新世紀能源 (NEE) 2011 Q1 法說會逐字稿

Good day, everyone, and welcome to the NextEra Energy first-quarter 2011 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 Ms.

Rebecca Kujawa.

Thank you, Casey.

Good morning, everyone, and welcome to our first-quarter 2011 conference call.

Lew Hay, NextEra Energy's Chairman and Chief Executive Officer, will provide an overview of NextEra Energy's performance and recent accomplishments.

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 NextEra Energy; Armando Olivera, President and Chief Executive Officer of Florida Power & Light Company; and Mitch Davidson, President and Chief Executive Officer of NextEra Energy Resources, which we will refer to as Energy Resources in this presentation.

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

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

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

Actual results could differ materially from our forward-looking statements, if any of our key assumptions are incorrect or because of other factors discussed in today's earnings news release and the comments made during this conference call, in the Risk Factors section of the accompanying presentation, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found in the Investors section of our website, www.nexteraenergy.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.

With that, I will turn the call over to Lew Hay.

Lew?

Okay.

Thank you, Rebecca, and good morning, everyone.

NextEra Energy delivered solid results in the first quarter of 2011.

Although our adjusted earnings per share results were flat to last year's comparable quarter, the results were in line with our expectations.

At a time of weak natural gas and power prices, this is particularly noteworthy.

During the quarter, we continued to make considerable investments in Florida's electrical infrastructure, which are helping to keep prices low and reliability high.

One of the highlights of the quarter was that with Energy Resources, we signed long-term power purchase agreements for an additional 400 megawatts of wind power since the beginning of the year.

In addition, our existing wind fleet generated nearly 1 million megawatt hours of additional power, compared to last year's comparable quarter.

As you know, since our last earnings call, the people of Japan experienced one of the worst earthquakes and tsunamis in modern history, including extensive damage to the Fukushima Daiichi nuclear plant.

Our sympathies go out to the Japanese people as they rebuild their country and their lives.

Here in the United States, we continue to watch the events in Japan very closely.

There is still much we do not know about the events at the Fukushima plant, and it will undoubtedly take much more time for a full analysis to be completed.

With regard to NextEra Energy's nuclear fleet, I can tell you that all of our plants are located outside areas deemed quote-unquote high hazard for seismic activity.

In addition, 7 of the 8 units we operate are pressurized water reactors with redundant cooling systems and multi-layered containment systems.

In fact, our Florida PWRs are battle-tested, having maintained plant and public safety through several direct and nearly direct hits by major hurricanes, including Andrew, Frances, Jeanne, and Wilma.

The one boiling water reactor in our fleet, the Duane Arnold Energy Center in Iowa, is not in an active seismic zone, has a higher flood margin than the Japanese plant, and stores backup diesel generator fuel underground in a steel-reinforced concrete structure.

Simply put, the drivers for a Japanese-style nuclear event are highly unlikely at any of the NextEra Energy nuclear units.

Going forward, I remain optimistic that nuclear power will play a significant role in our nation's energy mix.

For our part, we are on schedule with our existing plans to boost the output of our nuclear fleet through a series of [upgrades] to the non-nuclear components of the plants.

Now with regard to new nuclear, our position is unchanged.

We still plan to move forward in a step-wise fashion to create the option to build 2 additional units at the site of our Turkey Point plant.

Creating the option at this stage is limited to obtaining the necessary federal, state, and local approvals.

At Florida Power & Light, we had a strong first quarter.

Net income was up roughly 7% over the prior-year comparable quarter, primarily due to increased investment in the business.

Those investments have allowed FPL to provide its customers with 99.98% service reliability and to significantly improve the efficiency of our power-generation fleet, saving customers hundreds of millions of dollars in fuel costs.

During the first quarter, FPL had roughly 30,000 more customers than we had a year earlier.

In fact, we've now added customers for 5 quarters in a row.

We think this is a positive commentary on the slow but steady improvement in the Florida economy.

The biggest area of concern remains the unemployment rate, which is at a stubbornly high 11.1%.

Housing prices in Florida may show further declines, but the market has clearly repriced itself, making the state a much more attractive destination.

On the development front, we are nearing completion of the West County Energy Center Unit 3.

The addition of 1,220 megawatts of highly efficient combined-cycle gas generation to our system is a triple win.

When it comes online, the new unit will save customers money on fuel, reduce air emissions, and start to provide shareholders with a cash return on their investments.

Construction is also underway on the modernization of our Cape Canaveral and Riviera Beach power plants.

