新世紀能源 (NEE) 2009 Q2 法說會逐字稿

Good day, everyone, and welcome to today's FPL Group second quarter 2009 earnings release conference.

Today's call is being recorded.

There will be question-and-answer session after today's presentation.

(Operator Instructions)

And now for opening remarks and introductions, I would like to turn the conference over to Jim Von Riesermann.Please go ahead, sir.

Thank you, Audry.

Good morning, everyone, and welcome to our second quarter 2009 earnings conference call.

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

We 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, Chief Operating Officer of FPL Group, Armando Olivera, President and CEO of Florida Power and Light 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.

We will be making statements during this that are forward-looking.

These statements are based on current expectations and assumptions that are subject to risk and uncertainties.

Actual results could differ materially because of factors discussed in today's earnings press release and the comments made during this conference call and the Risk Factors section accompanying -- in this presentation and in our latest reportings and filings with the Securities and Exchange Commission, each of which can be found on the Investor section of our website, www.fplgroup.com.

We do not undertake any duty to update any forward-looking statements.

Please also note that today's presentation includes references to adjusted earnings, which is a non-GAAP financial measure.

You should refer to the information contained in the slides accompanying this presentation for definitional information and reconciliations of the non-GAAP measure to the closest GAAP financial measure.

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

Okay, thank you, Jim and good morning, everyone.

Let me begin by saying that the economic conditions that we and our industry are facing remain very challenging.

Even so, on an adjusted basis.

we were able to grow FPL's earnings per share for the second quarter by more than 6% from $0.93 to $0.99.

On the the same basis, our year-to-date earnings per share have grown 11% versus last year.

NextEra Energy Resources had another strong quarter with adjusted EPS growing 29% year-over-year.

The principal drivers were the company's investments in new wind energy products, which were up by roughly 1,370-megawatts year-over-year, the positive effects of the American recovery and reinvestment act which allows us to take the value of federal wind production tax credits in the form of cash grants and strong performance from our wholesale marketing and trading businesses.

These results were achieved despite additional challenges during the second quarter in the form of poor wind resource and unfavorable market conditions for our fossil power plants in Texas.

At Florida Power & Light, earnings per share declined by 4% in the second quarter on a year-over-year basis.

These results were negatively impacted by the ongoing weakness in the Florida economy with retail sales declining by 2.8% and usage per retail customer declining by 2.5% year-over-year.

Meanwhile, our long-term commitment to providing our customers with affordable, reliable and clean energy continued in the quarter.

We recently submitted our request to the Florida Public Service Commission to build a new underground natural gas pipeline which will diversify and protect the state's supply of natural gas.

We believe that the investments we are making in Florida, combined with NextEra Energy Resources growing renewable energy fleet and positioning FPL Group exceptionally well for the low carbon economy of the future.

That future came closer to reality last month when the US House of Representatives passed the American Clean Energy and Security Act, also known known was the Waxman-Markey Bill.

For the first time ever, a body of the US Congress voted to regulate the carbon believed to contribute to climate change.

The central provision of the bill was a cap and trade mechanism that would set a price on carbon dioxide and other greenhouse gas emissions.

Over the long-term, pricing carbon is the only way to create a level playing field between renewable energy and higher-emitting fuels.

The bill would also create a national renewable electricity standard requiring utilities to derive a growing percentage of their electricity from renewable resources over time.

This is an exceptionally important part of the bill and one that would fuel the future growth of renewables in the United States.

Just as important, the bill will provide financial protections for utility customers to ensure that the transition to a lower carbon future is affordable, which is especially critical during an economic downturn.

The US Senate is scheduled to take up its own energy and climate bill this fall.

While the road to 60 votes in the Senate is more challenging that the road to 218 in the house, I sincerely hope the right compromises can be found to insure passage.

With that, I will turn the call over to Armando Pimentel, and I will be back later to provide some concluding remarks.

Armando?

Thank you, Lew, and good morning to everyone.

In the second quarter of 2009, FPL Group's GAAP net income results were $370 million or $0.91 per share compared to $209 million or $0.52 per share during the second quarter of 2008.

FPL Group's adjusted 2009 second quarter earnings and EPS were $401 million and $0.99, respectively compared with $375 million or $0.93 per share in 2008.

The difference in the GAAP results and the adjusted results this quarter is the negative mark in our non-qualifying hedge category and the exclusion of other than temporary impairments or OTTI, which were zero in the just completed quarter.

Before moving to our quarterly results details, let me remind everyone that weather, which includes the wind resource, can significantly affect our financial results.

The accompanying slide provides two columns that reflect the effects of weather in the quarter compared to both the prior year's comparable quarter and normal.

Based on normal weather, our quarterly results for 2008 and 2009 would have been $0.87 and $1.02 a share, respectively.

(inaudible) Favorable weather helped the EPS contributions by $0.03 in each year.

However, for NextEra Energy Resources, the story is mixed.

(inaudible) Weather was favorable by $0.03 per share, but in 2009, it was unfavorable by $0.06 per share.

