新世紀能源 (NEE) 2005 Q1 法說會逐字稿

Please stand by.

We're about to begin.

Good day, everyone, and welcome to the FPL Group first-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 2005 first-quarter earnings conference call.

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

Lew Hay, FPL Group's Chairman and Chief Executive Officer, 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 this earnings discussion on April 26, 2005, is based on unaudited financial information.

All historical and current EPS figures are adjusted to reflect the March 15 two-for-one stock split.

And any statement 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 to the presentation, which you can access on our website, www.FPLGroup.com.

Moray?

Thank you, Bob, and good morning, everyone.

FPL Group performed well despite the weak weather conditions at both FPL and FPL Energy.

Floridians enjoyed mild weather in the first quarter of this year and the consequence was lower-than-expected usage for customer and hence lower-than-expected total revenues at FPL.

Combined heating and cooling degree days, the common metrics used for determining weather impacts on energy usage, were more than 11% below normal for the quarter.

Growth in customer accounts, although lower than 2004 levels, remained strong and in fact exceeded our expectations.

FPL Energy experienced the weakest first-quarter wind resource conditions in more than a decade, 13% less than normal.

However, the strong performance from our merchant and contractor portfolio more than offset the weak weather at FPL Energy and the business showed robust growth in adjusted earnings.

We also took advantage of opportunities presented to us during the quarter to position the business well for the future.

We announced two acquisitions, a 67.5 net megawatt solar edition called SEGS in the Mojave Desert and GEXA Corporation, an electric provider based in Houston, Texas.

The former complements our existing solar generation, while the latter will complement our existing asset positions in the important ERCOT market.

We also made good progress in hedging our portfolio and we saw forward prices strengthened in most of our merchant markets.

This increase in forward prices is the primary driver behind the negative mark in the nonqualifying hedge category, which actually represents good news for FPL Energy and which I will describe in more detail later.

Finally, we made excellent progress with our wind portfolio and now expect to add between 500 and 750 megawatt of new capacity this year.

Given the weather and usage impacts in the first quarter at Florida Power and Light, we're adjusting our 2005 earnings expectations at FPL Group down $0.05 per share to 2.45 to 2.55 per share.

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

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

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

In the first quarter of 2005, FPL Group's cap results were 137 million or $0.36 per share compared to 138 million or $0.39 per share during the 2004 first quarter.

FPL Group's adjusted 2005 first-quarter net income in EPS were 168 million and $0.44, respectively, compared with 139 million or $0.39 per share in 2004.

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

Please refer to the appendix for 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 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 earning power.

Usage per customer at Florida Power & Light was down primarily due to weather by about $0.05 per share when compared to normal.

New customer growth continued strong, although below recent levels.

For the first time in more than 20 years, FPL initiated a base rate increase request in March, and just last week we completed hearings on our storm cost recovery.

I will provide more detail on each of these items later in the call.

Our generation expansion projects with Martin and Manatee are on schedule and on track to be within their respective budgets.

Earnings at Florida Power & Light were 111 million in the 2005 first quarter, or $0.30 per share, up from 105 million or $0.29 per share a year ago.

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

The average number of FPL customer accounts increased by 95,000, or 2.3%.

This was somewhat below the record set in last year's first quarter, but still strong compared with historical average levels.

While we did see a slowdown following last year's hurricane season, and we expressed concern about how much that extreme hurricane season might affect customer growth this year, we're cautiously optimistic that we will settle into a period of continued strong growth.

And we are planning our capital expenditures accordingly.

The fundamentals of a stronger economy, reflected in robust job growth, remain strong.

And housing starts also are at encouraging levels.

Overall, retail kilowatt-hour sales grew 2.4% during the quarter.

Of this, 2.3% was due to customer growth.

Usage growth associated with weather was up 0.8% quarter-over-quarter, with both first quarters having mild overall weather.

Nevertheless, the weather-driven usage effect was at least 1.8% below normal.

Underlying usage growth mix and all other effects netted to a negative 0.7%, primarily driven by having an extra day in revenue associated with the leap year in 2004.

Adjusting for the leap-year effect, usage growth was a modest 0.3%, which was below expectations and long-term averages.

We continue to believe the residual usage per customer that we report has some weather effects in it.

We are in the process of refining our modeling to include regional references that will more accurately reflect our diverse service territory and customer base.

We expect to begin utilizing this improved model later this year.

Also, you may recall that the other usage component can vary quite a bit from quarter to quarter.

Weather remains the single biggest driver of earnings fluctuations at FPL.

Last year, we began disclosing heating and cooling degree days, both actual and normal, on a quarterly basis.

We are currently developing a process whereby we can provide this information together with its rough sales volume implications on a monthly basis.

We expect to be able to roll this out later in the year as well.

We hope that this will be helpful in tracking the weather effects in Florida as we are aware that the readily available degree day indices, most of which apply to large regions, can be unreliable when extrapolated to our service territory.

For the first quarter, FPL's 2005 O&M expense was 310 million, up from 296 million in the 2004 quarter.

The increase in O&M was associated with the rolloff of the pension transition credit, as well as increases in medical costs, higher property and liability insurance premiums and higher employee costs, all of which we have previously discussed.

Depreciation and amortization at FPL decreased 1 million, from 231 million in the first quarter of 2004 to 230 million in 2005.

The depreciation expense in more planned in service (ph) was more than offset by certain items becoming fully depreciated quarter over quarter.

Please note that depreciation expense will be up significantly during the second half of the year with the addition of the Martin and Manatee plans mid-year.

To summarize, Florida Power & Light's first-quarter earnings per share were affected by the following.

Customer growth, positive $0.03.

Usage due to weather, positive $0.01.