When complete in 2013 and 2014, respectively, these modernizations will add 2,420 megawatts of even more fuel-efficient combined cycle generation to our fleet.

We were also pleased to dedicate our Martin Next Generation Solar Energy Center in the first quarter.

The 75-megawatt Martin facility is the first in the world to combine a solar thermal array with an existing combined-cycle natural gas plant, which is a more efficient way of deploying solar thermal technology than on a stand-alone basis.

FPL has now completed all 110 megawatts of solar power allowed under the 2008 legislation enacted in the state.

The net cost to the average customer using 1,000 kilowatt hours of electricity is expected to be less than $0.25 a month on average over the lives of these assets.

Solar power holds great potential for Florida.

It can boost fuel diversity, create good-paying construction jobs, reduce air emissions, and attract research and development dollars to the state.

We continue to look forward to working with the state's regulatory and political leaders to expand the state's solar generating capacity in the future.

On the Energy Resources side of our business, we had a mixed quarter.

Our existing assets performed extremely well.

I was particularly pleased that we generated nearly 1 million additional megawatt hours or a 21% increase from our wind fleet than we did in the prior year's comparable quarter, mostly on the strength of the wind resource.

However, low power prices continued to impact our merchant assets, and our full-requirements business experienced more customer migration than we expected.

You have heard me say for some time that we believe solar has the potential to be the next wind industry for NextEra Energy.

And we are pleased with the progress we made on our solar strategy in the first quarter.

Of particular note was our success in securing lines of credit for our two 49.9-megawatt solar thermal arrays that we are building in Spain.

Lines of credit limit our financial exposure associated with the risk associated with potential future changes in the Spanish renewable tariff to an amount significantly less than the capital costs of the projects.

We believe the economics of Spain solar remain attractive, and we expect the project to help drive the Company's earnings starting in 2013.

Here at home, we were very encouraged that California enacted into law a robust renewable portfolio standard.

The law requires load-serving entities to obtain 33% of their power from renewable sources by 2020.

With this move, California has made itself one of the most attractive renewable energy markets in the nation, and we look forward to doing additional business in the state.

On the wind development front, we have signed long-term power purchase agreements, or PPAs, on 400 megawatts of projects so far in 2011.

That brings the total number of wind PPAs to 1,638 megawatts since the beginning of last year.

Of particular note, 953 megawatts of these PPAs are for projects we expect to commission in 2011 and 2012, demonstrating our commitment to lining up customers for wind energy early in the process.

We are also seeing a noticeable spike in the number of requests for proposals being issued for wind energy.

With the economics of wind improving as a result of better turbine technology and lower turbine prices, wind PPA contracts are very attractively priced.

As a result, more buyers are stepping up to take advantage of these prices.

While earnings at Energy Resources are by their very nature more volatile than they are at FPL, I want to emphasize once again how well-hedged we are on the competitive side of our business.

For 2011, 96% of our gross margin at Energy Resources is protected from swings in commodity prices, and for 2012, the figure is already 91%.

By 2014, we expect that approximately 80% of our adjusted EBITDA will come from investments that are either regulated or long-term contracted, up from 74% in 2010.

This reflects our continued focus on investing in regulated assets at FPL and long-term contracted assets at Energy Resources.

As we continue to grow the business, we believe this strategy will allow us to continue to deliver strong shareholder returns to our investors.

With that, I'll turn the call over to Armando Pimentel before returning for some closing comments.

Armando?

Thank you, Lew, and good morning to everyone.

In the first quarter of 2011, NextEra Energy's GAAP net income was $268 million or $0.64 per share.

NextEra Energy's 2011 first-quarter adjusted earnings and adjusted EPS were $392 million and $0.94, respectively.

The difference between the GAAP and adjusted results is the exclusion of the mark in our non-qualifying hedge category and the exclusion of net other than temporary impairments on certain investments, or OTTI.

For the first quarter of 2011, Florida Power & Light reported net income of $205 million or $0.49 per share.

In the term of the 2010 base rate agreement, FPL's earnings will largely be a function of its rate base and return on equity.

As we indicated in the fourth quarter 2010 earnings call, we believe that FPL will realize a retail regulatory ROE at or near 11% during each of 2011 and 2012, subject to the normal caveats we provide, including normal weather and operating conditions.

For the terms of the settlement agreement, FPL will be able to amortize surplus depreciation to offset most of the variability in its normal operations, including the fluctuations due to weather.