Thus, the comparative quarterly per share results adjusted for weather are actually $0.15 higher rather than the $0.06 we reported.

As I mentioned a moment ago, FPL Group's 2009 and 2008 adjusted EPS were $0.99 and $0.93, respectively.

As a reminder, our adjusted results that we communicate to the investment community include only adjustments for non-qualifying hedges in OTTI.

So although weather effects are included in adjusted earnings, we felt it was important in this quarter to specifically communicate this variance.

For several quarters now, we have been providing to you information that gives you a very good idea as to how actual wind resource results differ from expected long-term averages.

We have again provided that information in the appendix.

In the second quarter, the wind resource was approximately 89% of the long-term expected average.

During the second quarter last year, the comparable percentage was 106%.

As we have been noting for some time, Florida Power & Light continues to be challenged on the revenue front given the downturn in both the state and national economies.

The second quarter results reflect a continuation of those trends.

Underlying sales volumes, which are a function of customer growth and electricity usage, continue to experience downward pressure.

We expect this downward pressure to continue for the immediate future.

And just a few moments, I will provide additional color on the Florida economy and how it is affecting some of the key metrics that we closely monitor.

O&M expense was essentially flat with last year's comparable quarter.

For the full year, notwithstanding the second quarter results, we continue to see increases in nuclear and fossil generation costs, higher employee benefits expense and higher customer service costs as being the main drivers of full year base O&M growth.

Our strategy of growing our wholesale business moved forward in June with the approval of two new contracts by the Federal Energy Regulatory Commission.

The first approval was for a long-term full requirements contract with the Lee County electric co-op.

We'll provide about 1,100-megawatts of power over the life of the contract that runs from 2014 to 2033.

The second FERC approval was a wholesale opportunity with the Seminole co-op where we have agreed to provide up to 200-megawatts of firm capacity and associated firm energy beginning in 2014 and ending in mid 2021.

And as part of our new nuclear generation project, on June 30, we filed a combined license application with the US Nuclear Regulatory Commission.

This application is part of a step wise approach to preserve the option to build additional nuclear generation for the benefit of our customers at the current Turkey Point nuclear site.

The NRC review normally takes three and a half years.

Now, before moving to the specifics of the quarter, let me briefly address the pending rate preceding at Florida Power and Light.

As many of you know, we are well into the regulatory proceedings governing our base rate increase request..

Hearings are currently scheduled to begin August 24 and run through September 4.

A decision on our rate case is currently slated for a special agenda meeting on October 28.

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

Now let's turn to a review of factors underpinning FPL's results.

Second quarter 2009 earnings at Florida Power & Light were $213 million, down from $217 million a year ago.

The corresponding earnings per share contribution was $0.52 this year versus $0.54 in 2008.

As I mentioned a moment ago, Florida Power & Light continues to be challenged by state of the economy.

To help put into perspective the trends that we are seeing in terms of customer metrics, the June 2009 statistics show that Florida unemployment rate is 10.6% or approximately 110 basis points above the national average.

At this time last year, the state's unemployment rate stood at 6%.

With this as a backdrop, let's now turn to the four graphs on the accompanying slide, starting with the two on the top.

The upper left-hand graph show customer growth.

We experienced a decline in customer growth this quarter.

Keep in mind, some of the improvement during the first quarter can be attributed to seasonality.

The same holds true for the second quarter.

On a relative basis, as of June 30, 2009, we had approximately 16,000 fewer customers than we did at the end of June 2008.

The table in the upper right-hand corner of the slide shows the change in retail kilowatt sales growth versus last year's comparable period.

Overall, retail kilowatt hours sales fell 2.8% in the quarter, primarily due to lower usage, which is driven by an increase in low usage and inactive customer accounts.

Usage growth associated with weather only decreased 0.1% quarter-over-quarter.

The graph in the lower left-hand corner of the page shows inactive and low usage customers, which we believe depicts the level of empty homes in our service territory.

Since year end 2007, the number of inactive accounts has increased by about 68,500 to approximately 313,000.

This figure is higher by approximately 12,000 since the end first quarter of 2009.

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

The message here appears to be positive as the data shows that the number of units sold on a rolling 12 month basis may be forming a bit of a bottom.

We have seen increases in the number of existing home and condo sales in many localities across the state.

In sum, the generate economic environment remains problematic.

There are some glimmers that at least the rate of economic decline appears to have slowed, but there is not enough evidence to suggest that the Florida economy is starting to recover.

The table shown here summarizes the earning drivers for Florida Power and Light for the just completed quarter.

In total, the quarterly comparison was down by $0.02 per share.

Relative to our plan, we ended quarter a few pennies below our expectations.

Let me now turn to NextEra Energy Resources, where adjusted earnings per share improved by 29% year-over-year.

The growth in NextEra Energy Resources' earnings contribution was driven by new investments, our wholesale marketing and trading business and our retail energy business, but was partially offset by a poor wind resource and lower ERCOT spark spreads.

Our wind development continues to make progress, and we have approximately 820-megawatts of new wind projects under construction or already approved towards our goal of adding about 1,000-megawatts this year.