Underlying usage growth mix and other, negative $0.01.

Depreciation, zero.

O&M, negative $0.02.

Other, including AFUDC and share dilution, zero, for a total of $0.01 for the quarter.

I'd like now to provide updates on two key regulatory topics.

First, as I'm sure you all know, on March 22, we made our formal filing with the Florida Public Service Commission in which we outlined the need for a revenue increase of 430 million a year beginning January 1, 2006.

The components of the rate case include 184 million for revenue requirements associated with new plants and infrastructure, 100 million for additional storm damage reserve contributions, 100 million to cover the anticipated costs of participating in a regional transmission organization, and finally, 46 million of miscellaneous expenses, including employee benefits, insurance and power plant maintenance.

An additional component of the filing is a 123 million annual increase, which would be effective in mid-2007 associated with the Turkey Point expansion that is expected to come online at that time.

Our testimony requests a range of return on equity of 11.3% to 13.3%, with a midpoint of 12.3%.

The ROE includes a request for a 50 basis point performance incentive, both in recognition of the Company's superior overall performance and to encourage continued performance improvement.

Our testimony also assumes that the adjusted equity ratio remains at 55.8% as it has been since the 1999 agreement.

The term adjusted refers to the incorporation of the impact of imputed debt associated with long-term purchase power agreements.

Finally, we have also filed new depreciation studies to take into account the license extensions of our nuclear facilities at St. Lucie and Turkey Point and these reductions in future depreciation are reflected in our rate request.

If approved as filed, the rate request would impact typical residential customer bill by 3 to $4.00 per month in 2006 and an additional $1.00 to $1.50 per month starting in mid-2007 to reflect the revenue requirements for the Turkey Point expansion plans.

Even with the requested increases, however, FPL's base rates would remain lower than they were in January of 1999, prior to the first of two significant base rate reductions and lower than they were in 1985, the last time FPL's base rates were increased.

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

We expect a decision by November of this year.

Select filings and testimony related to the rate case can be found on our Web site.

Turning now to the storm recovery, the storm reserve recovery, as we reported in our fourth-quarter earnings call, the costs associated with the restoration efforts due to hurricanes Charlie, Francis and Jean are estimated to be 890 million, net of insurance, or 536 million in excess of the balance in the storm reserve.

For the monthly surcharge, which amounts to $2.09 for a residential customer using 1000 kWh, we began recovering the deficit in February of this year.

The recovery is contingent on the outcome of hearings, discussing prudency and reasonableness of recovery that took place last week on April 20 and 21.

Several interested parties, including the Office of Public Counsel, are challenging the reasonableness of our recovery.

The Commission is scheduled to vote on the matter when it meets July 5.

We feel confident that our position is a strong one, clearly articulated in the plain language of the 2002 rate agreement and consistent with the framework laid out in several prior Commission orders.

However, the Commission has wide latitude in such matters, and there can be no guarantee that there will be no disallowances.

Earlier this month, we filed our latest 10-year site plan with the PFC.

This planning document identifies our capacity needs for the next 10 years and the assumptions on which they are based.

The plan indicates that in 2012 and beyond, the Company may consider clean coal alternatives.

A report on clean coal generation was filed with the Commission in March of this year.

Additionally, the Company has already issued a request for proposal for LNG and is currently evaluating several LNG proposals and expects to reach a decision by the end of this year.

Let me turn now to FPL Energy, which delivered excellent overall performance despite the worst wind resource conditions for the first quarter in more than a decade.

Strong performance from our ERCOT assets and improved performance from our other existing assets benefited results.

Also benefiting results was a major contract restructuring.

Strengthening in forward markets and our wind development and asset acquisition opportunities positioned FPL Energy well for future performance.

Adjusted results grew a very strong 25% quarter-over-quarter, despite the weak wind resource.

We had a significant negative mark in our nonqualified hedge category as spark spreads widened, which bodes well for future performance, as I will explain shortly, but which also underscores our rationale for excluding the mark from adjusted results until they are realized in future periods.

We also continue to make progress on hedging our 2006 outlook.

In a few moments, I will be providing some insight into the possibilities for 2007 and why we believe FPL Energy has strong growth prospects.

FPL Energy's 2005 first-quarter reported earnings were 37 million, or $0.10 per share, compared to 53 million, or $0.15 per share, in last year's first quarter.

Adjusted earnings, which exclude the net effect of nonqualifying hedges, were 68 million or $0.18 per share, compared to 54 million, or $0.15 per share, last year.

Relative to the 2004 first quarter, new investment was down $0.01 with contributions from new wind assets being more than offset by a drag from the markets of merchant (ph) asset.

The existing wind assets were down $0.02 compared to prior, due to extremely poor resource conditions, while the other existing assets were up $0.04.

Improved market conditions for our merchant portfolio, particularly in ERCOT, and the benefits of past restructuring activities benefited results.

Asset optimization and trading activities were essentially flat quarter-over-quarter.

Restructuring activities were up $0.03 quarter-over-quarter, primarily due to a major restructuring contract that I will describe in more detail shortly.

All other items were down $0.01, primarily driven by higher interest expense.

Overall, we were pleased with the growth that FPL Energy was able to achieve, despite the weak wind resource conditions.

As I stated earlier, the first-quarter wind performance proved to be the worst in over a decade, with the wind speed index being 13 points below normal.

Our existing wind assets were down 17 million after-tax compared to normal because one of the biggest drivers of current period performance is the variability in the natural wind resource.

We plan to begin updating the wind speed index on our website on a monthly basis later in the year.

We are currently testing the refiner methodology to make sure it is reliable and repeatable.

Wind, like weather at the utility, will have natural variability around long-term historic mean performance.