During the first quarter, FPL's contribution to earnings per share increased $0.02 relative to the prior year's comparable quarter, driven primarily by allowance for funds used during construction, or AFUDC, for West County Energy Center Number 3, returns on clause-related investments, including Martin Solar and the nuclear uprates, and rate-based growth, which was partially offset by share dilution.

During the quarter, we recognized $99 million in surplus depreciation on a pre-tax basis.

We currently do not expect to amortize the full amount of surplus depreciation in 2011 that is available to us under the base rate agreement.

We are continuing to see improvements in some of our key customer metrics.

The table in the upper left shows the change in retail kilowatt hour sales in the quarter versus last year's comparable period.

Overall, retail kilowatt hour sales fell by 6.2%, a decline due primarily to lower weather-related usage and partially offset by an increase in customer growth.

In the first quarter, heating degree days were modestly below normal and well below the record heating degree days experienced in the prior-year comparable quarter.

Non-weather-related or underlying usage and all other declined by 0.2%.

As depicted in the graph in the upper right hand corner, during the first quarter of 2011 we had roughly 30,000 more customers than we did in the comparable period of 2010.

The graph on the bottom left of the page shows inactive and low-usage customers, which we believe are indicative of the level of empty homes in our service territory.

In March, the percentage of low-usage customers experienced its first monthly decline since September 2010.

The number of inactive residential meters has declined for 6 months in a row.

Perhaps contributing to these improvements is the fact that homes in FPL markets are continuing to become more affordable.

As depicted in the graph on the bottom right, the current housing affordability index, which measures the percentage of median-income families who can afford a home, is now 66% for Miami.

That is up from 11% at the peak of the boom in late 2006 and close to the national average of 73%.

As you can also see in the graph, affordability in several of our other cities is now above the national average.

Traditionally, housing affordability has been one of Florida's advantages, and we believe Florida will continue to be a very attractive destination to which people and industry will move.

Let me now turn to Energy Resources.

We are pleased that since the beginning of the year we secured approximately 400 megawatts in wind PPAs, all of which are for projects we plan to put into service in 2011 or 2012.

We will talk more about the current wind generation development and contracting environment in a couple of minutes.

During the quarter, we completed a review of the estimated useful life of the wind turbines we had in our portfolio as of January 1, 2011.

As you know, we have an ongoing obligation to revisit the assumptions used to account for our assets, including the assumptions that drive the estimated useful life.

Over time, the technology employed in wind turbines has improved.

With proper maintenance, we believe our fleet will last longer than previously estimated.

As a result of this review, we have extended the estimated useful life for our newer wind turbine fleet to 30 years, which is roughly in the middle of our updated view of the probable range of useful life.

For the assets already in service, the after-tax impact of the change in assumption for the first quarter was roughly $0.025 per share.

For full-year 2011, the impact is expected to be roughly $0.105 per share.

We will have more to say on the impact to our forward-adjusted EPS expectations in a moment.

During April, we completed another differential membership transaction relating to 483 megawatts of wind capacity, encompassing 5 projects.

This transaction, which is similar to the one we completed in the third quarter of 2010, represents a unique structure for Energy Resources in which the differential membership investor makes an initial up front payment and will make additional payments over time tied to the energy production of the wind projects.

This structure allows us to raise tax equity for existing projects that have been previously financed with project debt.

We continue to seek opportunities to minimize the growth of our deferred production tax credits, or PTCs, on our balance sheet, and the availability of this structure will allow us to receive compensation for future PTCs before we would have otherwise been able to monetize them.

As Lew noted, we closed on lines of credit this week for our solar thermal arrays that we are building in Spain, which has made available to us roughly EUR590 million or approximately $875 million.

The lines of credit limit our financial exposure associated with potential future changes in the Spanish renewable tariff to an amount significantly less than the capital costs of the projects.

Just as with all of our other projects, we retain construction and performance risks, which we believe we are well-prepared to address.

These lines of credit are an important step in the development of these projects, and we are very pleased to be moving forward.

As we indicated to you at our May 2010 investor conference, we believe these projects will provide attractive returns and valuable experience in the expanding market for solar generation.

We continue to expect to bring online both of the 49.9-megawatt units in 2013.

Energy Resources reported first quarter 2011 GAAP earnings of $65 million or $0.16 per share.

Adjusted earnings for the first quarter, which exclude the effect of non-qualifying hedges and net OTTI, were $189 million or $0.46 per share.

Energy Resources' first quarter adjusted EPS decreased $0.01 from last year's comparable quarter.

New wind and solar investment contributions were flat relative to last year.

