新世紀能源 (NEE) 2011 Q3 法說會逐字稿

Good day everyone and welcome to this NextEra 2011 third-quarter earnings conference call.

Today's call is being recorded.

At this time, for opening remarks, I would like to turn the call over to Rebecca Kujawa, Director of Investor Relations.

Please go ahead ma'am.

Thank you, Bill.

Good morning everyone and welcome to our third-quarter 2011 earnings 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 former Chief Financial Officer and current President and Chief Executive Officer of NextEra Energy Resources LLC, which we will refer to with its subsidiaries as Energy Resources in this presentation.

Armando will discuss the specifics of our financial results.

Also joining us this morning are Moray Dewhurst, Vice Chairman and Chief Financial Officer of NextEra Energy; Jim Robo, President and Chief Operating Officer of NextEra Energy, and Armando Olivera, President and Chief Executive Officer of Florida Power & Light.

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

We'll 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 the 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 Investor Relations 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.

Good morning everyone.

I'm pleased to report that FPL had strong performance in the third quarter, and while Energy Resources had a challenging quarter financially, the team executed well on creating tangible growth opportunities for the future.

During the quarter, we continued to build a large backlog of future investment opportunities at both of our main businesses.

Despite the decline in year-over-year financial results at Energy Resources, we continue to expect adjusted earnings per share for 2011 to be at the low end of our range of $4.35 to $4.65.

At Florida Power & Light Company, earnings per share were up approximately 12% over the prior-year comparable quarter due to increased investment in the business.

The Florida economy continues to show mixed signs with improvement in some indicators and little change in others.

Florida's unemployment rate was 10.6% as of September 2011.

This is 1.1 percentage points below last year's comparable month and represents one of the largest year-over-year decreases in state unemployment rates in the United States.

Florida's housing affordability has improved significantly, particularly in FPL's core markets.

The Case-Shiller index, which tracks the prices of residential real estate, has fallen 50% from its 2006 peak for the Miami-Dade, Broward, and Palm Beach county markets in South Florida.

This makes Florida much more attractive to Baby Boomers as they enter retirement and the state's existing home sales trend continued to show positive momentum.

Over the quarter, FPL averaged 24,000 more customers than we had in the year-ago comparable quarter and our inactive meters have declined 4.4% since the year-ago period.

Florida also continues to have a low tax burden and we are encouraged by the efforts to Governor Scott's administration to make the state even more attractive to businesses.

At FPL, we continue to make good progress on our large investment program.

Our nuclear upgrade work at St.

Lucie and Turkey Point continues.

Last week, the Florida Public Service Commission approved in FPL's nuclear cost recovery of $196 million through the capacity clause.

This amount relates primarily to the cost of nuclear upgrades which, by themselves, are estimated to provide fuel savings to customers of $4.6 billion to $4.8 billion over the lives of the plans.

The Commission determined that FPL's 2009 and 2010 operate costs were prudently incurred and FPL's actual and projected 2011 and 2012 costs are reasonable.

Cost recovery for 2009 and 2010 was one of several issues that had been left unresolved by the prior commission.

All of the prior unresolved issues have now been resolved.

This week, the Commission approved the remainder of the clauses for 2012, including fuel conservation and environmental clauses.

This approval was reached through stipulation with all parties.

During the third quarter, the Commission accepted FPL's request for a bid rule exemption regarding the proposed modernization of the Port Everglades facility.

We plan to file a petition for a Determination of Need for the facility later this month.

If the new plant were to come online in 2016, as currently proposed, the Port Everglades modernization would cost roughly $1.2 billion and is expected to provide net customer benefits of more than $400 million over the life of the plant.

In aggregate, FPL's completed and planned investments from 2001 to 2016 are expected to save customers an estimated $1.3 billion in projected fuel costs in 2016 relative to a 2001 baseline.

These investments are delivering significant benefits to our customers through operating efficiencies, cleaner generation, and reduced fuel costs.

As a result, FPL customers are receiving cleaner, more reliable energy for a typical bill that is the lowest in Florida and more than 20% below the national average.

Looking forward, we expect that these investments will allow us to keep our typical residential customer bill among the lowest in the state.

