新世紀能源 (NEE) 2008 Q4 法說會逐字稿

Good morning, everyone, and welcome to the FPL Group's fourth quarter 2008 earnings release conference call.

Today's conference is being recorded.

At this time for opening remarks I would like to turn the call over to Mr.

Jim von Riesemann, Director of Investor Relations.

Please go ahead, sir.

Thank you, Audra.

Good morning, everyone, and welcome to our fourth quarter and full year 2008 earnings conference call.

Lew Hay, FPL Group's Chairman and Chief Executive Officer, will provide an overview of FPL Group's performance, recent accomplishments and long-term goals.

Lew will be followed by Armando Pimentel, our Chief Financial Officer, who will discuss the specifics of our financial results.

Also joining us this morning are Jim Robo, President and Chief Operating Officer of FPL Group, Armando Olivera, President and CEO of Florida Power & Light Company, and Mitch Davidson, President and CEO of NextEra Energy Resources.

Following our prepared remarks, our senior management team will be available to take your questions.

Let me remind you that our comments today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

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 are contained in the Appendix here and in our SEC filings that can be found in the investor section of our website, www.FPLgroup.com.

Before turning the call to Lew, in today's presentation we will mention the terms GAAP and adjusted earnings.

FPL Group's management uses adjusted earnings internally for financial planning for analysis of performance, reporting of results to the board of directors and is input in determining whether certain performance targets are met for performance based compensation under 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 adjusted earnings provide a more meaningful representation of FPL Group's fundamental earnings power.

The Appendix accompanying this presentation contains a complete reconciliation of GAAP results to adjusted earnings.

And now I will like to turn the call over to Lew Hay.

Thank you, Jim, and good morning, everybody.

2008 was a great year at FPL Group where we achieved record adjusted earnings of more than $1.5 billion.

FPL Group's adjusted return on equity for 2008 was 13.8% which tied for the highest in 20 years.

We grew adjusted earnings per share by 10%, the third consecutive year of double digit growth.

And FPL Group's stock price, while down approximately 25%, outperformed the S&P utility index and the S&P 500, just as we have for the six of the last seven years.

Our results for 2008 were driven by NextEra Energy Resources which we recently renamed from FPL Energy to better reflect the company's clean energy mission and market focus.

NextEra Energy Resources had record 2008 earnings of $821 million on an adjusted basis.

At Florida Power and Light, we continued to exercise prudent management in the face of an unprecedented Florida economic downturn.

While our utilities fourth quarter and full year results were significantly impacted by the national and state economic downturn, our long-term plans advanced with the approval of new cleaner and more efficient generation projects that will benefit customers and shareholders alike.

We are extremely fortunate to have two world class businesses under one roof.

At NextEra Energy Resources our status as the nation's number one renewable energy provider, and our clean overall generations fleet position us exceptionally well for the low carbon and renewable policies advocated by the new Administration and Congress.

At FPL we continue to believe that owning a premier utility in a location attractive to long-term demographic trends is a position most would envy.

We believe that FPL Group's demonstrated ability to generate double digit earnings growth in a highly challenging year is a powerful endorsement of our long-term strategy, our commitment to financial discipline and our dedicated and talented employees.

We were particularly pleased to be named the nation's most admired electric utility by Fortune magazine for the second year in a row.

Before I turn the call over to Armando Pimentel to discuss our results in greater detail, I would like to focus on a few of the significant accomplishments that drove our success.

Perhaps most significant is the fact that despite the economic downturn we were able to add approximately 1,300 megawatts of new wind capacity at NextEra Energy Resources, the biggest single one year increase in our history.

We led the United States in new wind capacity put into service in 2008 just as we have for seven of the last eight years.

By year end, NextEra Energy Resources had about 6,375 megawatts of installed wind capacity in North America, vastly out-pacing all other players in the market.

At Florida Power and Light, the downturn in the economy overshadowed a number of important developments, most notably approval to build additional generation that will reduce fuel costs for our customers, improve our emissions profile and reduce the state's reliance on imported fuels.

For example, we were granted approval in cost recovery for our three solar powered plants.

The first utility scale solar project anywhere in the state of Florida.

We were also the first utility to receive state regulatory approval to pursue additional nuclear units, and we can recover preconstruction costs as they are incurred.

Of course, the ultimate decision to build Turkey Point 6 and 7 will depend on the benefits that can be achieved for our Florida customers and our shareholders.

We will not subject either to undue risk.

Meanwhile, we continue to move forward on our $1.8 billion investment in nuclear upgrades at Turkey Point in St.

Lucie which are scheduled to be completed during the 2011, 2012 time frame and are expected to boost capacity by 400 megawatts.

These upgrades will deliver tremendous benefits for our customers in terms of lower fuel costs, increased energy independence and reduced greenhouse gas emissions.

As we previously announced, we will also be initiating a rate proceeding with the Florida Public Service Commission in 2009.

We recognize how difficult the current economic downturn has been on our Florida customers and we are taking significant steps to keep our costs under control.

For example, during the third quarter earnings call we announced capital expenditure reductions at FPL of approximately $500 million in 2008, $400 million in 2009.