Results increased $0.02, due to the contributions from assets placed into service in the first quarter of 2010 that were available for a full quarter in 2011, as well as our ability to recognize state investment tax credits on some of our wind projects.

These positive items were offset by lower expected contributions from convertible investment tax credits, or CITCs, for 2011.

Regarding our 2011 CITC elections, we concluded during the first quarter that it was probable that we would elect to take CITCs on roughly 275 megawatts of new wind projects we expect to be completed during 2011.

Ultimately, we believe our elections will likely range between 275 and 375 megawatts, depending on a variety of factors, including when the assets are placed into service.

This is down from our previous expectations, largely as a result of converting certain potential CITC projects to PTC projects as a result of refining and evaluating their overall economics.

For reference, we elected CITCs on 603 megawatts of new wind projects in 2010 and had assumed 600 megawatts of annual elections in last year's first quarter.

The difference in the estimated CITC annual elections reduced adjusted EPS by approximately $0.02 relative to the comparable quarter.

Assuming the lower end of our 2011 CITC range, the full-year impact would be approximately $0.08 relative to the prior year.

In aggregate, the existing asset portfolio contributed $0.10 relative to the prior-year comparable quarter.

Existing wind assets contributed approximately $0.17 per share as compared to the year-ago period, of which $0.10 was due to an improved wind resource and lower curtailments.

The wind resource was approximately 93% of normal, which was an improvement relative to the prior-year comparable quarter 80%.

The remaining $0.07 was a result of our ability to recognize state investment tax credits on some of our wind projects and a lower depreciation expense, due to the change in the depreciable life of some of our wind assets, slightly offset by unfavorable pricing.

Seabrook and Maine Hydro contributed $0.06 less than in the prior year's comparable quarter, primarily due to lower-priced hedges.

Weak market conditions and higher O&M, due to planned outages affecting our merchant Texas gas assets, resulted in $0.02 lower adjusted earnings per share.

The customer supply and power and gas trading businesses are down $0.07, due primarily to our wholesale full requirements business, as well as the absence of a sale of a favorable supply contract completed in the first quarter of 2010.

During this year's first quarter, we realized a negative impact from customer migration in our wholesale full requirements business, costing us roughly $0.03 on an adjusted basis.

Also in last year's first quarter, the sale of a power supply contract in this business increased adjusted EPS by approximately $0.03.

Asset sales contributed a negative $0.03, entirely due to the absence of the benefits associated with last year's sale of our interest in a 27-megawatt waste to energy facility located in Pennsylvania.

All other factors contributed negative $0.01 per share associated with higher interest expense due to higher borrowings and higher corporate G&A, both from growth of the business.

As we mentioned earlier, since the beginning of the year, we signed new power purchase agreements for 400 megawatts of new wind projects.

This brings us to a total of 953 megawatts of projects for which we have contracts and expect commission in 2011 and 2012 and 1,638 megawatts of PPAs we have signed since the beginning of 2010.

Given the high level of visibility we have to the 2011, 2012 pipeline, we believe that we will add -- we will be able to add between 1,400 to 2,000 megawatts of wind before the end of 2012.

We have, however, a little less visibility than in prior years as to the amount we may add in the current year, primarily as a result of some timing issues associated with permitting.

So although we feel fairly confident on the build over the next couple of years, we believe meeting the bottom end of our previous 700 megawatt to1000 megawatt range in 2011 will be a challenge.

Turning briefly to asset acquisitions, as we have indicated to you many times, we are as interested in acquiring contracted clean generation projects as we are in building them ourselves, as long as the returns are attractive.

We are not, however, interested in purchasing or developing any additional assets outside of North America for the foreseeable future.

In addition to acquiring assets, you should also expect that we will continuously look at our entire portfolio of existing assets to make sure that we are optimizing the value of those assets.

In some circumstances, it may mean that we would sell certain of our existing assets.

Currently, we are exploring the potential sale of 5 of our natural gas-fired assets at Energy Resources, including Blythe, a 507-megawatt plant in California; RISE, a 550-megawatt plant in Rhode Island; Doswell, an 879-megawatt plant in Virginia; Cherokee, a 98-megawatt plant in South Carolina; and Calhoun, a 668-megawatt plant in Alabama.

While there are attractive aspects for each of these assets, they have a limited strategic fit within our portfolio.

As such, we are investigating whether or not these assets may possess a higher strategic value to another owner.

At this time, we can give no assurance that an actual sale will take place.

To summarize 2011's first-quarter results, on an adjusted basis, FPL contributed $0.49, Energy Resources contributed $0.46, and corporate and other was a negative $0.01 contribution.