On the Energy Resources side of the business, we made great strides in growing our backlog of contracted renewable energy projects by entering into contracts for approximately 1100 megawatts of new, renewable energy capacity since our second-quarter earnings call.

In fact, since the beginning of the year, we have signed approximately 2100 megawatts of contracts per new wind and solar projects.

Now, the numbers I just gave you are slightly higher than what are shown on the slides as, last night, we entered into a new 100 megawatt wind contract which is not included in the numbers you're seeing on the slides.

This year is the most successful contracting year in Energy Resources' history.

On the solar development front, we were pleased to announce that we've purchased a 50% ownership interest in the 550 megawatts Desert Sunlight photovoltaic solar project.

We believe the addition of Desert Sunlight, which is expected to be one of the world's largest solar PV facilities, considerably strengthens our backlog of solar projects.

We expect this project will begin operation in 2013 and be at full capacity in 2015.

Long-term power purchase agreements, or PPAs, for the project have already been approved by the California Public Utilities Commission.

I also want to take this opportunity to announce that we are pursuing the necessary approvals and permits to develop the McCoy solar facility, a 250 megawatts solar PV project located in the Mojave Desert near the Genesis and Desert Sunlight projects.

This project, which is expected to reach full commercial operations by 2016, has a long-term contract with Southern California Edison currently pending approval by the California Public Utilities Commission.

This project further enhances the visibility of our longer-term backlog and we look forward to providing you additional updates on McCoy in the future.

McCoy and Desert Sunlight join our solar portfolio alongside our Genesis and Spain solar thermal projects and several other smaller PV projects, increasing our backlog of already contracted solar opportunities to 940 megawatts expected to come into service sometime between 2011 and 2016.

We expect these projects will begin contributing meaningfully to cash flow and earnings in 2013.

On the wind development front, we had another active quarter and now have long-term PPAs for over 1400 megawatts of new wind projects to be commissioned in 2011 and 2012, including the contract we signed last night.

By 2012, Energy Resources expects to have approximately 10,000 megawatts of operating wind projects that provide, on their own, attractive upside opportunities.

Looking beyond 2012, the current backlog of already contracted wind projects for 2013 and 2014 is 593 megawatts, which includes 469 megawatts of Canadian projects that we talked about last quarter, as well as an additional Canadian project of 124 megawatts that we had previously included in our 2012 backlog but now expect to come online in 2013.

As you know, last month, we announced new management roles for Armando Pimentel and Moray Dewhurst.

Since Armando was Chief Financial Officer during the third quarter, he will be presenting the Company's quarterly financial results today.

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

Armando?

Thank you, Lew, and good morning to everyone.

In the third quarter of 2011, NextEra Energy's GAAP net income was $407 million, or $0.97 per share.

NextEra Energy's 2011 third-quarter adjusted earnings and adjusted EPS were $551 million and $1.31 per share respectably.

The difference between the GAAP and adjusted results the exclusion of the mark in our nonqualifying hedge category, the exclusion of net other-than-temporary impairments on certain investments, or OTTI, and the exclusion of the impact of the pending sale of Energy Resources' ownership interest in a portfolio for natural gas-fired generation assets.

The pending sale of these assets resulted in a one-time after-tax charge of approximately $0.23 per share, of which approximately $0.22 was at Energy Resources and $0.01 was at Corporate and Other due to the consolidated tax impact.

These results are still subject to various closing adjustments.

Late last month, we announced the sale of our ownership interest in RISEC, a 550 megawatts gas-fired generation asset.

The transaction is expected to result in a one-time after-tax charge of less than $0.01 per share, subject to final closing adjustments, which the Company expects to exclude from fourth-quarter and fiscal 2011 adjusted earnings.

For the third quarter of 2011, Florida Power & Light reported net income of $347 million, or $0.83 per share.

FPL's contribution to earnings per share increased $0.09 relative to the prior year's comparable quarter, driven almost entirely by the substantial investments we have made in the business, including the nuclear uprates in our Martin solar facility.

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

We continue to expect 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 weather and operating conditions.