The wind resources available to our portfolio could be estimated from the average wind speeds at some 21 standard reference towers located near our various projects.

The appendix to this presentation provides you the location for wind towers as well as some historical and quarterly data by wind power.

As we have noted before, the relationship between wind speed at the reference towers and financial results is not simple.

Correlation between the wind speed at the reference towers and our project sites is not perfect, and average wind speeds do not completely characterize the resource available for conversion to electricity at a particular site.

However, we estimate that, on average, given our current portfolio, a change of plus or minus one in the annual portfolio wind index equates to roughly a plus or minus $0.02 to $0.03 change in earnings per share.

While the quarterly deviation in average wind speed was the largest of the decade, it was well within the bounds of the joint probability distribution that characterizes the wind resource available to the portfolio, and thus there is no reason to believe that it represents anything other than random variation around a long-term average.

Let me now provides you more detail on the power and gas contract restructuring at one of our plants that benefited first-quarter results.

This was essentially the same as others we've discussed in prior releases.

The power contract was structured like a typical QF (ph) contract that required the plant to run to fulfill a power sales agreement.

At times, it would have been more economic not to run the facility, but to purchase power in the market to fulfill a contract.

We were able to renegotiate the power sales contract to give us that flexibility.

We also restructured the associated gas supply agreements to offset the surplus gas position created by purchasing power instead of running the facility.

Both the power and gas company (ph) parties benefited from the contract restructurings.

On a book basis, we recorded a modest net gain during the first quarter, associated with terminating the below-market gas supply contract.

In future years, the restructuring will have a positive book earnings impact.

On a cash basis, the ongoing effects are more front-loaded, with positive cash flow through 2010 turning slightly negative thereafter for the remainder of the deal.

The NPD (ph) of the deal is estimated to be in excess of 50 million after-tax.

During the first quarter, FPL Energy was able to complete a number of significant transactions.

These included the addition of 114 megawatts of wind generation in Callahan Divide and the groundbreaking of an additional 327 megawatts, which is slated for completion by the end of this year.

As a result, we are tightening our targeted wind development for '05 to between 500 and 750 megawatts.

We feel very positive about the quality of the wind pipeline.

Additionally, we were able to expand our solar generation with the purchase of an operating interest in SEGS, the solar energy generating system in the Mojave Desert.

This added 67.5 net megawatts to our system and brings our total solar generating capacity to nearly 148 megawatts.

The new assets are very similar to our existing solar assets, and we expect to realize meaningful operating synergies.

Finally, as many of you know, on March 28, we announced a definitive agreement to acquire GEXA Corporation, an electric provider company based in Houston, Texas.

I look forward to discussing this acquisition in more detail in subsequent conference calls, but due to regulations, I'm unable to elaborate further on the pending acquisition at this time.

Additional information about GEXA can be obtained from that company's public filings.

Let me now update you on our 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 investor 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 that we are well-hedged against commodity price fluctuations in 2005.

Overall, our contract coverage on a capacity basis for 2005 is 80% for the balance of the year.

More importantly, more than 90% of our 2005 expected gross margin from our wholesale generation fleet is now protected against fuel and power market volatility.

Additionally, we've made good progress hedging 2006 with a total of 64% of our capacity now hedged and translating to roughly 75% of our 2006 expected gross margin being protected against fuel and power market volatility.

Let me now turn to the negative mark in the first quarter in the nonqualifying hedge category.

As shown in this slide, there are two general categories that together comprise the 31 million.

First, there was 8 million attributed to unrealized gains that had been recognized in prior periods that reversed as the underlying contracts rolled off during the first quarter.

You may remember that in the fourth-quarter call, I indicated that as of 12-31-04, the balance sheet reflected 22 million of gains previously reported in the nonqualifying category, and that we expected 17 million of this amount to reverse during 2005.

The 8 million is a piece of that reversal.

The larger impact in the first quarter, however, is attributable to increases in solar power and gas prices during the quarter.

About two-thirds of this came in ERCOT, where increasing spark spreads contributed 14 million.

Rising gas prices during the quarter also caused us to record 8 million, primarily against two gas short positions used as an inexpensive hedge for power prices that are correlated to gas.

While the impact of increasing forward prices created a negative mark in the quarter, we are encouraged by the implications of improving market prices for future contracting opportunities, as well as the implied increase in underlying assets values.

Before I move on, we thought it might be helpful to review an example of the accounting treatment of nonqualifying hedges.

While we have discussed this before, when we reviewed the accounting in detail at our 2003 investor conference, we recognize that the accounting can be counterintuitive, and we want to be sure everyone understands why our current period gain or loss under GAAP can be irrelevant from an economic perspective.

I would also remind you that we have broken out this category of transactions consistently for approximately four years.

Assuming that FPL Energy entered into the following transaction in the month of January, we sold 175 megawatts on peak for delivery in the April through September period at a spark spread of $11 per megawatt-hour, thereby partially hedging the output of the physical asset.

The total economic value that FPL Energy will receive from that contract is 3.9 million.

Because the contract is one that has to be marked-to-market, our financial statements will be adjusted to reflect market prices at the time of the reporting period.

This example assumes arbitrarily that at the end of the first quarter, spark spreads move up to $17 per megawatt-hour, and then by the end of the second quarter, the market moves down to $8 a megawatt-hour.

The table on the slide demonstrates how those market movements will impact our financial statements.

First, let me point out that in this example, we actually realize cash revenues based on a contract price of $11 a megawatt-hour, or about 2 million in each of the second and third quarters, the delivery term, on a pre-tax basis.

This is the amount that will be reflected in FPL Energy's adjusted earnings that we report every quarter.