I have more to say about our renewables development pipeline momentarily.

Our gross margins are significantly hedged for 2009 and 2010, and I will also have more to say on this later in the call.

For the second quarter of 2009, NextEra Energy Resources' GAAP earnings were $186 million or $0.46 per share compared with $3 million or $0.01 per share in the prior period results.

Adjusted earnings for the same periods, which exclude the effect of non-qualifying hedges and net OTTI were $217 million compared to $169 million.

The equivalent earnings per share contributions were $0.54 and $0.42, respectively.

NextEra Energy Resources' second quarter adjusted EPS increased $0.12 from last year's comparable quarter.

New investments contributed $0.09 per share, driven by approximately 1,370-megawatts of new wind relative to last year's second quarter.

Of this $0.09 incremental contribution, approximately $0.04 per share can be attributed to our decision to utilize convertible ITCs on 685-megawatts of wind build expected this year.

The existing portfolio is down $0.02 relative to a year ago with several puts and takes across our existing wind merchant and contracted portfolios.

A lower wind resource was a primarily driver behind a $0.06 per share incremental decline in the existing wind portfolio.

As I indicated before, the wind resource in last year's second quarter was a bit above average.

This year, it was quite a bit below.

Our existing merchant fleet produced mixed performance.

The absence of a refueling outage at our Seabrook nuclear facility, coupled with higher priced hedges helped a comparative NEPOOL results by $0.08 per share, but lower spark spreads at our ERCOT gas fleet largely offset this.

Meanwhile, our retail business in Texas, which is included as part of our existing business on this slide, added about $0.05 per share incrementally given favorable margins.

As a reminder, we look at the entire ERCOT operation, including the Texas retail business as a single portfolio.

Excluding the lower wind resources, we are about $0.03 below plan for the year-to-date.

Wholesale (inaudible) activities increased by $0.09.

A major driver of this is a significant mark-to-market loss recorded in last year's second quarter as a result of economic hedges placed on some of our asset positions that did not meet our strict or non-qualifying or NQH criteria, versus a strong gain for similar reasons this year.

As a reminder, the types of transactions we classify as non-qualifying hedges are those that we can identify as offsetting economic results in our physical assets.

And as I have indicated before, quarterly results from this segment will often be higher or lower than we expect based on a number of factors, including market volatility and opportunities.

On a full year basis for 2009, we expected that the contribution percentage from this segment will remain similar to what it has been historically as part of the NextEra Energy Resources business.

All other factors netted to a loss of $0.04 per share.

Of this, $0.02 is attributable to incremental interest expense and $0.01 to general and administrative expenses associated with the growth in the asset base.

Let me now turn to the American Recovery and Reinvestment Act of 2009, also known as the stimulus package, which was enacted into law in February.

You will recall that under the legislation, the accounting implications were known for those who expected to elect to take cash grants in lieu of tax credits, but that the treasury rules regarding these grants were still not known.

Earlier this month, the Treasury released its guidelines and they were consistent with the intent of the stimulus package.

I want to spend just a brief moment highlighting the key provisions under these treasury rules for companies like FPL Group who will opt to take these cash grants in lieu of tax credits also known convertible ITCs.

First, a convertible ITC provides for a cash payment of approximately 30% of the qualified cost for specified energy property within 60 days of the later of the application date or of the projects and service date.

Specified energy properties include wind, solar and incremental hydro.

Applications for these treasury grants must be received before October 2011.

Second, the energy property must be placed into service during 2009 or 2010 or have begun constriction by the end of 2010.

For wind, construction must be completed by the end of 2012 and for solar, the expiration date is 2016.

And finally, the definition of "in-construction" means that significant physical work has begun.

An entire wind farm may qualify if more than 5% of the total cost of the property has been incurred.

We have continued to evaluate each of our 2009 wind projects on their economics over several different scenarios and may decide in the future to increase a number of projects that we currently have slated to take convertible ITCs.

As a reminder, this new tax credit policy has created valuable options for us and has enhanced our ability to provide earnings growth and cash flows through 2012 for wind and 2016 for solar.

While we will have more to say regarding our longer term wind development plans in the third quarter earnings call, it is appropriate to spend some time here talking about certain drivers.

First, it is becoming clear that the economic situation in the United States is causing some entities to delay consideration of signing longer term power purchase agreements for wind generated energy.

Primarily, this appears to be manifesting itself as a result of the significant reduction in load growth across most of the US during the last several quarters.

Second, although the long-term view of renewable energy tax credit policy is very positive for our industry, this longer term transparency is causing some buyers of wind generated energy to delay decisions on signing long-term contracts in the short-term.

And third, although we are very excited about the House passage of the Waxman-Markey Bill, the political uncertainty regarding federal renewable portfolio standards and carbon pricing may be negatively impacting customer demand for renewable energy projects in the short-term.

We believe these are temporary issues associated directly or indirectly with the current economic situation in the US and expect these challenges to sort themselves out as soon as the economy picks up.