We are committed to seeking a rate adjustment that keeps our customers' bills well below the national average even as it funds investments that will make our electrical systems stronger, smarter, cleaner and more efficient and less reliant on any single source of fuel.

Finally a word about the capital markets.

When countless businesses were huddled in a defensive crouch wondering whether they would be able to access capital, FPL Group's commitment to financial discipline, attractive projects and a strong balance sheet meant that capital remained available.

We were able to raise approximately $1.3 billion on favorable terms in the fourth quarter alone including close to $600 million in wind project financing.

For all of these reasons, our industry leading renewables business, our solid utility and unquestioned financial strength, FPL Group has been able to grow earnings per share by double digits despite the downturn and is in a very strong position to take advantage of future opportunities.

With that I will turn the call over to Armando Pimentel before providing some concluding remarks.

Thank you, Lew.

Good morning to everyone.

In the fourth quarter of 2008 FPL Group's GAAP net income results were $408 million or $1.01 per share compared to $224 million or $0.56 per share during 2007 fourth quarter.

FPL Group's adjusted 2008 fourth quarter net income and EPS were $361 million and $0.90, respectively, compared to $284 million or $0.72 per share in 2007.

The difference between the reported results and the adjusted results is a positive mark in our nonqualifying hedge category partially offset by the exclusion of other than temporary impairments or OTTI.

Both of these adjustments affect NextEra Energy Resources results.

I will discuss both of these in more detail later in the call.

For the full year, FPL Group's 2008 GAAP net income was $1.64 billion, or $4.07 per share, compared to $1.31 billion, or $3.27 per share in 2007.

Excluding the mark to market effect of nonqualifying hedges and OTTI, FPL Group's 2008 adjusted earnings were $1.55 billion, or $3.84 per share compared to $1.4 billion, or $3.49 per share in 2007.

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

Turning now to Florida Power and Light, the results for 2008 were lower than what we had expected when we began the year, as the company continues to be effective by the national and state economic slowdown.

In the fall of 2007, we indicated that Florida Power and Light would face significant uncertainty on the revenue front owing to slowing customer growth and lower usage patterns.

The slowdown in both has been more pronounced than we had originally expected.

I will discuss these topics in more detail later.

Customer growth for the full year came in well below historical performance.

We are reporting essentially flat annual customer growth after several years of growth around a range of 2%.

Usage was also lower for both quarterly and annual comparisons.

We had expected some price elasticity effect given the rise in commodity prices in the first half of the year.

The deteriorating economy, especially in the latter part of the year, also contributed to lower usage.

The increase in the number of inactive accounts also rose significantly.

And finally, the weather impact for the full year was down relative to a year ago but slightly above the 59 year average.

I will discuss all of these factors in more detail in just a moment.

On the positive side, we continued on our track record of delivering strong cost management which allowed us to reduce our O&M costs by approximately 10% relative to our original expectations.

Our bad debt expense is increasing but as of this point remains manageable.

For the year ended 2008, our bad debt net writeoffs were less than 1/4 of 1% of revenues at Florida Power and Light.

Our total accounts receivable balances over 90 days is roughly $16 million.

That is an increase of approximately $2 million from the comparable year's period.

Florida Power and Light's initiatives to continue to position the company for the long-term are progressing.

Continuing capital expenditures at FPL are needed in order to ensure we are able to deliver important benefits to customers such as increased fuel efficiency and reduced emissions in the short-term, and enhanced fuel diversity over the longer term as well as storm hardening.

In 2009, we expect to place two highly efficient natural gas units selectively known as the West County Energy Center into service.

The first 1,220-megawatt unit should be online in the second quarter, and the second identical unit should come online in the fourth quarter.

The total cost of these two facilities is anticipated to be approximately $1.3 billion.

The addition of these facilities to our portfolio is expected to be beneficial for both the customers and to shareholders with a slight increase in base rates more than offset by the fuel savings arising from the incremental efficiency of the new units.

As a reminder, the revenue requirement associated with these two facilities is already approved under the application of the generation base rate adjustment, or GBRA, which allows FPL to increase base rates for the cost of the pre-approved new generation facilities that are placed into service prior to the expected expiration of our current rate agreement at the end of 2009.

In 2011, we expect to bring a third identical unit into service at the West County Energy Center, and in 2013 and 2014 we expect to complete the modernizations of the Cape Canaveral and Riviera plants.

These three facilities will add approximately 3,650 megawatts of highly efficient generation at a cost of approximately $3.3 billion.

We remain on track with our program to build a total of 110 megawatts of solar generation by year end 2010.

The total cost of these three projects is approximately $700 million.

In mid-December we broke ground at the 75 megawatts Martin County site.

We plan to break ground on the two remaining solar sites which will add 35 megawatts in the aggregate next month.

And finally, last November we filed a letter of intent with the Florida Public Service Commission notifying them the company plans to initiate a base rate proceeding in March 2009.

I will have more to discuss in our pending rate case a few minutes.

For the fourth quarter Florida Power and Light reported net income of $151 million compared with $173 million in last year's fourth quarter.