GAAP, however, requires us to recognize on our financial statements the movements in market prices in each reporting period.

For instance, in this example, the spark spread moved up to $17 a megawatt-hour by the end of the first quarter, causing an unrealized loss on the $11 contract of 2.15 million.

This, of course, is a non-cash item.

As I've often reminded investors, the move-up in market prices may create a loss on the contract position, but it also creates a corresponding increase in the value of the underlying asset position.

GAAP, however, does not recognize the unrealized gain in value of the physical asset.

The second quarter shows two accounting entries.

First, as we deliver power under the contract, part of the loss is reversed, representing in this example 1.08 million.

Second, market prices have moved again, this time down to $8 a megawatt-hour.

Since it is below the $17 value that we recorded in the first quarter, we will book an unrealized gain on the portion of the contract that is still yet to be delivered.

In this case, that was 1.61 million for a total mark in the second quarter of 2.69 million.

In the third quarter, as we realized the remaining portion of the contract revenues, we reversed the remaining unrealized position -- in this case, a loss of 0.5 million.

It is easy to see the volatility that GAAP earnings are exposed to, but we continue to believe that adjusted earnings are a better measure of underlying economic performance where one side of an economic hedge is marked, but the other is not.

The major driver of the negative mark in the nonqualifying hedge category was improving market conditions.

While this is neutral for assets that have been hedged, as the previous example shows, it is good news for the remaining positions that have not been hedged.

This is apparent in the first-quarter adjusted results, with improvement in pricing in markets where we have merchant exposure offsetting much of the negative impact of wind resource shortfall during the quarter.

Additionally, the 2006 forwards continue to show improvement.

We've seen the strengthening in pricing across most of our merchant markets with a significant improvement occurring over the first quarter.

In fact, in most of the markets where we have merchant assets, we have seen as much improvement in the first quarter as we saw all of last year.

Although we have not yet anywhere near market equilibrium, and although some of these gains have been given back in the early days of the second quarter, we are encouraged by the strengthening that we are beginning to see.

Many of you have noted that FPL Energy's prospects for the 2007 and beyond time period have been improving lately, and we agree.

To give a rough indication of what this might mean, we have included this chart, which shows a range of possible income contributions from FPL Energy in 2007 based on some specific assumptions.

Let me quickly point out that this does not represent a forecast in the same fashion that we share our annual expectations with you.

It is not based on detailed budgeting, and it contains some broad ranges of assumptions that go beyond what we would typically use in an annual forecast.

In particular, it presumes a degree of market improvement over and above where current forward prices are.

I encourage you to review the appendix for the specific assumptions behind the range.

Nevertheless, we hope it will be helpful in considering the possible contribution that FPL Energy may be able to provide, and we believe that investors and analysts will find it useful as a rough check on their own modeling assumptions.

We have chosen 2007 as a comparison point due to the absence of a planned outage at Seabrook and the significant contract rehedging (ph) opportunity beyond 2006.

To repeat, this outlook is based on some merchant recovery and is not based on marking the uncontracted merchant component of the portfolio to market based upon current forward curves.

It also assumes no new acquisitions.

As you can see, a combination of continued wind development and some improvement in merchant markets are the two major drivers of what could represent a multiyear earnings growth rate in excess of 20%.

While we have much work to do to realize such improvements, we continue to believe the prospects for FPL Energy are bright.

To summarize the 2005 first quarter, FPL contributed $0.30, FPL Energy contributed $0.18, and corporate and other contributed a negative $0.04.

That is a total of $0.44, compared to $0.39 in the 2004 first quarter on an adjusted basis.

Turning now to the outlook for 2005, we are adjusting our outlook down $0.05 per share, primarily to reflect weak weather conditions at FPL.

The new ranges are as follows.

At FPL, $1.93 to $2.00.

At FPL Energy, $0.65 to $0.73, which remains unchanged.

At corporate and other, a drag of $0.15 to $0.18, which also remained unchanged.

Together, these suggest a range for FPL Group EPS of 245 to 255.

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

Let me remind you also that our expectations for FPL Energy always reflect 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 for the balance of the year, both at FPL and FPL Energy, and operating performance consistent with our historical levels.

Let me review the drivers for 2005.

At FPL, we expect the year to be challenging, primarily because of the steep hurdle facing FPL in the second half after the introduction of the Martin and Manatee expansions.

The weak weather during the first quarter and a lack of weather strength in April so far has also challenged revenue growth.

Additionally, O&M continues to be a pressure point in 2005.

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

We will expect that FPL Energy will have a roughly flat second quarter given the refueling outage at Seabrook.

At corporate, we anticipate modest earnings dilution, a positive cash flow from FPL FiberNet, coupled with moderately higher interest expense.

In February, as many of you know, we issued approximately 18.5 million shares in association with a conversion of the equity units.

Also, during the quarter, we completed the second wind portfolio financing, which we had indicated was prerequisite to any share repurchase this year.

The financial plan we put together last year assumed a modest amount of repurchase, partially offsetting the conversion of the 2005 equity units.

Since that time, our thinking has changed somewhat in light of the opportunities for productive capital deployment potentially available to us at FPL Energy.

Our expectations for capital spending are now higher than they were with the increase in our wind program to the upper half of the range and the acquisition of the SEGS assets already built in and the possibility of additional acquisitions later in the year.

Accordingly, we intend to monitor closely our cash flow profile, but we may well do less repurchasing than we had originally expected.

We remain committed to deploying productively the equity implicitly freed up by the partially nonrecourse wind financing, either to support sound new investment or to be returned to shareholders.

We are pleased with the way the opportunities at FPL Energy are evolving and certainly wish to continue to support the growth of the business with adequate equity capital.