To be clear, we still expect to add approximately 1,000-megawatts of wind this year and roughly 1,000-megawatts of wind next year.

Those are substantial amounts in and of themselves, especially if you consider that our closest competitor only had approximately 2,000-megawatts of wind energy in the US at the end of last year.

In addition, we remain quite content with the longer term development of many of our wind projects.

We are also seeing increased activity on the solar development side of our business.

And although the lead team for solar development from development to construction to completion will be longer than wind, the activity in this area is positive.

However, based on our visibility today, getting to the low-end of our previously announced 2008 to 2012 new wind range of 7,000 to 9,000-megawatts may be overly optimistic given the current economic environment.

We expect to have more to say regarding our longer term development plans during our third quarter earnings call.

At the same time, we continue to be active in looking at certain distressed wind plants, which absent the current economic situation, these opportunities could likely not be available.

Let's now focus on your 2010 expected gross margin and hedging status.

The midpoint of our expected equivalent gross margin for 2010 is approximately $65 million lower relative to the one we shared with you during the first quarter earnings call.

Keep in mind that this is a pre-tax figure.

It reflects a somewhat lower level of investment and associated costs and that we manage the cost components aggressively, so not all of this reduction will not necessarily fall to the bottom line.

Let me explain the key differences among the puts and takes between the hedging slide shown here and the one we showed you previously.

The most significant changes in the new asset addition category, specifically, the reduction in new wind build are referenced a moment ago and the flow through that affects ours revenue, production tax credit and convertible ITC expectations.

Combined, these three items reflect the majority of the expected $90 million gross margin decline for this category.

Our expected ERCOT spark spread gross margin contributions are lower by about $55 million, mostly reflecting continued spark spread weakness and lower anticipated margins on ancillary service and option sales.

Conversely, our NEPOOL portfolio is higher by about $35 million and is being driven primarily by a combination of lower fuel costs, greater expected production and improved spark spreads.

The improvement in our non-asset based business gross margin of about $35 million reflects improved performance in our wholesale business as well as our retail energy business and is consistent with the performance we have seen in these businesses to date.

As a reminder, the gross margin figures and hedged percentages that we share with you are based on the expected output from the assets.

Intrinsic value of the unhedged portion and the extrinsic or option value of the assets are marked to current market forward prices.

We use historical market clearing prices to estimate the ancillary services, value of the portfolio and we build in a small amount of judgment based on our market expectations.

We continue to take steps to minimize the risk and improve the visibility of the earnings and cash flow profile of the portfolio.

Our recent example is our Calhoun project, a 668-megawatt peaking facility that currently sells capacity and energy to a southeast utility through 2011.

During the second quarter of this year, we finalized an extension of the contract that provides us with fixed capacity payments through 2022.

The project went from having a potential merchant exposure in a bilateral market with low pricing in dispatch to one with fixed capacity payments that could support non-recourse financing.

The end result is NextEra's remaining risk is essentially operational.

This is not the only example of us operating into additional non-wind long-term power sales agreements.

Over the last year and a half or so, we have either extended or signed new long-term power sales agreements on approximately 1,250-megawatts of natural gas-fired generation plants that are scheduled to take effect in 2010.

The earnings sensitivity to changes in natural gas prices on our 2010 open positions is modest.

For every $1 per MMBTU change in gas prices, the annualized impact is approximately $15 million in after-tax gross margin, equating to roughly $0.04 per share on an after-tax basis at FPL Group.

The appendix to this presentation contains detailed slides on our 2009 gross margin and hedging position.

We plan to provide details on our 2011 hedge position in conjunction with the third quarter earnings call, which is expected in late October.

To summarize, 2009 second quarter results on adjusted basis, FPL contributed $0.52, NextEra Energy Resources contributed $0.54 and corporate and other was a negative $0.07 contribution.

That is a total of $0.99 compared to $0.93 in the 2008 second quarter or about a 6.5% increase year-over-year.

Before turning the call back to Lew, let me take a few moments to discuss our earnings outlook.

For 2009 and 2010, we are reaffirming our adjusted earnings per share expectations of $4.20 to $4.40 and $4.65 to $5.05, respectively.

However, in light of a continued weak economy and the poor wind resource experienced in the second quarter, we currently feel more comfortable with the bottom half of the range provided for 2009.

As a reminder, we have only included the convertible ITC financial results of 685-megawatts of new wind in our adjusted EPS guidance for this year.

Also recall that our adjusted earnings expectations include, among other things, the assumptions of normal weather and operating conditions, no further significant decline in the national or Florida economy, a reasonable capital markets and regulatory atmosphere and exclude the cumulative effect of adopting new account standards, with any, the mark-to-market effect of non-qualifying hedges and OTTI, none of which can be determined at this time.

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

Additionally, we continue to feel comfortable with our longstanding goal of growing adjusted EPS by an annual average of at least 10% per year through 2012 off the base in 2006 of $3.04.

With that, let me now turn the call back over to Lew for some concluding remarks.

Okay, thanks, Armando.

In my view, the clean energy future we hear so much about is inevitable.