For the terms of the base rate agreement, we expect that FPL will be able to amortize surplus depreciation to offset most of the variability in its normal operations, including modest differences from normal weather.

Keep in mind that, because the return on equity is calculated each month on a trailing 12-month basis, you should expect to see continued variability in FPL's quarterly earnings, but on an annual basis, we expect that retail regulatory return to be approximately 11% in 2011 and 2012.

During the quarter, we reversed $47 million of surplus depreciation to maintain a regulatory ROE of 11% in accordance with the settlement agreement.

Year-to-date, we have recognized approximately $84 million of surplus depreciation and amortization.

For the full year 2011, assuming normal weather and operating conditions, we now expect to amortize between $160 million and $180 million, down from our previous range of $180 million to $200 million provided on our second-quarter earnings call.

This revision is largely a result of modestly favorable weather experienced in the third quarter.

At this point, we expect to utilize between $510 million and $530 million of surplus depreciation in 2012.

leaving us at the end of 2012 with between $180 million and $220 million remaining of the original $895 million established in the last rate case, although of course the exact amount will depend upon a variety of other factors affecting 2012 results, including the actual 2012 weather.

Some of FPL's key customer metrics continue to show mixed results.

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

Overall, on a comparable basis, retail kilowatt hour sales decreased by 2.4% with the average number of customers increasing 0.5%.

Although the usage due to weather is down slightly from last year, Cooling Degree Days were 6.9% higher than normal.

Non-weather-related, or underlying usage, in all other declined by 1.1%.

We continue to analyze customer usage statistics to assess how much of the decline can be attributed to the economic environment and how much is a result of mandated efficiency standards.

At this point, we believe each is contributing roughly equally to the decline.

There is, however, more work for us to do in this important area.

As depicted in the graph in the upper right corner, during the third quarter of 2011, we had approximately 24,000 more customers than we did in the comparable period of 2010.

This is the seventh quarter in a row where we have had customer increases compared to the prior-year comparable period.

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.

While the percentage of low-usage customers is flat to last year, inactive accounts declined approximately 4.4% since the end of last year's third quarter.

We also want to highlight a recent update from the Office of Economic and Demographic Research regarding its population growth outlook for Florida.

The chart at the bottom right corner provides annual projected population growth in Florida through 2021.

The chart shows population growth rates increasing from 0.6% in 2012 to a peak of 1.5% in 2016 before tapering off slightly.

We believe this is a positive indication of long-term potential customer growth.

Turning to Florida's economic environment, a number of the indicators we follow have improved since the depth of the recession.

The progress has been less consistent than we would prefer to see.

Both the Retail Sales Index and the tourism taxable sales are up over the comparable period in 2010.

The trailing 12-month average of existing home sales continues to trend positively, suggesting the market is moving through the inventory of available homes.

We continue to believe Florida offers a unique proposition in terms of housing affordability, great weather, low taxes, and a pro-business economy, all of which should continue to lead to ongoing customer growth for FPL in the future.

Let me now turn to Energy Resources, which reported third-quarter 2011 GAAP earnings of $67 million, or $0.16 per share.

Adjusted earnings for the third quarter, which exclude the effect of nonqualifying hedges, net OTTI, and the previously announced loss on the four natural gas-fired generation assets held for sale were $204 million or $0.49 per share.

Energy Resources' third-quarter adjusted EPS decreased $0.15 from last year's comparable quarter.

New wind and solar investment contributions decreased $0.06 relative to last year as a result of lower CITC elections and lower state tax credits.

Our estimate for full-year 2011 CITC elections is unchanged at roughly 275 megawatts, compared with approximately 600 megawatts for 2010 projects.

We continue to expect the full-year impact of lower CITC elections in 2011 relative to 2010 to be approximately $0.07.

In aggregate, the existing asset portfolio contribution was roughly flat relative to the prior-year comparable quarter.

Wind resource in the quarter was 88% relative to normal, compared to 99% relative to normal in the prior-year comparable quarter.

The weaker wind resource was the primary driver of the negative $0.04 contribution from existing wind assets relative to the prior-year comparable quarter.

Year-to-date, the wind resource has been at 98% of normal.