Before we begin the Q&A session, I have one final item to mention.

Bob Barrett has recently accepted the position of Vice President of Business Development at FPL Energy.

While we will miss his strong contributions to Investor Relations, and I personally will miss the outstanding support he has given me, we are pleased that he will be taking on this new and challenging role.

I'm sure those of you who have had the chance to work with Bob will join me in thanking him for all he has done for Investor Relations over the past two years.

We will announce his successor shortly.

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

Thank you.

(Operator Instructions).

Ashar Khan, SAWC Capital.

Congrats, Bob.

Can I go to slide 25?

This is FPL Energy outlook for 2007.

The 85 to 105 wind -- how many megawatts can we assume those 85 to 105 -- what range would that be?

I think the general answer to these questions is please consult the appendix, because all the specific assumptions are in there.

On the wind, as I recall, it's about 750 megawatts.

So it's spread over the -- (multiple speakers)

750, okay.

I'm sorry.

I'm being corrected here.

It's 1250 to 1750 from the beginning of '05 through the end of '07.

Thank you.

And what share count, knowing your capital plans and your -- what share count can we expect more in '07?

Let me address that one by really focusing on the '06 equity units, which is the main issue coming ahead.

Actually, let me preface it by saying, first of all let me just reiterate the principle that new capital deployment at FPL Energy will bring with it its own equity component.

So the additional spending on wind would also carry with it its own implied equity component, and obviously we expect those projects to be accretive net of that incremental equity.

Setting that aside, the other piece that we have out there, obviously, is the '06 equity units.

Again, I would just repeat what we've said in the past, which is that, assuming there were no additional capital deployment at FPL Energy, we believe that in '06, on the present path, we would essentially be able to free up that equity.

In other words, that equity would either be available to support new capital deployment or it would be available to return to shareholders.

So you can think about it whichever way you like.

But those are the major drivers.

So at this stage, we don't have a specific financial plan going out to '07, so I can't give you a specific assumption for that.

And for obvious reasons, we can't say much on the FPL outlook.

But you can probably come up with a reasonable range of possibilities from that information.

And could you just tell us -- am I right, the new announced acquisitions are the 15 to 30 -- are the solar and GEXA -- those contributions, the 15 to 30?

On that slide -- are those the two announced acquisitions, the way I look at it?

Yes, that's correct.

And can you just mention -- you mention further, you're looking at future acquisitions.

Can you just mention what type of acquisitions in which areas could we look forward in the pipeline of things that you're contemplating?

Sure.

There's really been no change in our focus.

Our number-one priority continues to be to build out the wind portfolio, whether that be Greenfield or acquisitions.

Certainly, there are some things that we're looking at in that area.

We also continue to look for the kind of projects that FPL Energy has had success with in the past, and in that category, I would certainly include the solar example, typically, things that have at least some degree of contracting, things that fit our existing geographical and operating portfolio, and typically situations where we feel that we have some operating synergies or leverage to exert.

In addition to that, you of course know of our interest in the nuclear (ph) side.

And we certainly continue to look at that.

And on the kinds of things that we would not be looking at, again, consistently what we said in the past, don't look for us to stray too far from existing geographical or knowledge bases.

So don't look for us to be buying a stand-alone coal plant in the Midwest -- a region where we have no existing assets to speak of.

So nothing has really changed in terms of the criteria.

But we do have some interesting things that we are looking at.

So we can't obviously promise anything at this stage, but we feel encouraged with where we are.

And we should probably let the next person ask a question.

Paul Patterson, Glenrock Associates.

The regulated ROE at FPL for the 12 months ended the first quarter, do you have that?

I don't.

For 2004, it was approximately 12-7.

On the present trajectory, the regulatory ROE for the full year '05 would probably be around 12-2, 12-1 maybe.

Okay.

And then the depreciation study that you mentioned, I actually tried to take a look at it.

It's quite lengthy, and I wasn't really clear from your filings as to how the 1.24 billion, I think it is, how that comes back in -- how that is treated in the rate case?

Could you just briefly describe how that works?

The simple way, at least I think about these depreciation studies, is you take where you are today, you take the value that remains that has not yet been depreciated and recovered, and we split that out over the remaining life.

So the big driver here obviously is the four nuclear units now have license extensions, so you're adding 20 years to the effective life of each of those.

So, essentially, you're spreading a large chunk of the remaining balance just over those greater years.

Right.

I guess I'm trying to figure out is if there's been some discussion about using that 1.24 billion in a manner to sort of offset some of the rate increases.

And I was trying to get an idea as to how that's currently -- how you are currently scheduling that 1.24 billion kind of surplus of depreciation, if you follow me.

It wasn't clear to me from looking at the filings.

No, I can understand it wouldn't be, because what's being proposed by certain parties is not really consistent with either past commission practice or good accounting.

Essentially, that 1.24 billion is getting spread out over the now-extended remaining life of the assets.

It's hard to give a better answer than that, because obviously it depends for each individual asset.

Let me just comment on the notion that you can offset this 1.24 billion against this storm recovery.

There's no such thing as a free lunch.

So, effectively, what you would be doing if you applied that conceptual approach is you would be increasing customer rates in the future.

Right, your rate base would go up.

Okay, thanks a lot.

Michael Goldberg, Loomis Management.

A couple of questions.

First of all, I want to talk to you about the power and gas contract restructuring.

That's both in your numbers and your ongoing 2005 guidance, or is it not?

Yes.

It's both in Q1 and the guidance?

Correct.

I know you generally don't comment on analyst guidance for quarters, but it seems that you hit the consensus number and yet you still lowered guidance.

I guess I'm trying to reconcile those two things, given that generally, the analyst estimates added up to somewhere in between your guidance.