The global consensus on the need to address climate change is firm and while nations differ on how quickly to reduce carbon emissions, they are surprisingly united in their desire to become a clean energy leader.

For many years now, our goal at FPL Group has been to position ourselves for the coming clean energy economy.

We think we have done a pretty good job.

Our wind fleet is the largest in the nation and we continue to add more capacity each year than any of our competitors.

We operate the world's largest solar fleet.

We're building three utility scale solar projects in Florida and we are seeing strong interest from our renewable customers for new solar plants.

Our nuclear fleet has grown to become the third largest in the nation and our energy efficiency programs at FPL have avoid the need to build 12 power plants.

Along the way, we have been careful not to sacrifice shareholder value.

Quite the contrary; we have out-performed both our peers and our market as a whole, and that is our commitment going forward as well, that we will execute our strategy in a way that creates long-term shareholder value.

Thank you for joining us today and for your continued interest in FPL Group.

With that, I will turn the call over the conference moderator for questions.

(Operator Instructions) Our first question today will come from Greg Gordon with Morgan Stanley.

Good morning.

Good morning, Greg.

So just to make sure I heard you correctly, because I think you were pretty explicit, it's obvious market conditions in ERCOT are -- have deteriorated, so that adjustment makes sense in terms of the gross margin outlook for 2010 for NextEra.

And then the lower wind guidance is a function of being at a 1,000-megawatts plan new build next year versus the prior range, which was 1,000 to 2,000.

So it's mainly lower expected megawatts, not lower economic performance on the megawatts that you actually construct.

Is that fair?

That is fair, Greg.

I can summarize the 2010 changes to the gross margin side that you have by saying that the new wind, the new asset addition is down by about $90 million in gross margin, our NEPOOL assets gross margin are up by about $35 million.

ERCOT spark spread is down by about $55 million and then there is some additional puts and takes that are about $35 million or so.

So that is essentially the summary, but you are right.

It's not the economics of the wind.

It's the fact that we expect at that point to build approximately 1,000-megawatts wind, and the last time we showed you this -- you and others this slide, we had about 1400-megawatts of wind built into 2010.

Great, thanks.

So you do still expect to be able to contract the megawatts you build, but you are sizing the capital spends to the amount that you expect to be able to contract?

Or are you expecting to run some these plants on a merchant basis now because people are reticent to sign contracts?

No, it's the former.

It's exactly the reason why we reduced our expectations for 2010.

As we're sizing up the market this year, we're looking to next year.

Obviously, we have discussions with our customers on a regular basis.

And it's exactly as you said.

We're bringing it down, because we continue to believe this is not the market to be building merchant plants.

They certainly can't be financed in this market.

Great.

And then you have increased your expected gross margin contribution from the non-asset based businesses.

What specific areas have you seen improvement in in that portfolio of businesses that gets you comfortable with that?

I know you have also increased the amount of margin in backlogs, so obviously, your visibility is increasing on a absolute and relative basis.

But which businesses are performing, to the extent that you were comfortable raising that number?

Virtually all of that increase in 2010, which is about $35 million or so on the gross margin level is really two things.

It's really improved operations at our retail business in Texas, which is a little less than maybe half of that virtually all.

I won't give you all the specifics.

And the other piece is a wholesale business, a large contract that we signed in Ohio that received some media attention a couple of months ago, worked out very favorable for us.

That is clearly something that we're interested in on a deal-by-deal basis.

Not something we're going to go whole-hog into, but if those opportunities exist out there, we think we can be competitive.

Great.

One more question, and this goes back on the utility.

Look like accounts receivable are actually down a lot versus the second quarter last year.

So I guess it goes to the question of whether that is just a timing issue on when the books close and begs the question of what you are seeing in terms of customers paying their bills.

Let me take the last bit of that first.

When you look at the bad debt results for Florida Power & Light, I mentioned in the first quarter that our receivables greater than 60 days a the end of the first quarter were actually better than they were at the end of the first quarter in '08 and '07.

I can tell you that at 630, they are better then they were in that same metric, greater than 60 days, greater than '08, approximately the same in '07, so we are very happy.

We've spent a lot of time monitoring that, but we are very happy with our bad debt collection and our aging of customer receivables.

Your first comment of why it's lower, it's a function of timing and fuel prices and so on.

There is nothing else to read into that.

Okay.

Thank you very much.

And our next question will come from Dan Eggers with Credit Suisse.

Hey, good morning.

Good morning.

Just on the wind development and adjusting plans for the economy, certainly understand the slowdown until people can sign contracts.

Are you guys seeing a fundamental change, do you think, in the rate of growth for wind beyond the 2009, 2010 time period, and what would be your thinking as far as your policy that needs to be passed or transmission development to buck it out somewhere between 1,000 and 2,000-megawatts a year?

Dan, it's a good question.

Whenever we have given out longer term guidance for wind development, as you know, we have a list of caveats that go along with that.

Those caveats are continued public policy support, selective transmission build, decent economy and so on.

And can tell you that the reduction that we're talking about today really is reflective just of one of them, or mainly one of them, and that is the economy.