The Texas gas-fired generation assets contributed $0.02 primarily as a result of extreme hot weather in the ERCOT region.

In the nuclear asset portfolio, Seabrook's contribution was lower by $0.03 as a result of lower-priced hedges while Point Beach contributed $0.05 more as a result of decommissioning fund gains, favorable generation, and the lack of an outage in this quarter.

Our shale gas well drilling program contributed an additional $0.05 compared to the prior-year comparable quarter.

Customer supply and proprietary trading were down $0.13.

This includes lower earnings at [JECSA], a retail business of approximately $0.05 attributable to the extreme hot weather in Texas during the month of August and lower contributions from our proprietary trading business of roughly $0.07.

As you know, there are three main parts to our Texas portfolio, two large combined cycle plants, approximately 1700 megawatts of hedged wind assets, and a position in the competitive retail market through our [JECSA] subsidiary.

Normally we would expect warm weather to be good for the gas assets, challenging for JECSA and uncertain for the wind assets.

If the wind blows hard, it is good because we have excess capacity to sell.

If the wind is weak, it is bad as we have to buy power to cover our hedges.

Through most of the quarter which experienced much warmer-than-unusual weather, our experience was consistent with prior years.

However, in August, when the Houston-area experienced 22 days of record heat, the negative impact on JECSA increased more rapidly than the favorable impact on the gas plant, which were largely hedged and at the same time, the wind resource was light during the super peak period.

As a result, the negatives outweighed the positives and at the portfolio level, we were down $0.05.

After undertaking a thorough review, it is clear that we could have reacted more quickly to certain signs we were seeing in the marketplace and reduced this impact.

We have made changes as a result, and we believe we are now better positioned to avoid a recurrence of this issue.

Ironically, however, the same events that cause us pain in the current quarter helped in other ways as forward curves moved up sharply and we were able to hedge out additional volumes for future years at higher prices than we could have done before the heat wave.

From a development standpoint, we had a terrific quarter in terms of adding to our backlog of already contracted solar and wind opportunities, as Lew mentioned just a couple of minutes ago.

Starting with solar, since the second quarter, we have added two new projects, Desert Sunlight and McCoy.

With the addition of these two projects, we now expect to be toward the high end of the plan we laid out for investors at our May 2010 investor conference to invest between $3 billion and $4 billion in solar opportunities during the 2010 to 2014 timeframe.

Including all of the planned solar projects that are already under long-term contracts, Energy Resources plans to invest between $2.1 billion and $2.3 billion in 2011 in 2012 and between $1.3 billion and $1.5 billion in 2013 and 2014.

We now plan to add roughly 660 megawatts of solar to the portfolio between 2011 and 2014, and plan for an additional roughly 280 megawatts to be brought into service between 2015 and 2016.

Turning to our wind business, Energy Resources' backlog of tangible investment opportunities includes plans to spend between $2.1 billion and $2.3 billion in 2011 and 2012 and $1.3 billion and $1.5 billion in 2013 and 2014.

Included in these expectations are the 1310 megawatts of signed PPAs for projects we plan to put in service in either 2011 or 2012.

Our 2013 to 2014 backlog includes 593 megawatts of Canadian wind projects.

These numbers do not include the CapEx associated with the 100 megawatt contract we signed last night which we expect to complete in 2012.

Since this is our first opportunity to talk to you regarding our two new large solar projects, we want to provide a short overview of each project.

At the end of September, we acquired 50% ownership in the 550 megawatt Desert Sunlight solar PV project.

Construction began in September and interconnection is expected by the end of 2013.

Full commercial operation is expected in 2015.

We plan to elect CITCs Desert Sunlight as the megawatts go into service at an estimated pace of 150 megawatts in 2013, 90 megawatts in 2014, and 35 megawatts in 2015.

The project has two long-term PPAs on the full output of the facility, both of which have already been approved by the California Public Utilities Commission.

Total invested capital for the project is estimated at $2.2 billion, 50% of which represents our subsidiaries' capital obligations, and we will account for the project under the equity method of accounting.