Quite frankly, I didn't focus on analyst guidance this quarter.

I just tell you we look at the full year.

There are lots of reasons why things can move around across quarter boundaries.

But as we look out over the full year, given what we've given up permanently in weather and to some extent in simply lack of general usage growth at FPL, with everything else left unchanged, we just don't think we're going to be in the range that we originally laid out for that business.

So all we've done is we've left the other two components, FPL Energy, corporate and other, unchanged.

We're still very comfortable with where we are there.

But we're just pulling the FPL piece down approximately by the amount of the weather and other usage effect.

It's really as simple as that.

Understood.

And my final question, I understand that GEXA transaction has not closed yet.

But is it just a transaction to help out your existing gas power plants in the ERCOT region, or are you trying to build out this retail platform in states other than Texas and really use GEXA as a launching had?

It's fairly specific to the ERCOT market.

Obviously, we have a very large investment in that market.

It is a crucial market for us.

And we want to continue to expand our capabilities in there.

But, certainly, at this stage there's no intention of it being a platform for a broader retail play.

So this is just accompanying your health -- the output of your existing gas plants and ERCOT?

Well, again, a little bit beyond that.

I think it supports the overall position in the ERCOT market, which is more than just gas merchant assets.

We have originations and structure transaction activity there.

So it's complementary to a variety of existing activities.

Understood.

Okay, thank you very much.

Gordon Howells (ph), Netexas (ph).

Great.

Thank you.

I guess some of this was already answered, but I'm a little confused.

I mean, it would see seem intuitively that it's a little bit early to adjust EPS for weather after one quarter, particularly with the summer coming.

And maybe you could tie that a little bit into the usage due to weather line that you have, and maybe compare that with underlying usage growth mix and other.

Because if you annualize that $0.01 decline for the year, that's -- that appears to be more than $0.05 on an annualized basis.

I mean, I was a little bit long, if you could just touch on some of those issues, I would appreciate it.

Sure, the comparisons to last year are a little complicated because of the impact of the leap year, or the leap day, last year.

But if you strip that out, the other usage growth in the first quarter was approximately 0.3%.

That is adjusting for -- mostly adjusting for weather.

And that compares with a long-term average of about 1 to 1.5% usage growth.

So that's well below those long-term averages.

Now, that number on a quarterly basis can be quite volatile.

And in some quarters it can actually be negative.

So I don't think we want to be too alarmist about that.

But I do think that we're seeing some evidence of a little weakness there.

The weather effect, obviously, is what it is.

And since we've -- we do our outlooks on a weather normalized basis, but we don't assume that you catch up later in the year.

I certainly recognize that we've got the bulk of the year still ahead of us.

I would also tell you that although it's not reflected in these results, the early stage of April is not real encouraging from a revenue perspective, although it's been absolutely delightful from a customer weather perspective.

So we are also aware that we have given up some more in the first few weeks in April.

So we're factoring that in.

So I leave you to make your judgment as to whether it's premature or not.

We simply want to make sure that the information is out there and that new range of expectations is what we're looking for at the moment.

Obviously, that could change.

If we'd have some unusually warm weather later on in the year, we may well come back and move it up.

But given what we see today, what we've experienced in the first quarter and the first part of April, I think that's a much more realistic expectation for the range of FPL's contributions for the full year.

Right, could you -- I guess I'm trying to understand the underlying usage growth, maybe what would be driving that a little bit?

A better understanding of the non-weather usage growth numbers?

As I said, I think it's a number that is volatile from quarter to quarter, so it's a little difficult to do much analysis on that at this stage.

It's also a number that's clearly affected by economic circumstances, price elasticity and to some extent potentially the post-hurricane effect.

So I can't explain that one right now.

I'm just -- what we're really signaling is what we think is likely to be there.

The most likely part for FPL for the full year.

Again, we could be surprised the other way.

But based on what we see today, I think the new range is probably a better one.

Max Schreiber, Duquesne Capital.

It's actually Andrew Campelli.

I had two questions.

The first is on page 24, where you lay out the improving market conditions.

I was hoping you could expand on a little bit and talk about what's really driving the improvements in spark spreads, i.e., is it simply increasing gas prices such that your heat rates were 7000 -- excuse me, spark spreads were 7000, heat rate units are higher.

Or is it really seeing increases in marginal heat rates in the regions that you outlined on that page?

Well, we have Jim Robo with us, so I'm going to let him comment, because he's much closer to it than I am.

It's a little bit of both, frankly.

In ERCOT it would be more gas prices than heat rates.

In California, it would be more, frankly, heat rates than gas prices.

But I think what we're seeing in all the markets is a continuing acknowledgment that capacity -- existing capacity is going to have a value placed on it.

And particularly in California, where there is the ongoing reserve requirements and we're starting to get paid for capacity in that market.

We're starting to see that in spark spreads and starting to see that in concern about reserve margins going forward.

And then the second question I have is on slide 25 regarding the outlook for FPL Energy.

The interest expense line where you show an increase of 35 to $40 million, does that mean we need to think about an increase of 35 to $40 million at the parent as well, i.e., you're allocating 50% interest expense to FPL Energy, or am I interpreting that incorrectly?

No, no.

Most of what I think of as the imbalance as reflected in corporate and other is historical.

Looking forward, it's primarily driven by the assumption around new wind investment.

So we're building into those numbers the interest that each of those projects would have to carry on its own, so there will be effectively very little spillover into corporate and other.

So that 100% of the interest expense related to the new investments, then?

Yes, and there's an assumption of about a 50-50 (multiple speakers) there's an assumption about a 50-50 capital structure.

Oh, 50-50 capital structure, okay.