As you know, I'm sure you have seen the same statistics that we have seen this year where load growth across the United States on average is down almost 4%.

I think it's 3.9% or so on a year-over-year basis.

That is significant.

And some of these utilities that would otherwise be signing longer term agreements now with the increased visibility of tax credits for wind through 2012 are taking their time.

Especially in light of the economy.

So, I wouldn't say this has -- as a matter of fact, I would say that this is not a longer term issue that we're trying to communicate in pieces.

This is what we're seeing today.

We're talking to our customers today.

This is what they are telling us.

We're not going to build merchant wind and for us to size our build to what we believe the PPA market is, that's about 1,000-megawatts.

We're still very bullish on wind longer term, but as I indicated, in the third quarter of this year we'll have more to say on our longer term wind and solar development plans.

Let me just chime in here, Armando, for a second and say one other factor that is going on in the wind business that makes me even more optimistic is some of the smaller competitors are going bankrupt.

And this is a tough business, and we're really well positioned to get more than -- get our fair share of the business going forward.

Are you seeing a window -- I know you haven't seen any yet, but are you seeing a window now where you are getting closer to the point where you think you are going to be able to buy some of these smaller developer's projects either from the banks or in some sort of bankruptcy arrangement?

I think what I said -- not I think, I know what I said in the first quarter is that things were going a bit slow.

The bid and ask was still a little wide, and my expectations were that those things would work themselves out in the third and fourth quarter this year.

As kind of reality set in and by reality I mean the financial environment that we're in.

There is just not enough capital lease at this point, even with the stimulus package, for all developers.

I will hold to that.

I I think in the third and fourth quarter this year, you will see some things getting done.

Maybe you see us in it.

You can be assured that it's driven by good economics and not driven by the fact that we just want to add to the megawatt total.

But I'm optimistic that some things will get done later in the year.

One last one.

What would be the thought process for you to raise the amount of wind being built this year, next year, that is going to get ITC treatment versus PPC treatment?

I'm sorry, Dan.

You cut off there at the end.

Sorry, I was trying to think about what would cause you could change the allocation between ITC treatment and PPC treatment on the the new development projects --

For this year?

Yes.

Yes.

Got more -- well, there are some obvious things.

Anything that would reduce our taxable income.

An unfortunate event, you figure out what those might be.

A good economic event, like maybe the passage of bonus appreciation for 2010, that would make us kind of take a look back at all the projects that we are not planning to date to take convertible ITC on and change our mind.

But, we continue to looking at those on a quarterly basis to determine whether, in fact, increasing from the 685-megawatts that we have this year to some other amount makes a lot of sense.

You can rest assured that whatever decision we make, we're going to make on the best available information.

And it will be an economic decision.

It's not going to be an earnings decision or any other decision.

It will be based purely on the economics as we understand it.

So we'll look at it again in the third quarter and decide whether we should take that up from 685 or not.

Okay, thank you.

Okay, Dan.

And our next question comes from [Ryan Mooney] with Duquin Capital.

A couple of questions on the transmission lines that you are building in Texas right now.

My understanding of it is right now, you are building some from Horse Hollow wind farm in west Texas to South Stone, but I was wondering if you would provide an update on the timing and size of those lines.

Ryan, I guess a couple of things, just to clear up a couple of things.

We are -- as you know, we have been allocated a portion of CREBs.

The $5 billion CREBs project, we have been allocated about $600 million of that, and we are currently working to apply for our certificate of need.

Our CCN, which we expect to file sometime early next year.

I think what you are specifically referring to are some media reports that I'm not going to comment on right now that there is a transmission line being built from west Texas to south Texas.

Clearly, we have seen those reports.

We're not ready to comment on what is happening there but I did indicate, I think, the fourth quarter of last year that we have some significant assets in west Texas with a lot of value to us, and we weren't just going to sit around and wait for the market to improve.

That there might be other actions that we would take, and so I would just repeat the same thing today.

Okay.

Thank you.

And next we'll hear from Danielle Seitz with Seitz Research.

Thank you.

I was wondering if you could give more information on the pipeline and the schedule as well as which are the organizations (inaudible) to be giving you the authorization to build and how long it will take?

I'm sorry, Danielle, are you referring to your wind pipeline?

No, I was thinking of the pipeline, the gas pipeline you have been planning on building.

Yes, I'm going to let Armando Olivera address that question, Danielle.

Good morning, Danielle.

As you probably know, we started formal hearings on the pipeline.

And the pipeline probably worth the backup.

As you know, we got the need certification for the modernization of our Cape Canaveral and Rivera plants.

Canaveral in 2013, at least was what we'd filed as part of the need and Rivera in 2014.

Both of those plants are very efficient combined cycle plants, but they have a greater need for gas than the plants that they are replacing.

In total, about 400 Mcf of daily gas transportation.

And when we went through the RFP process in determining how to increase the transportation requirements, the gas transportation requirements for those plants and ultimately chose a combination of a self-built combination of the gas pipeline in Florida and then for the interstate portion, we choose another company that we have yet to announce because we haven't finalized negotiations with them, but it was a pipeline that would goes from Stark, Florida to Butler, Alabama.