The corresponding contributions to EPS were $0.38 per share and $0.43 per share, respectively.

For the full year, Florida Power and Light reported net income of $789 million, compared with $836 million in 2007.

Earnings per share for 2008 were $1.96 versus $2.09 in the comparable period a year ago.

The quarterly and yearly results include an after tax gain of approximately $27 million, or $0.07 per share, as a result of a contract termination.

However, in the fourth quarter FPL also recorded one time after tax expenses associated with ongoing or resolved regulatory issues, as well as employee severance costs of approximately $22 million, or $0.05 per share.

Fourth quarter weather was below normal.

Heating and cooling degree days were roughly 12% below normal.

If we would have experienced normal weather, that is, weather based on a 59 year period of observations, FPL earnings would have been higher by approximately $0.03 per share.

I would now like to spend a few minutes updating you on what we are experiencing in terms of customer metrics.

Let's look at the four graphs on the accompanying slides starting with the two on the top.

On the left side of the top line we show full year customer growth figures.

Although on an average full year basis we gained approximately 13,000 customers, at December 31, 2008, we actually had about 11,000 fewer customers than we did at December 31, 2007.

On the right side of the top line where we show the fourth quarter, the customer growth rate was modestly negative at 0.2%.

The bottom part of the page shows two graphs related to inactive low usage customers as well as housing metrics.

First, the graph in the lower left hand of the page looks closely at inactive and low usage customers which, as you can see, the percentage of both continues to increase.

Low usage customers are defined as residential customers using less than 200-kilowatt hours per month, while inactive accounts are those where a meter is installed but there is no customer name or account associated with that meter.

As you can see in the accompanying chart, since year end 2007 the number of inactive accounts has increased by 57,000 to 302,000.

By way of comparison, the number of inactive accounts was 288,000 at the end of the third quarter.

While customer movements in and out of our service territory naturally cause a nominal level of low usage and inactive accounts, we believe the increases we have experienced the last year in both of these metrics are indicative of empty or near empty homes in our Florida territory.

Inactive accounts are not included in our total customer account of roughly 4.5 million.

And finally let me put some color on the chart in the lower right hand corner which looks at existing home sales for the state of Florida.

These are the sales of single family residences and condos.

As you can see, over the last several months existing home sales in 2008 have eclipsed to 2007 numbers.

That trend continued in December of 2008 as Florida single family sales increased by 27% over 2007.

Amidst other signals of a troubled economy that we all hear and read about every day, this trend reversal in home sales is a bit of good news.

The table on the accompanying slide summarizes the drivers of retail kilowatt hour sales growth for both the fourth quarter and full year 2008 for Florida Power and Light which were down 8.4% and 2.4% over last year's comparable periods, respectively.

Usage growth associated with weather decreased 6.2% quarter over quarter and fell 0.9% year-over-year.

During the quarter, weather had a negative impact of $0.09 per share relative to a year ago and was $0.03 negative relative to normal.

Similarly, for the year, weather was a drag on FPL's result of $0.06 per share relative to a year ago, however it was $0.05 above normal.

We've also experienced a decline of usage for retail customer compared to the fourth quarter of 2007.

For the quarter, underlying usage declined 2% and for the year it fell 1.8%.

The most recent data from the economists at the University of Florida forecast annual population growth in Florida of 1% to 1.5% over the long term, and we would expect to see the growth in underlying customers and sales rise commensurately with the population increases.

Although we certainly don't expect that type of growth in 2009.

I would now like to provide you with an update on the key regulatory topic we will be facing this year.

In November 2008, Florida Power and Light filed a letter of intent with the Florida Public Service Commission notifying them the company plans to initiate a base rate proceeding in March 2009.

The new rates would take effect January 1, 2010, upon approval by the PSC.

FPL's retail base rates are 17% lower now than they were in 1985, the last time a general base rate increase was sought and granted, despite inflation of 107% for the same period.

According to the most recent data available from the Florida Municipal Electric Association and Edison Electric Institute, FPL bills are 13% lower than the average bill in Florida and 17% lower than the national average, even as FPL has made investments that make the company one of the cleanest and most energy efficient generators in the United States.

We remain mindful of the difficult economy.

We are also responsible for making prudent long lead time investments in the electrical infrastructure.

A general base rate increase will help customers by supporting investments in clean energy that is safe, reliable and efficient.

This rate case filing is expected to trigger a process that could last a better part of eight months with a decision by the end of 2009.

The table shown here summarizes the earnings driver for Florida Power and Light for both the quarter and year.

In the interest of time I will not read each number to you.

For those of you without immediate access to the slides they are available in the investor section of our website, www.FPLgroup.com.

In total, the quarterly comparison was down and the comparative annual figure is lower by $0.13 per share.

Relative to the original expectations we shared with you in the fall of 2007, we ended the year $0.19 per share below the lower end of the range due almost entirely to the slowdown in revenue.

Let me now turn to NextEra Energy Resources which turned in another excellent quarter and an outstanding year overall with adjusted EPS growing 62% and 30%, representatively.