It could look a little better than that.

Obviously, the deals that we've done -- the two portfolio deals had substantially north of 50% leverage and still substantial non-credit -- or off-credit treatment in the credit analysis.

So it might look a little better than that.

But, as a baseline, I think it's carrying its own weight.

(Operator Instructions).

Stephen Roundtop, Talon Capital.

I think, Moray, the last time you had spoken on a conference call, we talked about the capital that you had refinanced from the wind project and the ability to use those proceeds for other opportunities, which at that point were kind of left unsaid.

But one of the possibilities was a share repurchase or acquisition.

And I think, given where you see your wind CapEx for '05 and at the high end of your 250 to 750 range, what can we expect from a share buyback perspective, and how close are you, I guess, if at all, on any potential acquisitions.

As I said in the prepared remarks, the sort of increasing optimism on the spend profile at FPL Energy has caused us to rethink, at the very least, the timing of repurchase.

As you said, we are now in the upper half of the wind range, and that's clearly an implied increase in CapEx relative to the baseline expectations with which we went into the year.

That increase in CapEx obviously needs to carry with it its appropriate equity component.

We have the solar acquisition is a small piece, but the same principle applies.

So, at this stage, the same framework still applies.

But I think we need to kind of go a little further through the year and see a little better where we are on that actual capital spend profile.

One other factor that I might mention, which was not in the prepared remarks, is that on a pure annual cash flow -- free cash flow basis, our outlook has changed significantly for the worse for this year, primarily because of clause effects at FPL.

With the run-up in gas prices, notwithstanding the fact that we've hedged the fuel at FPL extensively, we're still -- we've had big cash outlays to support the fuel purchases.

Now that would obviously turn around in future periods as the cause (ph) mechanism adjusts, but in any given year, we have to watch out for that cash-flow effect, and that clearly has an impact from a credit perspective, so we have to be a little sensitive to that.

You had said that you were going to be cash-flow break-even roughly at the midpoint of your wind range.

Now that you're giving the high end, and, you know, these additional negative drains from the utility, you're assuming that you're significantly cash-negative for '05?

Yes, on an annual basis for '05, we now expect to be very significantly negative.

There's been a swing to the tune of 4 or 500 million in the fuel clause alone.

So, obviously, that needs to be financed.

So as I said, that factors into the timing question as well.

So we want to make sure that we retain the flexibility we need to be able to support our financial profile and obviously support both our key businesses.

On the second part of your question, I don't have anything more specific to give you on the acquisition front, other than to say that we are constantly looking at a number of different projects.

And I'd simply say that at this stage we feel a little more optimistic than we have done perhaps and certainly last year, but some of those things may come to fruition this year.

That's not a guarantee.

They could all still come to nothing.

We're not going to push for anything unless we're really comfortable with the economics and the fit with the portfolio and the strategy.

But there are a number of things in the pipeline that at least hold some promise.

Greg Aural (ph), Lehman Brothers.

You just touched on a 400 to $500 million swing in fuel recovery.

What's the timing of that?

Does that turn around this year?

No, that would not turn around until subsequent year.

The typical timing would be that we would go in with the annual fuel filing in the fall and we would incorporate into that filing not only the expectations at that time for '06 but also where we think we we're likely to end up '05.

Now, I should point out that that fuel clause number is very volatile, but that's precisely one of the reasons why we maintain the strong balance sheet is that so we can continue to essentially finance large balances there.

And if you can tell me what's going to happen to gas prices for the rest of the year, I could give you a better idea of what that number will end up being at the end of the year.

So I think it's early to predict what that will be.

But, just as of today, as I indicated, there's been a pretty significant swing relative to where we were when we did last year's fuel filing.

But typically you go in with a fuel filing in the fall, and on the basis of that you set a new fuel factor for the coming year.

Right, for part of the annual planning process?

Correct, yes.

So in general, you're not as focused on stock buybacks in the near term, and I guess as it relates to the guidance, the things that you've spent money on -- GEXA and looking to add more wind than expected.

That's going to provide income at FPLE, whereas it would really be dilutive to FP&L.

So, is dilution really a factor in addressing the FP&L guidance for the year?

Not significantly, no.

Here's the way that I look at it.

We did get the wind deal done and it was on attractive terms.

And we got partial sort of off-credit treatments in the credit analysis.

So, to my way of thinking, that effectively means that we freed up some shareholder equity and that equity can now be redeployed.

And we really have ways that we can redeploy it.

We can either redeploy it to invest in supporting new growth at FPL Energy or we can return it to the shareholders.

The original plan presupposed a certain level of activity at FPL Energy and that kind of left a residual amount or at least a range of residual amount that we thought we would be using for repurchase.

Relative to where we were, when we put that plan together, we've now increased effectively the implied equity support for the new investment, which obviously will be accreted in subsequent periods.

And so that means kind of less emphasis on the repurchase component in the short term.

In terms of the impact on dilution, there potentially could be a sort of timing dilution inasmuch as obviously if you do a repurchase today, then it shows up instantly in the EPS effect, whereas if you put it into a new wind project, the new wind project only starts being accretive when the turbines start turning.

So maybe there's a few months of effective dilution in that decision.

We think that's a sensible one as compared to the alternative, which is doing a significant repurchase today and then coming back to the open market to do a share issuance at significant transaction cost a few months from now.

But that's effectively the trade-off that we're making, at least in our own minds.

David Reynolds, Tribeca Global Management (ph).

Just a couple of quick questions on the regulatory front.

Moray was breaking down some of the pieces that had been requested.

One is $100 million for the purposes of costs associated with the transition to competition or a study thereof.