Also adding to our solar development backlog, our newest development project, McCoy, is expected to consist of 250 megawatts of solar PV technology.

We plan to develop the project so that it reaches full commercial operations in 2016.

Total capital costs are expected to be approximately $1 billion.

In September, we signed a PPA with Southern California Edison for the full output of the project, contingent on the approval of the California Public Utilities Commission.

This contract will be submitted for the Commission's approval by the end of the year, and we expect approval in 2012.

The McCoy site has further expansion capabilities, which could at least double our current plans.

Let's now spend some time discussing our earnings expectations for the rest of 2011, as well as the next several years.

Turning first to the outlook for the balance of the year, we continue to expect to come in at the low end of our original guidance range of $4.35 to $4.65.

This is disappointing.

We see with the benefit of hindsight that to reach the upper end of our range would have required contributions from our customer supply and proprietary trading operations that were not likely, given how actual market conditions unfolded.

We have not increased and we do not intend to increase our risk exposure from those operations in an effort to make up any shortfall relative to our expectations.

Having said that, it is also true that we believe that we could have and should have been at the midpoint of our original range had we executed better.

Mistakes in execution are not acceptable to us, and we are committed to improving.

We have already taken several actions in response to the events of this year.

As far as the earnings outlook beyond 2011, we want to give you a bit more detail regarding some factors that are expected to drive results in 2012 and 2013.

First, as we have indicated before, we expect that the major driver of our earnings growth over the next several years will be the investments that we continue to make at FPL.

We expect these investments to reward our customers with operating efficiencies, cleaner generation, and reduced fuel costs, all while keeping our bills among the lowest in Florida.

At Energy Resources, we expect the adjusted earnings drivers over the next couple of years to primarily fall into two different buckets.

First, there's significant headwind associated with above-market hedges rolling off as well as the expiration of PTCs and some increased costs.

The second bucket contains the significant earnings contributions attributable to bringing our contract backlog of new solar and wind energy investments to completion.

Although both of Energy Resources' drivers will affect our adjusted earnings expectations in the next couple of years, we expect the headwinds to be a bit stronger in 2012 while the contributions from new investments are expected to be much stronger in 2013 and beyond.

Looking at 2012 specifically, as a result of our rate agreement, FPL's earnings will be primarily based on the amount of rate base investment it makes.

We expect average total rate base in 2012 to be between $24.7 billion and $24.9 billion, or approximately 14% higher than in 2011.

The growth in total rate base is driven primarily by generation projects that have received prior PSC approval.

The variability in FPL's earnings, assuming normal conditions, is expected to fall within a relatively tight range, because we have the opportunity under the rate agreement to vary the amount of surplus depreciation and amortization we use to achieve an approximate 11% retail regulatory ROE.

At Energy Resources, significant headwinds, primarily associated with above-market hedge roll-offs of roughly $60 million after-tax, are expected to affect the adjusted earnings from 2011 to 2012.

Our expectations for 2012 also include PTC roll-off and lower state tax benefits, which combined are roughly a $75 million after-tax reduction to earnings compared to 2011.

In terms of offsetting positive drivers, fewer days of nuclear outages are expected to contribute approximately $60 million after-tax and new asset additions are expected to contribute roughly $70 million after-tax, including higher CITC elections, which are expected to contribute approximately $20 million after-tax, all relative to 2011.

We currently estimate that we will elect CITCs at approximately 450 megawatts of wind projects compared to our estimate of 275 megawatts in 2011.

There are obviously other puts and takes, but these are the primary drivers we see in 2012.

After accounting for all of these effects, we expect adjusted earnings per share for 2012 will be in the range of $4.35 to $4.65.

Turning to 2013, we expect FPL to have customer rates in place that will provide an appropriate cash return on the significant capital investments we continue to make.

These investments in 2013 are expected to include the completion of our Cape Canaveral combined cycle project, completion of FPL's nuclear uprates at Turkey Point and St.

Lucie, and the continuing construction of the Riviera Beach next-generation Clean Energy Center.

Our customers should greatly benefit from the fuel efficiency and environmental improvements associated with these investments over their useful lives.