And that also has the added benefit of giving us far greater access to other supply points in Arkansas, Texas, Oklahoma and so forth.

So the hearings began on the self-build option of the pipeline, the interstate portion.

And we're proposing that that pipeline be base rate in -- as any other FPL asset.

So it has to go through two-step process.

The need determination, which is currently what is underway at the Florida Public Service Commission.

And secondly, that it has to go through the same process that a power-plant goes through in Florida; the site certification process where the governor and cabinet vote on that.

We anticipate that the Florida Public Service Commission will vote on the need determination later on in August, just before the end of August.

And we anticipate that the site certification process at the state level will occur sometime in 2010, sometime in the spring of 2010.

And construction will be beginning -- ?

Construction would begin in the 2011, 2012 timeframe.

Thanks.

And I think that the original assessment was somewhere around $1.6 billion.

Somewhere in that range, correct.

Okay.

Thanks a lot.

And we'll move on to Reza Hatefi with Decade Capital.

Thank you very much.

Just to clarify, the ERCOT spark spread margins.

Do they -- is that interrelated with the Gexa operations in Texas?

Or is that a -- is there a retail hedge embedded within getting to those ERCOT spark spread margins?

Not -- it's a good question.

Not necessarily with the spark spread margins, but there is somewhat of a natural hedge between those assets and our retail customers at Gexa, and it really deals with ancillaries.

So not necessarily the market price of power that you are selling on a daily basis, but on the ancillaries at the plants, the gas plants receive for being available on a short-term basis or maybe a longer term basis.

By longer term, I mean more than 15 minutes and so on.

That is all revenue to the gas plants, which is essentially paid by the retail providers.

So when one goes up, the other one goes down.

There is a natural hedge there that does work to our benefit, but it really doesn't have to do with the spark spreads.

And maybe you can talk a little bit more about, I guess you touched on it earlier, but it seems like a dramatic shift from the first quarter call to this call in terms of your outlook for wind and earnings power and so forth.

Could you maybe talk a little bit more about that?

It just seems like a dramatic, kind of sudden shift.

Yes, the -- I can go back and tell you that during the fourth quarter and first quarter calls, we indicated that based on the environment, we're really talking about two things, and I specifically pointed them out in the third quarter of last year.

One was the economic environment, one was the financial environment and the financing environment.

And clearly, the financing environment has picked up, but the economic environment really hasn't.

And we indicated that we had the opportunity to increase or decrease the amount of megawatts based on what we saw in the environment and that one of the things that we were going to do was we were going to contract our wind assets.

We were not going to build merchant wind assets.

And the discussions with our customers over the last three months or so as their load keeps dropping month-over-month, those discussions at least indicate to us that the PPA market, the longer term power purchase agreement market for next year isn't going to be as robust as we believed three months ago.

Now I will tell you, three months from now, I may be sitting on the same call saying things have turned around, the economic recovery, the green shoots, if you will, have actually picked up in the second quarter.

The Senate may get more serious about a climate bill, and it doesn't have to be a large climate bill.

If at the end of the day we end up with nothing other than a federal renewable portfolio standard, I may be sitting here in the third quarter and saying, guys, we cranked it down too low for 2010.

But we like to give the best available information based on the evidence that we see today, and what we see today is a lower PPA market for 2010.

Thank you for the color.

Next we'll hear from Brian Chin with Citigroup.

Hi, have you seen any changes in wind construction costs given the poor economy and how that might actually lower the standards you might have otherwise normally asked for in order to proceed with development?

No, there is no -- obviously, the question gets asked all the time, is what is going on with turbine pricing?

And that, at this point, appears to have moderated.

Now, who know what's will happen over the next six months or so, because clearly, the manufacturers have taken a lot of capacity out of their systems.

But we're not seeing -- with the economics of what we're looking at today, when we are approving new wind projects, is no different than the economics that we were looking at a year ago.

And we continue to look at unlevered after-tax IRRs in the low-double digits.

So it's not an issue of the economics aren't as attractive as they were a year-ago, it's really an issue of we don't believe it's the right time to be building uncontracted plants.

But I wouldn't say that the cost side of the equation has changed significantly in the last six months or so.

Great, thanks.

We'll move on to Andrew Levy with Incremental Capital.

Hi, guys.

Just two quick questions.

2010, I assume you have a rate increase built in.

I know you can't tell us how much, but you have one as far as the power company's side.

Andrew, I cannot comment at this point on what we have for Florida Power and Light.

Not the amount, but you do have an increase I assume, right?

Well, I will tell you that we have a current rate case going on and the terms that we have asked for clearly are public and those are terms that we believe are reasonable, especially in today's market as we try to uphold our strong financial position at Florida Power and Light, which we're going to need in order to keep building the generation that saves our customers money.

But I can't talk specifically about our financial plans and what we have got built in.

Okay.

And then the second question I have is on NextEra Energy.