The annual growth was driven primarily by contributions from new assets, both new wind projects and the September 2007 acquisition of the Point Beach facility, as well as strong contributions from our NEPOOL assets and ERCOT fossil asset that's benefited from favorable market conditions.

While all these factors were, to some degree, built into the expectations we shared with you a year or so ago, the existing portfolio performed better than expected due to favorable hydrogeneration and favorable market conditions in NEPOOL and ERCOT, as well as strong optimization.

Operationally, the fleet continued to perform very well with a total portfolio forced outage rate under 3% despite an unplanned outage at our Seabreak facility during the first quarter of 2008 that cost us about $0.05 in EPS.

In addition, we were able to fund certain incremental G&A expenditures, primarily for new renewable development that should help us continue to drive growth into the future.

We remain well hedged for 2009 and 2010.

For 2009 we are essentially hedged against the impact of natural gas prices and very significantly hedged against other price movements including spark spreads.

Over 90% of the equivalent gross margin we expect our existing asset portfolio to generate in 2009 is protected against commodity price volatility.

For 2010, the comparable figure is 89%.

The appendix of this presentation contains additional information on our hedging status.

Our wind development program continues to make excellent progress.

We finished the year having added 1,300 megawatts of new wind capacity.

This was about 200 megawatts more than we originally expected as opportunities to develop more projects and acquire additional wind assets at attractive rates presented themselves during the year.

For 2009 we continue to expect to add approximately 1,100 megawatts of wind.

To date, we have more than 480 megawatts either under construction or already approved for construction.

We believe our original goal of adding 7,000 to 9,000 megawatts over the 2008 to 2012 time frame is still within reason, assuming the usual caveats including continued public policy support, the addition of selective transmission to support renewable development, and continued wind supply chain expansion among others.

FPL Group, Inc.

In addition, our 2009 and future goals rely on the availability of capital at reasonable cost.

We continue to be cautiously optimistic that financing for renewable energy projects that have longer term PPAs with investment grade counterparties will be available in terms that will enhance long-term shareholder value.

As I indicated in the third quarter call, as conditions in the financial markets warrant, we will have the opportunity to scale up or down our wind build program am 2009.

NextEra Energy Resources 2008 fourth quarter reported GAAP earnings were $265 million, or $0.66 per share, compared with $72 million or $0.18 per share in the prior year period results.

Adjusted earnings for the same period which exclude the effect of nonqualifying hedges and net OTTI were $218 million compared to $132 million.

The equivalent first share contributions were $0.55 and $0.34, respectively.

Excluded from adjusted results are the effects of transactions in the nonqualifying hedge category in OTTI.

During the quarter the forward curve for power and natural gas fell significantly, and this led to GAAP book gains in the nonqualifying hedge category as a result of the contracts that we have in place to hedge our future power sales.

These gains are, of course, offset by roughly equivalent losses in the economic value of the underlying physical asset positions, which losses do not appear in the GAAP financial statements.

Because of the very nature of these one sided GAAP effects, we continue to exclude nonqualifying hedge results whether positive or negative from adjusted earnings that we report to you.

In the fourth quarter we continued to see pressure in both equity valuations and interest rates.

Those results affected NextEra Energy Resources nuclear decommissioning funds which suffered significant OTTI losses consistent with the overall market performance during the period.

Net OTTI losses for the quarter were $47 million.

As a reminder, under GAAP, OTTI losses on investments must be recognized as a difference between carrying value and fair value, if a company's investments are managed by an outside agent and the company does not have full control of when investments can be sold.

For nuclear decommissioning trust funds, regulators generally prohibit a company from giving day to day management direction as to when trust investments may be bought or sold.

For adjusted earnings, net OTTI losses are presented on an after tax basis net of any gains on the sales of such securities during the period to the extent OTTI losses were previously recognized.

For the full year, NextEra Energy Resources reported GAAP earnings were $915 million or $2.27 per share, compared with $540 million, or $1.35 per share in 2007.

Adjusted earnings were $821 million, or $2.04 per share versus $632 million, or $1.57 per share last year.

The full year impact of the nonqualifying hedge category was a positive $170 million, reflecting a large decrease in forward prices that we observed over the latter part of the year.

Net OTTI losses for the year were $76 million, or $0.19 per share.

NextEra Energy Resources fourth quarter adjusted EPS grew by 62%.

New asset contributions, primarily new wind, accounted for a $0.07 improvement.

The 2008 fourth quarter results benefited from approximately 2,056 megawatts of additional wind capacity compared with a year ago.

You'll recall this includes the 85 megawatts of Canadian Wind we acquired in June 2008.

The existing portfolio added $0.12 in the quarter, driven primarily by favorable market conditions at both our NEPOOL and ERCOT fleets.

Existing wind business declined modestly.

Results from wholesale marketing and trading activities declined by $0.01 owing to lower full requirements earnings relative to a year ago and this was offset by a gain from the sale of project in development.

All other factors were a positive $0.02 owing primarily to certain state income tax allocation changes partially offset by higher overhead associated with continued growth of the business.

For the full year NextEra Resources adjusted net earning per share increased $0.47.