We expect total average rate base in 2013 to be between $26.4 [million] and $26.8 [million], or approximately 7% higher than in 2012.

In addition, the approximately 320-mile rate regulated transmission line that our Lone Star Transmission subsidiary is building is expected to be completed in 2013.

Our expectations are that, when completed, Lone Star will have approximately $800 million of utility rate base in Texas.

On this slide, we are providing you with a walk of Energy Resources' expected adjusted earnings from 2011 to 2013.

The renewable energy investments we plan to commission in 2011, 2012, and 2013 provide significant earnings contributions at Energy Resources through 2013.

As you can see from this chart, we expect that the growth in our solar business will contribute between $90 million and $115 million in earnings, relative to 2011, with virtually all of these increased earnings coming in 2013.

Driving this expected growth are the contributions from our Spain solar projects, the first half of our Genesis solar project, and a portion of our Desert Sunlight project.

We expect our new wind additions, primarily the contributions from the 2011 and 2012 project additions, to contribute between $60 million and $75 million during this period.

Recall that there will be no CITCs earnings for new wind projects in 2013 and that we expect to have roughly $35 million of CITC earnings in 2011, so the $60 million to $75 million range you see here is net of that CITC amount.

We also expect price escalators built into a number of our long-term PPAs on our existing assets to contribute approximately $55 million during this period.

The tangible growth at Energy Resources that we see through 2013 resulting from these new long-term contracted investments will be partially offset by the expiration of production tax credits, higher costs, and unfavorable market pricing from our merchant assets.

While we do not have the exposure to merchant prices that many of our peers have, as a result of our largely contracted portfolio, we do have some exposure that shows up here from higher-priced hedges that will be rolling off during this time period.

In fact, from 2011 to 2013, the reduction in Energy Resources' gross margin associated with above-market hedge roll-offs is expected to be approximately $85 million, or as I just pointed out a second ago, roughly $60 million of this $85 million occurs from 2011 to 2012.

So there is much less headwind associated with above-market hedges rolling off in 2013.

Overall, we are currently 92% hedged in 2013 in terms of equivalent gross margin for our existing assets.

For your reference, we have included in the appendix to this presentation the 2012 and 2013 hedging slides.

On the 2012 slide, you will notice the reduction in our expectations for the proprietary trading business.

As part of an effort to align the cost structure of our gas trading operations with our reduced expectations for the business going forward, in the first quarter of 2012, we will be relocating the gas trading and scheduling operations from Houston back to our corporate headquarters in Florida.

In addition to reducing costs, bringing these operations back to Florida will allow us to better integrate the teams and improve leverage across the overall business.

On the 2013 slide, note that the new investment line includes both the contributions from the 2012 additions and the 2013 additions that we already have under contract.

Please also note that, with the pending sale of the five natural gas plants, we have tried to simplify and clarify the hedging charge to align better with the primary drivers of commodity price exposure in the different parts of the portfolio.

By executing on our tangible backlog of investment opportunities, we expect to be able to grow earnings at Energy Resources even in the face of the headwinds I have just described.

The combination of FPL, Lone Star Transmission, and Energy Resources' investments offset by the headwinds I've described for the period, are expected to result in significant adjusted earnings growth in 2013 over 2012.

Turning to 2014, in addition to a full year of contributions from the 2013 Energy Resources investments I just discussed, 2014 is also expected to add the second half of our Genesis solar project, 90 megawatts of Desert Sunlight, and contributions from our Canadian wind projects that we plan to put in service between 2013 and 2014.

Also, the headwinds from the roll-off of above-market hedges are not present in 2014.

In fact, we currently expect gross margin on our merchant assets to be up in 2014 compared to 2013.

Our 2014 merchant assets gross margin is roughly 70% hedged.

In addition to the contributions from Energy Resources, rate base great at FPL is expected to be approximately 3% from 2013 to 2014.

All of the investments we're making at FPL and Energy Resources are expected to meaningfully increase cash flow from operations beginning in 2013.

We expect that, in 2013, cash flow from operations will cover capital expenditures.

In 2014, we currently expect cash flow from operations to exceed capital expenditures and expected dividends, assuming we do not add any additional projects to our current backlog.