That is a total of $0.94 per share for the quarter.

Before turning the call back over to Lew, I wanted to spend a couple of minutes discussing our adjusted EPS expectations.

As we indicated earlier, the change in the assumption regarding the estimated useful life for a portion of our wind fleet has a positive impact on adjusted EPS in the quarter, and it is expected to have roughly a $0.105 positive impact on full-year 2011 adjusted EPS.

Solely as a result of this change, we are increasing our adjusted EPS expectations to a range of $4.35 to $4.65 from the previous range of $4.25 to $4.55.

When we initially provided long-term adjusted EPS expectations at the May 2010 investor conference, the 5% to 7% average annual growth rate through 2014 was relative to a 2009 base.

However, the change in the estimated useful life assumption renders future years' comparison to 2009 less relevant.

As a result, we are updating our long-term expectations, and we believe that our adjusted EPS will grow at an average of 5% to 7% per year through 2014, relative to a 2011 base, subject to all the usual caveats that we provide.

As we have indicated before, we believe public policy support for wind-generation development will ultimately be extended beyond 2012.

Historically, wind has enjoyed public policy support under both Republican and Democratic leadership, and our current view is that we will continue to be successful in developing and owning wind plants for many years to come.

However, we would like to put into context the impact of a potential slowdown in our expected wind build after the current federal policy on wind energy expires.

If we were to assume no additions of wind assets to our operations after 2012, our adjusted EPS compounded annual growth rate would continue to be within the range of 5% to 7% through 2014 from a 2011 base.

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

Okay.

Thanks, Armando.

I'd like to conclude this morning with a few observations about the policy framework in which the electric power industry operates.

Since the elections of last fall, many pundits have predicted a sea change in the nation's approach to energy policy.

That strikes me as premature.

Yes, it's true the cap and trade is off the table for the foreseeable future.

But in other ways, efforts to make the nation's energy supply cleaner, more efficient, and more diverse are proceeding apace.

In March, the Environmental Protection Agency released its proposed rule tightening limits on how much mercury and other toxic air pollutants power plants are permitted to release.

And in the months and years ahead, the agency will be moving forward with regulations on coal ash, particulate matter, SOx and NOx.

I don't believe that replacing 50-year-old fossil plants with new, more efficient units will be the train wreck we have been hearing so much about.

Nor do I believe that putting pollution controls on many of the remaining plants is all that terrible.

As an aside, it is interesting to note that two-thirds of our nation's coal fleet is without meaningful pollution controls.

While there is no free lunch, the cost of this upgrade to the nation's generation fleet is likely to be far less than the costliest predictions.

Consider our own utilities.

In 2010, FPL recorded an SO2 emissions rate 76% below the industry average, a NOx emissions rate 65% below the industry average, and a CO2 emissions rate 36% below the industry average.

Yet despite having one of the cleanest generation fleets of any utility in the nation, FPL's typical residential customer bills were 24% below the national average at the year-end 2010.

We are proof that a utility can be clean and cost effective at the same time.

In addition to EPA action, I still believe bipartisan action is possible on energy legislation that would encourage cleaner generation and greater fuel diversity.

With the cost of renewables such as wind and solar photovoltaics coming down so dramatically over the last couple of years, one of the principal objections to a national clean energy standard is now far less compelling.

On a final note, I want to extend a special thanks to the 15,000 employees of NextEra Energy.

Last month, NextEra Energy was ranked number one in its sector on Fortune Magazine's Most Admired Companies list for the fifth consecutive year.

No other company in our sector has ever done that.

Just as impressive, we are ranked as the tenth most admired company in the world for social responsibility.

Less than 2 weeks later, we remained one of the world's most ethical companies by Ethisphere Magazine.

We are 1 of only 24 companies worldwide to appear on the list all 5 years of its existence.

These accomplishments are possible only through the commitment of our employees, and I want to thank them all.

With that, I'll turn the call over to the conference moderator for questions.

Thank you.

The question-and-answer session will be conducted electronically.

(Operator Instructions) We'll take our first question from Steve Fleishman with Bank of America.

Hi.

Good morning.

Good morning, Steve.

Hi, Steve.

Hi, Lew.

A couple of questions.

First, maybe, Armando, could you give a little better color on the thought process between the CITCs and the PTCs and how that's changing, just so we understand kind of how that thought process there?

Do you want to ask your second question, or is that --

The second question is related to the potential gas asset sale and just conceptually, should -- if there's any tax gain, should we -- you be able to use your deferred tax against that, and if you could, the tax basis of those assets?