I'm trying to remember, is this something that's underway, commission-ordered -- i.e., is the Company actually spending money on this, or is this request simply in anticipation of ultimately having to do that?

And then, a quick second question kind of along the same veins, on the regulatory front.

I know what the historical treatment of the purchase power debt has been and the purchase power agreements as imputed debt has been.

I guess, with more and more companies having purchase power contracts on their books and so on, is there something distinctive about FPL's purchase power agreements that makes a lot of sense for it to be traded as long-term debt as opposed to any other obligation?

So I guess just those two things.

Let me take the RTL first, and let me say first that this is not about a transition to competition in the sense of wholesale restructuring of (multiple speakers)

Right, right. (multiple speakers)

But, dating as far back as '99 or 2000, I can't remember the exact history, we along with the other IOUs (ph) in Florida were committed to marching down the path of a regional transmission organization.

That has gone through several metamorphoses in the course of time.

But where we stand today, we are still required to continue down that path.

The main issue currently on the table, the Commission has -- the Florida Commission has expressed some concern about whether an RTO in a market like Florida, which doesn't have wholesale competition, which has some other peculiar characteristics being a -- the Peninsula, where the customers would actually benefit from moving to an RTL-type organization.

And therefore, they have required us and the other IOUs to complete a cost-benefit analysis, which should be done fairly soon, I believe.

To my way of thinking, you have one of two situations.

If the benefits exceed the cost, then presumably the value to the RTO and presumably the costs are justified, in which case they need to be reflected in revenue requirements and hence rates.

If the costs are greater than the benefits, then obviously, that raises questions about whether we should be continuing to go down the path that we are currently on.

So, but at the moment, that's the path we're on and therefore, we need to estimate what those costs would be, and that's what we put into the rate case filing.

We're not spending anywhere near those amounts today.

That's the first one.

On the second one, on the question of imputed debt, I'm not in a good position to say what other companies are doing or what is being done in the analysis for other companies.

But the imputation of debt associated with purchase power agreements has been a long-standing thing on the part of the credit rating agencies.

It's most clear with S&P (ph) because they have published papers showing exclusively how they conduct that methodology.

But each of the agencies to a greater or lesser extent has a similar approach, and clearly there is some economic rationale to it.

We don't necessarily agree in all the specifics with the methodology, but it is what it is.

As to the question of whether there's anything specific about FPL's PDAs, I don't really think so.

They fall in the S&P framework, they tend to fall into the middle bucket of risk category because we have a long-established pattern of recovering them through clauses, which S&P considers favorable for risk, although not the same as if they are protected by -- recovery is protected by legislation.

So we're in that middle group, but they apply the same methodology to us that they apply to many other companies.

I think we have time for two more questions.

Amit Karachi (ph), Banc of America Securities.

Question on improving spark spreads in Texas.

It seems like you guys are seeing market conditions improve with spark spreads.

My question relates to the fact that you're maintaining the guidance at FPL Energy and from where you see forward spark spreads, does this mean that you guys have already assumed this improvement in your guidance to the same level that you saw spark spreads improve in the first quarter?

I would say that at this stage, first of all, we don't have that much unhedged capacity remaining for the rest of the year, so the impact in the current period or current year is relatively muted and is frankly within the range of our overall estimate anyway.

What really happened in the first quarter is we just had a disastrous lack of wind, but strong performance in the other parts of the portfolio, of which the extra strength in ERCOT was one component; it certainly made up for that.

But at this stage, I don't think we have enough information to say that that's -- the effect of carrying that through the rest of the year is really going to be meaningful to pushing up the range for FPL Energy.

We feel very good about where FPL Energy is for the year.

We feel even better about where it's likely to be going into the future.

But, again, we still feel pretty comfortable with the range we originally laid out at this point.

Now, we'll see again -- we'll have another update in a few months.

Right, and I guess you guys assume wind resources will sort of get back to normalized levels for the rest of the year?

Yes.

We always assume going forward average weather effects.

So, winds at the long-term averages.

Statistically, there's nothing particularly unusual about the first quarter as well, within the bounds of what you can expect, but just you roll the dice enough times and every time -- now and again you come up with snake eyes.

Paul Patterson, Glenrock Associates.

I just wanted to clarify something here.

The weather impact looks like it's about $0.02 to $0.03, and you guys are lowering your guidance by about a nickel.

And I'm just try to get a complete picture as to what is filling out the rest of that.

Is it the non-weather-related customer usage?

Is it the -- less of the stock buyback as compared to the investments, or--?

No, the pieces at FPL -- there's about $0.03 from pure -- what we had reported as pure weather effect.

Without getting too technical, we believe that our current modeling of weather tends to understate that affect in periods like the first quarter.

So we actually believe the true weather effect is more like $0.035, $0.04.

And there's another penny in there for the other usage effect.

Okay, and then just back to the contract renegotiations, that was about $0.03 for the quarter.

And the contract that you mentioned that you guys had sort of done -- it sounds like going forward though, it basically is accretive to earnings in some ways as well, even though you're taking sort of an $8 million benefit this year -- (multiple speakers)

Yes, that's correct.

So, we shouldn't expect any negative effect going forward from this contract renegotiation, right?

No, because it's typical of these things.

There's a little bit of a onetime upfront pop, and then there's positive ongoing book in cash effects.

So, from a comparison point, next year, assuming we don't have another equivalent, obviously, that $0.03 would not be there.

But from a subsequent period effect, it filters through -- it will filter through existing assets as a slight positive.

And we're standing by with no further questions at this time.

I will turn the conference back over to you, gentlemen.

Thank you for joining us this morning, and that will conclude our conference call.

Thank you.

Think you, and once again that does conclude today's conference call.

We do appreciate your participation.

You may now disconnect.