviously there are a lot of hurdles so no new news on that.

I think we can take one more.

Vikas Dwivedi with Prudential.

Good morning.

My questions have been answered.

Thank you.

We will take one more.

Michael Worms with Harris Nesbitt.

My questions were answered as well.

I had some questions on ERCOT.

So we have time for one more.

Paul Rizdon with KeyBanc.

Could you just give us the duration of the Marcus Hook contract?

The steam contract runs for 30 years.

I will turn the conference back over to the presenters for any closing remarks.

We have no further remarks.

Thank you for joining us this morning.

That concludes our call.

We'd like to thank you all for participating.

That does conclude our teleconference.

You may now all disconnect.