Okay.

Let me give you some input on both of those.

Your first question was on the change that we -- that we're talking about today.

I think in the last couple of quarters, we've indicated that for 2011, we were looking at CITCs in the range of 400- to 550- megawatts, and today, I said in the first quarter, we were using 275-megawatts.

What's happened, really, over the last, I'd say three to six months, is -- and we always continually do this, we always continually look at our projects to determine whether ultimately they should be CITC or PTC projects.

We've continued to see -- I mean, this isn't something that's certainly caught us by surprise in the last month or so -- but we have continued to see improvements in technology.

And we've been able to use that technology in some of our previously-identified sites, not in all previously-identified sites, and it has kind of flipped the switch on the economics from CITC to regular production tax credit projects.

Now, part of that, obviously, is we continue to be comfortable with our tax position, but our deferred tax assets have been rising, and we know they've been rising according to our forecast.

That doesn't surprise me or concern me.

But the other part of this is, that the tax equity market has really come back pretty aggressively, I'd say, in the last nine months or so.

And so, when we are thinking about the economics of a wind project, particularly, switching from CITC to PTC, it's both an economic view of the project, with wind turbine technology obviously being a big part of that, but it's also the financing of the project.

And with the tax equity market coming back pretty aggressively, we've been able to turn several of our CITC projects to PTC projects.

So, there's nothing else in there, there's nothing nefarious in there, other than I think it makes good sense for us to switch some of those projects over.

Your second question regarding the sale, or -- well, the proposed -- the exploring, if you will, I want to be clear on that, us exploring whether there's a market for those five gas assets.

First and foremost, that really has to do with how they strategically fit into our portfolio.

Those assets are great assets.

We love all of our assets, as Jim Robo always likes to say, but in this time, when we are seeing what's happening with other sales out there, it makes a lot of sense for us to explore these.

We would absolutely, in our view, have a large taxable gain associated with the sale of these assets.

A large taxable gain would be something that we would be able to use our deferred production tax credits to offset, I would say, significantly.

A good rule of thumb is, you can offset 75% of your taxable gain with production tax credits, and we certainly have -- would have enough production tax credits to be able to reduce that gain.

Okay.

That's great.

I'd rather have -- just on the first point -- I'd rather have the long-term PTC credits than as many CITCs.

And for a good reason, too.

So, okay.

Steve, let me just add one thing.

I mean, these were projects that were -- had great returns with CITC, but because of the technology and the amount of wind energy being produced, even with a deferral and using the PTCs, the economics are that much better.

Are capacity factors just getting so much better on the new turbines?

Yes, basically.

On the good wind resource, and -- that gives us good capacity factors, but the technology gives us even better capacity factors, and as we've said several times before, the capital costs are quite attractive.

So, that combination just makes the PTCs scenario economically superior to the CITC scenario.

Great.

Okay.

Thanks.

Thank you.

We'll take our next question from Jay Dobson with Wunderlich Securities.

Hi.

Good morning.

Good morning, Jay.

Armando, on the better earnings guidance you're providing for 2011, I know you mentioned it was solely related to the lower depreciation from longer estimated useful lives.

But it did change, as you indicated, the CITC election.

And I agree with Steve.

I like the PTCs better.

But how would you have us think about the $0.10 benefit versus the $0.08 drag?

Is there some underlying optimism you hold in the business?

Or maybe help us understand what you're trying to say there.

I think -- not I think, but the only thing that you should be focusing on for that $0.10 increase, because I tried to be clear in my prepared remarks, was the change in depreciation.

You brought up a point about the change in CITCs.

I just want to kind of clear that up.

We had a range of 400 to 550 in our plans.

And I said in the first quarter that we've taken -- that we were assuming 275 for the year, but really, a range of 275 to 375.

You should assume -- well, I will tell you, it would be a good assumption for you to assume that our previous estimates had the lower end of the 400- to 550-megawatts of CITC.

So, the difference between 400 and a 275 to 375 range is really not that significant.

So, bottom line is, as I tried to say in the prepared remarks, the range is going up solely as a result of the change in the depreciation.

And we wanted to be very transparent on that.

That's great.

Thanks for the clarity.

On the Spanish solar LOC, what exactly is your exposure?

Could you sort of rough that out for us?

I'm not going to be able to give you, Jay, a number.

One of the things that was important for us to get done in our Spanish project was -- we're always very comfortable that when we enter into a construction project, that we cannot ultimately get it done on time and on budget, but when we get it done, it actually works the way it was designed to work initially.