To summarize the 2008 fourth quarter on an adjusted basis, FPL contributed $0.38, NextEra Energy Resources contributed $0.55 and corporate and other was a negative $0.03 contribution.

That is a total of $0.90 compared to $0.72 in the 2007 fourth quarter on an adjusted basis.

For the full year 2008, again on an adjusted basis, FPL contributed $1.96, NextEra Energy Resources contributed $2.04, and corporate and other contributed a negative $0.16.

That is a total of $3.84 a share or an increase of $0.35 over the same period in 2007.

For the year, the corporate and other drag was a little less than we had expected primarily owing to higher interest expense partially offset by more favorable impact from certain consolidated income tax adjustments.

We finished the year within the 383 to 393 range that we originally set out in October of 2007 and delivered growth and adjusted EPS of about 10%.

It was an excellent year overall for FPL Group.

Our previous 2009 adjusted EPS target range remains at 405 to 425 and we feel comfortable with this range with what we see today.

As a reminder, our adjusted expectations include the assumption of normal weather and operating condition, no further decline in the national or state economy, a reasonable capital market atmosphere, and exclude the cumulative effect of adopting new accounting standards, if any, the mark to market effect of nonqualifying hedges and OTTI, none of which can be determined at this time.

Please see the appendix accompanying the presentation for a list of additional key assumptions and cautionary statements.

For 2010 the adjusted EPS target range of $4.50 to $4.90 remains unchanged.

As I mentioned during our third quarter earnings call, and reiterate today, based on our current plans and taking into account the earnings assumptions that are included in the appendix, we continue to feel comfortable with our goal of growing adjusted EPS by an average of at least 10% per year through 2012 off of 2006 base of $3.04.

As I also indicated in our previous earnings call, we did not commit to an even 10% increase every year although it certainly worked out that way this year.

Before turning the call back to Lew, I would like to take a few moments to discuss our financing plans and recent achievements in the capital markets.

We expect to continue to use a mix of project lending, differential partnership interests, hybrid corporate capital issuances, as well as conventional corporate debt, first mortgage bonds and perhaps a limited amount of new equity capital over the next four years as we continue to support strong capital expenditure profiles at both of our main businesses.

During the fourth quarter credit turmoil, we had continued daily access to the commercial paper market and the rates we are seeing today are either at or below where they were before the credit crisis worsened in September 2008.

As an indication of our short-term borrowing rates, at December 31, 2008 our average annual interest rates for 30-day commercial paper at FPL was approximately 30 basis points, and 45 basis points at FPL Group Capital.

The longer data credit markets have also been accessible and, as Lew mentioned, we passed those markets.

In December we issued approximately $1.3 billion in debt at very attractive rates.

This includes close to $600 million in limited recourse project finance related debt that was issued in support of some of our existing wind projects.

Although the available financial players are more limited than they were at this time last year, as I said before, we continue to believe there is appetite for project finance debt capacity provided a long dated EPA agreement contract exists with investment grade utility.

Our commitment to maintaining a strong balance sheet with disciplined investing has served us well during this very difficult period.

Our debt ratings are currently A by the three rating agencies and our goal is to maintain the rate.

We have said all along our capital spending needs would not be met entirely by internally generated funds or through incremental debt.

Today we have filed with the SEC to offer up to $400 million in common stock through a continuous equity offering program, sometimes referred to as an at the market or equity dribble program.

We plan on issuing equity under this program in 2009 and 2010, as conditions warrant.

However, there is a chance that we could issue much less than $400 million, even zero perhaps, if we are not comfortable with market conditions or other factors.

We have designed a program to maximize our flexibility, both in terms of how much equity we issue and over what time frame.

We are very pleased that we now have an additional tool that will help us achieve our growth goals while allowing us to retain our strong and efficient corporate capital structure and credit position.

And now I would like to turn the call back to Lew who will provide concluding remarks.

Thanks, Armando.

Let me make just one final point before we turn to the question and answer session.

In the wake of the last election, we believe a fundamental policy shift has taken place in the United States.

One that will create strong incentives for low carbon generation, especially renewables, and equally strong disincentives for high carbon fuels.

Shortly after the election, President Obama made it clear that despite a weak economy he will continue to seek to put a price on carbon dioxide through a federal cap and trade program, and we have supported that approach through our membership in the US Climate Action Partnership and our active participation in the EEI Climate Task Force.

The Edison Electric Institute, which represents the industry in Washington, has come out in support of a major reduction in carbon dioxide emissions, 80% by 2050, and has agreed on an allowance allocation mechanism.

The Administration and Congress have also pledged strong support for renewable energy and we look forward to working with both to ensure that the right incentives are put in place.

We believe that no energy company in the United States is better positioned for a carbon constrained world than FPL Group.

Our investments in clean and renewable energy, our leading position in wind and solar generation development, combined with our low overall emissions profile mean we can capture the upside potential of a meaningful price on carbon while avoiding the downside risk.

We know these are exceptionally challenging times and we appreciate the support FPL Group shareholders have shown oer the years.

Our track record is one of consistently delivering strong results.

In fact, since 2002 FPL Group has outperformed 84% of the companies in the S&P utility index and 85% of the companies in the S&P 500.