Just looking at page 15, the hedge amounts for NEPOOL and for ERCOT.

Looking at NEPOOL, let's say the spark spread.

You see a large reduction in the spark spread as far as on a percent basis.

Not large, but close to 10%, or a little over 10%.

But you hedged only an incremental 3%, and it's kind of the same thing with ERCOT too except you hedged considerably more, another incremental 11%, I believe the number is.

Can we read into that as far as -- I guess you assume that the prices that you hedged at were considerably lower than the numbers that are currently hedged at?

I wouldn't read into that that way.

Most of the decrease in ERCOT for us from the first quarter to the second quarter was actually related to changes in our expectations of ancillary revenue.

The spark spread difference between the first and second quarter was only about $15 million or so.

So I wouldn't read into that that we're hedging it at -- necessarily hedging at lower costs.

As I indicated, and I'm surprised, Andrew, I think you are the seventh caller and the question hasn't been asked, so the question about 2011 hedging.

I think you guys are just being nice today.

You are right.

(laughter)

Yes, but as I have indicated before, and we'll share that in the third quarter, essentially when we wake up everyday, because the amount of contracted assets that we have and we continue to add.

Our 2009 assets will be contracted, our 2010 assets will be contracted.

As I mentioned on the script, we have taken some of our gas plants that were merchant and we've contracted those.

It's not unreasonable to assume that three-quarters of our margin is hedged at the very beginning early stages before we start laying on hedges.

So a lot of these hedges that you are seeing for 2010 and contracts were put on not just this year.

Now we did, in the second quarter make a push to try to lock in more of ERCOT.

As you see there, we have gone from 9% to 22%.

Okay.

Well, thank you very much.

Okay.

We'll hear from Paul Ridzon with KeyBanc.

I know Ohio wasn't in your guidance when you first gave it.

Could you quantify just how big that is?

I don't think that is in our best interest, Paul.

I hope you understand that.

It's a good deal for us, a very good deal for us, and we certainly would look for other opportunities where we have a chance to sign up a large, really a large muni base and then have the opportunity to go out in the market and buy that power.

Clearly it's good, but I'm not going to comment on the margins or the overall gross margin impact.

Okay.

And then just on the wind side, on the backs of what we're seeing in MidAmerican, to what extent are you seeing an increased appetite for utilities to kind of do home-grown projects and actually rate based system given favorable tax treatments as opposed to relying on someone like FPL?

I'm going have Jim Robo respond to that one.

Yes, Paul, it's actually -- it's mixed.

Obviously, you see MidAm is looking to build a significant base in Iowa, but we have had just as many utilities call us up and say capital is tight right now, and we're not going to be -- please help us out.

And we enter into discussions with them about a PPA.

I think the reality is that it's not a heck of a lot different than we have seen over the last three years, that there is a rate-based component to this market.

We don't see it growing any faster or slower than it has been over the last several years.

Okay.

Thank you.

And our last question today will come from Paul Patterson with Glenrock Associates.

Good morning, guys.

Good morning.

You mentioned trading and marketing margins being at historical levels for 2009 in your expectations.

Could you refresh our memory what that is?

I think I mentioned in the -- not I think, I did mention in the first quarter that those percentages from the very first time we started showed this gross margin slide were between 6% and 8%, and our expectations are that it might be on the high side of that, but it will be somewhere within that range.

6% to 8% of next year's gross margin?

Yes.

Okay.

And then to sort of follow-up on Paul Ridzon's question on Gexa and the opportunities that you apparently exploiting pretty well in northern Ohio.

Are you seeing any other opportunities given the low power prices around the country and maybe in the southern part of the state or what have you?

Any flavor you can give us in terms of other things that you guys might be looking at similar to what you are doing in northern Ohio?

No, that's -- one, I can tell you that we are looking at other opportunities, but I don't want to specifically comment on any specific region.

We have mentioned in the past that this is a type of business that we think that we can do well, that we can manage both sides of it well.

The requirements piece, we have been in the full requirements business for a number of years, and as you and others know, we're in the market buying power or fuel or selling power and fuel quite a bit around our assets.

So we think we have a competitive advantage there.

And when those opportunities come up, whether it's in Ohio or other states, it's reasonable to assume that we're somewhere in the mix.

And again, if we come out -- I always like to say this.

If we come out on the winning edge, I think you can assume it's a good economic deal.

It's not something that we're just trying to add to the revenue on.

Okay, and the the settlement discussion -- you guys mentioned earlier, I think, that you might have settlement discussions in July or August this year in the rate case and intervenors of final testimony.

Any sense as to how that is going or not going or --?

I'm going have Armando Olivera just make a couple of comments.

Right now, we're really just focused on the formal rate proceedings.

We're getting ready for the hearings.

We frankly have a very strong case, low cost, high reliability and if an opportunity arises we'll engage, but right now it's all about the formal proceedings coming up.

Okay.

Thanks a lot, guys.

Great, thanks.

That conclude our call today, everyone.

Thanks for joining us.

Thank you.

Again, that does conclude today's conference.

Thank you for your participation.