Those are the types of risks that we take on in any project, and we have those risks in Spain, and we feel very comfortable with those.

One of the risks that we have not taken in the past is what I'll call -- this is probably too long of a title, but feed-in tariff country credit risk.

And this isn't to imply that I'm at all concerned with Spanish sovereign credit, but it is something new for us.

And what we wanted to do in this transaction was limit the exposure that we would have that, our equity would have, to a potential change in that feed-in tariff during the construction cycle of the project.

Now, before I go on, let me first say, we certainly don't expect any changes in the tariff.

We believe it's a great tariff.

We believe that the government and industry over there has done a great job of putting something together that should be good for Spain itself and for the utilities and for the Spanish people for a very long period of time.

But we're -- we were little risk averse on that.

And so, the structure we put together allows us to limit our exposure to our equity investment, which will be roughly $250 million or so, plus some amount.

And the plus some amount gets complicated, and I'm not going to go into it on the call, but the $250 or so, plus this additional amount, is far lower than our expected construction costs -- overall construction costs in Spain, which would be over $1 billion US.

That's great.

No, I appreciate the clarity.

And then, last thing, on the growth rate, I didn't quite follow where you were taking us.

I see the five to seven, I see it's off a new base here, but then you added at the end, if you had no renewable growth, you still expected the five to seven.

Is that to say you expect less growth in Energy Resources, or is that -- how should we interpret the metric you're offering there?

No, it's -- I'm not -- I'm certainly not saying the latter.

It's something that we've actually said before, but I'm not sure it's been picked up.

I said it for the first time back at our investor conference in May of [2011].

I do not recall my exact words, but I said something to the effect that, even if Energy Resources' wind build gets cut back significantly from the estimates that we provide here today, which was back in May 2010, we would expect to continue to meet our 5% to 7% guidance.

It's really a repeat of what I said in May 2010.

Our wind projects are great projects.

There are very accretive to us.

During the first couple of years, though, it isn't significant accretion to really change, in this case, the 5% to 7% materially.

So, I'm not -- this isn't a red herring, if you will.

This is just -- I'm just reemphasizing something I said in May 2010.

I will add, that there's nothing that we see today that would prevent us, with the appropriate public policy, from building 700- to 1,000-megawatts of wind in 2013 and 2014, as we've said before.

But its really something that some investors have been asking about with a concern about wind policy expiring at the end of 2012.

So, it's really just a repeat of what I said about a year ago.

So, simply put, Jay, we have enough other growth opportunities that even if the downside scenario that Armando described earlier about less wind development, we can still achieve the 5% to 7% growth that we're talking about.

That's all we're saying.

That's perfect.

Thanks so much for the clarity.

Thank you.

We'll take our next question from Paul Patterson with Glenrock Associates.

Good morning.

Good morning.

Thanks for the upfront transparency on the wind turbine stuff.

But I'm just wondering, what was the previous life expectancy of the units?

It's from 25 to 30 years.

Okay.

And is there a specific thing that you guys are doing that's enhancing it?

Is it some maintenance item, or is this just something that you think is sort of an industry-wide thing?

I think it's a combination.

First of all, we do most of our own maintenance.

That's not something that's done across the industry, so I think we've got to take a little credit for that.

But secondly, certainly, the technology of these wind turbines have been improving, year in and year out.

When you combine both of those with our actual experience, and we've been looking at this for quite a while.

When you combine that with our actual experience, we think that the new 30-year life is in the middle of an expected range.

Okay.

Is there a specific technology, like a specific manufacturer, that you'd say is kind of responsible for this?

Or is this again just something that you're seeing with all the manufacturers?

We don't buy from everybody, Paul.

I think you know that.

Sure.

I do know that.

I'm sorry.

And so, I wouldn't say that we did it to some and didn't do it to others, but I will add that I said newer wind turbines.

Those are really the 1-megawatt machines and above.

I mean, we still have some machines that are less than 1-megawatt in our portfolio that we did not change the useful life for.

Okay.

And then just on the new investment on 520, that seemed to be -- your projections there for 2012 seem to be coming down.

And I was wondering, what was that -- what was causing that?

Like always on these gross margin slides, for 2012, there's always puts and takes.

I think the first thing to remember, which I have to repeat every time we talk to -- talk about the next year out on the slide, there are no new investments in these slides, so whatever we expect to build in 2012 has not yet been incorporated into the gross margin slides.

So, it's important for everybody to realize that.