Our total shareholder return during this period was 127% compared with 32% for the S&P utility index and minus 10% for the S&P 500.

Our commitment in the current environment is to maintain our focus on financial discipline, superior execution and strategic investments.

And our goal over the long term is to remain the company best positioned to profit from national and global trends that will shape the industry.

We are confident in our ability to achieve that goal.

I want to thank you for joining us today and for your continued interest in FPL Group.

With that I will turn the call over for questions.

Thank you.

(Operator Instructions) We will go first to John Kiani at Deutsche Bank.

Good morning.

I have a few questions on slides 23 and 24 in your presentation.

On slide 23 and also it looks like on slide 24 as well, where you show your expected equivalent gross margin, it appears that, from what I'm seeing here in '09 and also in '10 the asset base gross margin declined.

It looked '09 declined about $0.10 per share after tax and '10 declined about $0.21 per share after tax.

And it looks like those were partially offset by about a $0.04 after tax pickup in '09 on the nonasset based businesses and about a $0.09 per share pick up in '10 on the nonasset based businesses.

So two questions are, first, can you talk a little bit about what some of the offsets were that allowed you to maintain and reaffirm your '09 and '10 guidance considering that net of the asset base business offset there is still roughly it looks like a $0.07 decline in '09 and a $0.12 decline in '10 on those two slides.

And then second if you can talk about what the pick up is in the nonasset business, I would appreciate it.

Okay, John.

Let me first talk about what you picked up there on the difference, or the adjustment, on new asset additions and nonasset based businesses.

That's really just a reclass.

There is nothing more to that or nefarious about it.

We looked over some of the detail and we actually believe some of the information that we previously had in new asset additions really belonged in the bottom line.

And frankly, that nonasset based business is something that we may actually rename in the future because not everything that is in there is actually considered nonasset based.

So that's just a reclass between the two.

Whatever one decreased the other one went up.

To answer your bigger question, in 2009 we have some slight reductions in some of the gross margin line items, but nothing very significant, frankly.

This thing is going to move around every quarter, there will be some puts and takes every quarter, even in situations we will talk about in a second in 2010 when items are significantly hedged.

You might see some movement and you will see some movement because of basis positions and so on.

What you don't see here, obviously, is what I call is what's below the line.

These are the gross margins, a whole bunch of items that are below the line.

And taking everything into account I actually consider the 2009 differences to be rather minimal.

And we continue to feel pretty comfortable, very comfortable with the guidance that we have given.

2010, slightly different story.

Some of the numbers did move around a little bigger.

The spark spread line that you see down there in ERCOT that line has come down $30 million, $35 million or so on the midpoint.

And that's really a result of the decrease in natural gas.

A lot of that position in ERCOT are gas assets that were unhedged and we brought that down.

I think that should be expected by you and others who look at this chart.

You ask, well, gee whiz, your spark spread line item that stayed the same, you are only about 56% hedged there had which is the same thing a the last quarter.

But there again, there are other puts and takes there.

We have some assets that are spark spread, not necessarily natural gas, that were helpful.

So we feel comfortable with that line.

The biggest change, you didn't mention it specifically, the biggest change in the 2010 hedging position actually appears in the other ERCOT.

Those are our wind assets out in ERCOT.

I think we have taken that down about $40 million.

And although that was 99% hedged the last time we reported it to you and continues to be 98% hedged there, we do update that.

We have got hedges there that are not all in the wet zone.

We have some basis differences there.

We also updated from what we were seeing in transmission.

You can expect that to change this year, next year until we have the right transmission out in west Texas.

But even bringing that down $40 million, I'm sure if you don't have it as a second question, someone else will have it, we still have a pretty big range for earnings in 2010.

And I do not want you to take my following comment as to say, well, gee whiz, now these guys are coming to the lower end of the range in 2010.

We feel very comfortable with everything else that we have going on in the business including the amounts that affect adjusted earnings that are outside of gross margin and NextEra Energy Resources, we continue to feel comfortable with the 450 to 490.

Okay.

That's helpful.

One last question on the ERCOT wind that you mentioned, Armando, how should we think about beyond '10 from a hedge profile perspective and how the hedges roll off and when you end up rehedging those asset

We are going to not provide 2010 hedging guidance until later this year.

It's not the right time to do so.

There is competitive reasons to not do it.

We usually do it in the third quarter of the year and that's probably going to be consistent with what we do this year.

Okay.

Great.

Thanks.

That's helpful.

Next we will go to Greg Gordon at Citi Investment Research.

Good morning.

Looking at the utility, couple questions, when you say in guidance, normal operating conditions, what do you consider normal in terms of underlying customer growth and usage growth per customer?

And what are your O&M expectations off the 2008 actuals for '09?

Two good questions.

What do we consider normal and what we consider normal may not be what others consider normal.

We did include a question in the script about long-term customer growth around 1% to 1.5%.

But I also said that we do not expect that growth in 2009.

For 2009, if that's what you are thinking about, normal for us would essentially be flat.

Maybe slightly negative, slightly positive.

But I really would be looking at flat customer numbers for us.