In 2014, we expect consolidated cash flow from operations to be approximately $5.5 billion, which would be an increase of over 35% from our consolidated expectations in 2011.

Based on our current cash flow expectations and absent further new investment opportunities, we would, therefore, expect to be in a position to return some capital to shareholders in 2013 and 2014.

We continue to believe that maintaining our strong balance sheet and capital structure is an important differentiator for us and has added to our competitiveness at critical times over the past decade.

As such, we plan to maintain this balance sheet strength and our credit metrics as we go forward.

Of course, we will always look for additional opportunities to deploy capital into new investments that we would expect to produce additional value for our shareholders while maintaining our capital structure.

On a net basis from now through 2014, we expect that outstanding shares may decline slightly relative to 2011.

Today, we have given you additional information to help you better understand the adjusted earnings drivers for our business over the next couple of years.

In addition to the specific guidance ranges for 2011 and 2012, we have provided additional color on the expected adjusted earnings drivers for 2013 and 2014.

In summary, we continue to believe that our adjusted earnings per share will grow at an average of 5% to 7% per year through 2014, relative to a 2011 base of $4.35 to $4.65, which equates to a range of $5.05 to $5.65 in 2014, subject to all of the usual caveats we provide, including normal weather and operating conditions.

Before turning the call back to Lew, I wanted to take a quick moment to thank all of the analysts and investors with whom I have worked over the last few years while I was the CFO of NextEra Energy.

I look forward to continuing to interact with you in my new role at Energy Resources.

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

Thanks, Armando.

To close, let me just say that, while we're not satisfied with the financial results this year at Energy Resources, we remain very positive about our outlook for the future.

During my tenure as CEO, we have never before enjoyed a position in which so much of our future is represented by projects in our current backlog with high visibility and a clear path to completion.

Altogether, our backlogs total almost $20 billion of capital investments across FPL, Energy Resources, and Lone Star.

Our growth for the next few years will be driven primarily by glorious at Florida Power & Light where our investments are fundamentally substituting capital for fuel and thereby making our delivery system more efficient.

We already have what we believe is the best customer value proposition in Florida, combining the lowest bills in the state with top-quartile reliability, award-winning customer service, and the risk mitigation that comes from our clean emissions profile, and we're working hard to improve his.

Our investments will mean real benefits for our customers in the form of lower bill -- lower fuel bills, which means total bills will need to rise very little, even in nominal terms, and will likely to continue to decline in real terms.

As a result, we believe we should be able to earn a fair rate of return on the capital we are investing in the business.

This will lead to strong growth in contributions to earnings per share.

While the outlook for FPL is fairly -- is for fairly consistent growth, at Energy Resources, we first need to fight through the effects of some headwinds, most notably the impact of the decline in power and gas prices that has occurred over the last few years and which will somewhat mask the positive impact of the strong growth in new business through the end of next year.

Nevertheless, Energy Resources has a bright and highly visible future path to growth through 2014 in the form of continued investment in new wind and solar projects.

At the same time, the mix of Energy Resources' businesses will continue to shift toward long-term contracted projects, thus improving the overall risk profile.

Combining all of these, we continue to believe we can grow earnings per share at 5% to 7% per year through 2014 relative to a 2011 base of $4.35 to $4.65, which equates to a range of $5.05 to $5.65.

We believe we can do so even after conservatively assuming no US wind additions in 2013 or 2014.

Yet we firmly believe we will find additional growth opportunities in the years ahead beyond those we have currently identified, and we will be working very hard to be so.

Notwithstanding the short-term uncertainties related to renewable energy policy, we believe that US renewable energy policies will continue to be supportive of future investment over the long haul.

We understand that we have much work to do to execute effectively against our extensive backlog of projects, and that is our immediate focus.

But we will continue to seek ways to deploy new capital at attractive returns to build long-term value for our shareholders.

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

Thank you.

(Operator Instructions).

Daniel Eggers, Credit Suisse.

Good morning, everybody.

First of all, Armando and Moray, congratulations on your new responsibilities.

Thank you guys for providing the additional guidance clarity today.