The biggest change -- there's roughly a $60 million or so reduction in the gross margin from the midpoint.

The biggest change is actually a couple of projects that we have moved from 2011 to 2012.

So, they weren't going to have a full year of earnings in 2012, because we got them in 2011.

Now that they've been moved back to 2012, there's very little earnings associated with those projects, because we haven't included new investments in the 2012 slides.

That's the majority -- there's a couple of puts and takes, but that's more than 80% of it.

Okay, great.

Thanks a lot.

Thank you.

(Operator Instructions) We'll take our next question from Ashar Khan with Visium Asset Management.

My questions have been answered.

Thank you.

Thank you.

And we'll take our next question, to Mark Barnett with Morningstar.

Hi.

Good morning, guys.

A couple of quick questions.

I noticed the usage in Florida down a little bit over 6%.

I'm wondering what your guidance for the year sort of assumes, continuing from that little bit of a slide in the first quarter?

The 6%, Mark, is virtually all related to weather.

If you look at the heating degree days -- and we provide this actually, in the earnings release, that if you don't have a copy of it yet, you can get it from our website.

But heating degree days for the first quarter of 2011 were about 229.

Normal is about 256.

But last year's first quarter was 587.

So, more than double of what we had this year.

And so, as I mentioned on the call, virtually all of that reduction is related to weather.

In terms of customer growth, and I'd say usage, regular usage, or non-weather-related usage combined, we were pretty close to what we believed we would be doing in the first quarter.

Yes.

I've seen the slides and whatnot.

I'm just trying to get an idea for what you're expecting from -- for the remainder of the year.

For customer growth, we came in at 0.7% for the quarter, and that's actually our estimate for the year.

Okay.

Second question, I guess, I know you don't want to talk too much about it, but obviously, lots of deals.

Looking at gas plants, you're looking at your portfolio.

Can you talk about some of the fundamentals driving all of this activity and maybe what you're considering when you're looking at putting those plants up?

Yes.

Well, the first thing that we actually considered was just a strategic view of the plant and the territories that we're in.

For the most part, not in every part, but for the most part, these plants are in regions that we don't have a whole bunch of assets in.

Again, not for all of them, but for the most part.

Secondly, we've certainly been seeing activity out in the market.

Some of that activity has been attractive, and we thought it would be the right time to explore and the opportunity to sell those assets.

But it started with our view that those were not necessarily strategic assets for us.

And once we made that determination, it was really a matter of how many plants do you put into a potential sale portfolio?

Okay.

Thanks a lot for the color on that.

Thank you.

And our last question will be a follow-up question from Steve Fleishman.

Thanks.

Your commentary on RFPs was a lot more bullish than we've heard in a while.

Could you just give a little better color on what's going on in the market that -- you know, what are the dynamics?

A couple of things, Steve.

One, I think as I've said before, one of the things that I personally believe would drive additional RFPs and additional requests was an improvement in the economy.

Improvement in load growth, and we've seen that.

We've clearly seen that.

We've showed slides in the past.

And so, I think some of the utility companies are feeling a little bit more comfortable about a long-term power purchase agreement.

That's one.

Secondly is, we've seen a confluence of events here, in I'd say the last six to nine months.

And that confluence of events we talked about a little bit before, which is really the reduction in capital costs and the improvement in technology.

I mean, we're going from 80-meter tower, 80-meter blades to a 100-meter tower, 100-meter blades.

You're improving the wind capture, the production, if you will, by 20% to 30%.

At the same time, you are seeing -- we are seeing turbine costs from 2008 compared today, roughly down 20%.

If you put both of those things together, along with the improvement that folks are seeing in load and the economy, I think that's what we're seeing.

There are more people coming to ask, what about wind?

What about wind?

It continues to be the most economical renewable, in our view.

So, I think it's that combination.

Steve, this is Jim.

I would just add that it's not just RFPs.

In fact, we are proactively going out and talking to all our very -- you know, all our customers in the wind space and letting them know that this is an unprecedented time for them to be able to buy wind very attractively.

And it hasn't been this attractive in -- certainly, more than five or six years, from their -- from our customers' standpoint.

And so, we're proactively going out and getting a lot of traction with our customers around just talking about how attractive a time it is.

You combine that with the uncertainty in the post- 2012, in the wind federal incentive regime, and that combination of factors is leading folks to really start to step up in a bigger way than we've seen in quite some time.

Great.

Thank you.

Thank you.

Ladies and gentlemen, that does conclude our question-and-answer session today.

I would like to thank you all for your participation in today's call.

You may now disconnect.