I would consider that normal.

But we should reverse the loss you took versus normal on weather?

Yes, I would expect normal weather.

Weather is never normal.

Sometimes it's positive and sometimes it's negative.

Fourth quarter 2007, it was a very warm weather period here.

So when you compare both the full year and fourth quarter 2008 to 2007, we've got I think it was $0.09 for the quarter.

And I can't remember what it was, $0.06 for the year.

I may be wrong on that second number.

You should consider normal weather for the year.

You can change or reverse the effects of what I said a little while ago in the script about the quarter and the year.

In terms of O&M, we were able to reduce O&M as customer growth lowered this year.

That's not something that we will continue to be able to do on a significant basis.

A lot of that O&M is related to plants.

Our customers expect good service.

I wouldn't -- I may be looking closer to the 2007 numbers than the 2008 numbers.

At this point I would not expect any significant reductions in 0&M.

Potentially they will be a little higher as some of the things we were able to defer last year we will have to do this year.

Looking at the last surveillance report, the last one I saw, I thin it was October, I think the trailing 12 ROE at FPL had declined to 10.7, 4%.

Is there is an updated number?

The regulatory ROE for Florida Power & Light Company, 12 month trailing at December 31, is about 10.3%.

So continues to decline.

And when you think about the 2010 guidance, I looked at the actual authorized ROEs across all electrical gas utilities in '08 and they actually were just a hair under 10.5 nationally.

Let me just correct myself.

I said 10.3, it's about 10.8.

Okay.

So the national average is around 10.5.

You guys have always been able to do at least marginally better than the national average.

What type of assumptions are you embedding in your 2010 guidance vis-a-vis the outcome of the rate case?

I'm not going to provide a lot of detail there.

Obviously we are at the tail end of a very long agreement.

There has been some things that clearly have happened that we were not anticipating back in 2005.

We are not comfortable with the 10.8 gliding in here to the end of the agreement.

We've always had a very constructive regulatory framework in Florida.

We expect that to continue.

We have no reason to believe that it won't.

But it doesn't serve any of us well to discuss at this point what our expectations are for ROE going into a rate case.

Thank you.

We will move next to Jonathan Arnold at Banc of America.

Good morning.

Quick question on the legislative move to change the arrangements for recovery of the cost of building nuclear plants.

Can you comment on the genesis or what kind of traction you see with that?

Should we be concerned about that at all?

Jonathan, you are talking about some media reports from Florida that there may be some that are looking to change the legislative rules that we have here in Florida for nuclear cost recovery?

Is that correct?

Yes.

I guess my comment is that it's received a heck of a lot more media attention than I believe is the political reality.

There continues to be strong support for legislation here in Florida.

What we can build, the type of generation we can build here in Florida is limited.

I think our regulatory commissioners and our legislators understand that.

They understand the risks of building new nuclear and our supportive.

I think evidence of that are our first filing earlier this year to recover $200 million of costs during the first year which was approved.

That's my take.

I'm going to turn it over to Armando Olivera for a second to see if he has additional comments.

It continues to be, I believe, pretty strong political support in the state for nuclear, and I think there is a recognition that otherwise the state's reliance on natural gas will continue to increase.

As Armando said, it's gotten a lot of publicity, but at least at this point our assessment is limited to a couple of state legislators.

Thank you.

May I ask one other topic?

You talked about this equity issuance dribble program.

To be clear, was this $400 million over the course of 2009 and 2010, would be the base assumption?

You haven't said anything specific on timing.

It would be reasonable to assume that was over the two years?

That's exactly what I said in the script.

I'm limited in what we can actually talk about regarding the new program.

So for those I'm sure there might be others that have questions about our registration statement.

I will just say that we filed our offering documents with the SEC and they can be accessed at the SEC's website.

And because of SEC rules, I can't get into any more detail on the program itself.

Jonathan, your question, I think I answered that specifically a little bit ago which was our expectation that it will be 2009 and 2010.

If we do anything at all.

I also said that in the script.

Next we will go to Dan Eggers at Credit Suisse.

Good morning.

With your success in being able to get the project financing done in the fourth quarter and more constructive credit markets plus the dribble option, what is the thought process as far as the capital budget?

It seems like you were talking in the third quarter about flexibility to spend based on access to capital since it seems to be more available.

Does that mean there is more willingness to put more capital to work this year?

I think there might be.

There clearly might be an opportunity and I also addressed that in the prepared remarks a little earlier.

As of right now our Cap Ex budget remains the same which is approximately $5.3 billion for our two main businesses for 2009.

But again, as I said in the third quarter, we will continue to look at how the markets are behaving, how commodity prices are behaving.

And we believe there will be opportunity.

There will be opportunities for us to increase that.

We will take advantage of those opportunities if we believe they are in the long-term interests of our shareholders.

But there is a lot of doom and gloom also out there.

It's sometimes difficult to see exactly what's around the corner, exactly what will happen as some of these governmental programs start tapering off or maybe are continued.

So I don't want to leave everyone with the impression that our Cap Ex budget can only go up this year.

Certainly there is a chance that things might happen that we don't expect and it will go down.

With some of these smaller project developers on the renewable side of the business having a hard time finding capital, are you either, one, seeing opportunities to buy assets more cheaply to fill your development pipeline?

Or are you guys seeing any change in pricing, the $2000 a KW level, for wind turbines that we saw last year?

Let me make a couple comments.

One, I think you and others probably understand that there is a lot of opportunities out there.

There is a lot of folks -- a lot is relative, but there are many entities that were hoping to get tax equity financing done in the fourth quarter of last year.

Those financings for a variety of reasons did not get done.

You have some banks that have lent construction financing to those developers that were hoping to get taken out by the tax equity financing.

Those banks have now not been taken out.

They're wondering what the next steps are.

But you still have some developers that believe their projects may be worth a heck of a lot more than maybe reality would show today.

So, yes, there are a lot of opportunities out there.

I don't know whether those opportunities are things that we will be able to take advantage of.

Clearly, with all of the discussion in the stimulus bill that's got some of those smaller, if you will, developers that were thinking they were in a lot of trouble two months ago now thinking that maybe they aren't in as much trouble and maybe will hold out a little bit longer.

So, yes, one, there is opportunities.

Two, we are looking at them as you would expect us to.

I'm not ready to say anything else on that front.

Your comment on $2000 at KW, I think expectations are that this is no longer a sellers market.

It's a buyers market.

The price pressure on that is clearly down and not up and we will have to wait and see how it plays out the rest of the year.

Got it.

One last question.

With the drop in natural gas prices what are you expecting from a year on year change in rates for the utility customers in Florida?

I think your question is, as fuel prices are coming down, what just the fuel price decrease, what we would expect for our bill in January of 2010?

Is that it?

For all of 2000, if you think about the 2009 rates the customers are going to pay given how much gas prices have come in.

Rates I assume will be down in '09 versus '08.

Don't know if you have a way to quantify that at this point.

I will turn that over to Armando Olivera.

Dan, I have been through enough of these cycles to say it's way too early in the year for us to be speculating.

I think a lot of things can happen between now and November when we go in for the 2010 fuels.

So I don't think it's appropriate for us to be speculating right now .

This is Lew.

Remember, we just went in for our fuel hearings in November, the FPC ruled on that.

Keep in mind that we do hedge a certain portion of our fuel on a rolling basis.

If you recall, when we did our initial fuel filing, we thought that rates were going to go up some in '09 and then we revised that because fuel came down so hard.

Current rates reflect a lot of our thinking in fuel.

They may be coming down a little bit.

We will have to see.

It's seeming like it's a cold winter and we have yet to see what happens in the summer.

So, as Armando said, it's awfully early.

From our customer standpoint, it's encouraging that fuel is down versus being up.

Remember, a significant portion of our supply comes from the Gulf of Mexico.

So a very active hurricane season can arguably put some pressure, upward pressure on prices.

It's just way too early.

Okay.

Thank you.

We will go next to Paul Patterson at Glenrock Associates.

Good morning.

Most of my questions have been answered but just on the OTTI, previously that was an adjusted earnings and now it's out.

Is that right?

That is right.

It's been minimal in prior years.

It was about $0.01, $0.015 in 2007.

It was only in the first quarter of this year that we started adjusting it.

When we did, we go back and change on a proforma basis what we have done in the past.

Okay.

And the reason for that was because of the big move?

Is that what happened?

It was a big move downward?

Actually, no.

At the beginning of the year there weren't, as you all remember, maybe the credit markets were suffering a little bit at the beginning of 2008 but the equity markets for the most part still believed it was gung ho time.

It was really just a regular analysis that we underwent as the type of items that are or should or should not be included in adjusted earnings that we report to investors.

We actually made this change, I think it was the first week of March in 2008, before significant decreases.

And then we have just been consistent throughout the year.

The fourth quarter obviously saw some big decreases in equity prices and interest rates.

Decrease in there rates obviously also affect fixed income bonds.

But it wasn't just something that happened in the fourth quarter.

Just to revisit Greg Gordon's question I think it was, unfortunately I got distracted, did I understand it that the most ROE that you guys had on the utility was about 10.8% for 2008?

That's correct.

And 2009 did you give a projection for what you thought it would be because we don't have the rate case.

I think he asked about what the rate case outcome might be and understandably you don't want to get that far into it.

But for 2009 do you have a projection as to what kind of range you might be in terms of the ROE?

No, we do not at this point.

Just to go back on the OTTI question, one other comment.

That change, it's consistent with what others do.

I don't know if we were first or second or last or whatever.

Essentially, if you look at the power companies that have large unregulated nuclear plants, because this really affects nuclear decommissioning in an unregulated environment.

Everybody is pretty much doing the same thing we were.

I'd say see that's right, particularly for this year.

Thank you.

And we have time for one more question.

We will go to Phyllis Gray at Dwight Asset Management.

My questions have been answered.

Thank you.

Thank you.

That does conclude today's question and answer session.

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

Thank you everyone for joining us today and we look forward to seeing you at the first quarter earnings call.

That does conclude today's conference.

Again, thank you for your participation.