Lew, maybe you kind of hit on it at the end, but can you talk a little more about where you guys see renewable tax policy headed?

Then as it relates to the backlog, how much of the solar and wind you guys have in place is dependent upon an extension of US tax policy beyond the 2012 expiration as is currently laid out in law?

Okay, Dan, first of all, I'll answer the second part of your question.

None of the forecast that we gave you is dependent on any future extensions or changes in tax policy, so I think those are pretty darn good shape.

As far as what we see happening right now, we don't have a -- we don't even have a murky crystal ball, let alone a clear crystal ball on this.

You all read the papers.

Between the US deficit situation and some of the partisan politics, it's hard to say where things are going to go in the short-term, although I will note a bill has just been introduced in Congress to extend wind PTCs to 2016, which is the same period of time where the solar PTCs expire.

But, historically, renewables have received strong bipartisan support.

I think it will -- it's going -- renewables are going to be an important part of our energy mix going forward.

The other thing that I will add is, as I think you all have seen now over the years, the cost for renewables, wind and solar especially, continues to come down and so they are becoming more and more competitive, so it's proof that these incentives have worked in terms of making renewables much more cost-effective.

So, it's hard to predict what's going to happen very short-term.

I'm pleased that we're in a position that we can give guidance out through 2014 that doesn't rely on any changes to US energy policy.

But again, as I said at the end of my prepared remarks, I see, over the long haul, that we will have continued support of renewables and renewables are going to be a viable business.

When I look at what you guys laid out today that you're going to implement buybacks in 2013 and 2014 kind of to fill in some of the excess cash presumably because the reinvestment pipeline is slowing a bit at that point in time, should we think of that as a placeholder given the current environment, or is it just the opportunity set as you guys look out is getting a little less compelling for some of the resources reinvestment than what you've seen in past years?

Well, let me -- first of all, we're providing you total clarity on what we've seen in terms of contracted projects, projects that we have contracted as of November 2011.

It's the biggest backlog we've ever had in our history, and it's also a backlog that goes for more years than we've really ever had in history.

So I wouldn't read anything more into it other than it's a very big, very positive backlog.

So the comments on our capital position and therefore share count are really a function of those known contracted projects that we just told you about.

As I think Armando said and I said, we're going to continue to look for other opportunities.

If you look at our track record of finding other opportunities, I think it's a pretty darn good bet that we will have other opportunities.

But for a financial forecast, you have to make some kind of assumption at this point.

We never like to assume things that we don't know about, and so I think that provides sort of a baseline kind of forecast.

For sure, we're not going to go and invest in things that are dilutive or highly dilutive.

So if we find new investments, they've got to have a better economic proposition than what you're seeing in the numbers we've just laid out.

So, I can assure you my request to the team and the things that they're going to be incentivized on are going to -- are to execute well on the projects we've talked about, but also to keep the nose to the grindstone if you will in coming up with an attractive investment opportunities.

Okay, and one last quick question.

Does the free cash flow positive position assume any sort of tax equity to monetize some of the PTC balance, or is that natural cash from operations to get to the free cash position?

It's very small tax equity in our financial forecast going forward, but that's not to say there's not none.

We have used (inaudible) tax equity, and this by the way is your last question because we've got to get others.

Yes, I know.

Thank you.

Sorry.

We've used tax equity over the last 24 months really on not only new projects but existing projects to do a couple of things.

The cash is nice, but the real primary piece has been to reduce the amount of production tax credits that would otherwise have been capitalized on our balance sheet.

We've done a great job of that, and I believe, in one of our future earnings calls, we're going to kind of lay out exactly what we've done so investors can see how good we've done on that front.

We're going to get on to the next one.

Thanks.

Michael Lapides, Goldman Sachs.

Real quick -- and I apologize because when you ran through it in your prepared remarks, a little bit hard to catch up with.

Could you run through all of the solar projects you're doing over the next three to four years, three to five years, and the timeline for megawatts coming in the service please?

Sure.

The first project would be our Spain solar project.

It's really two projects, each slightly less than 50 megawatts.

The first part of that will come in, in the first half of 2013.

The second half will come in in the latter parts of 2013.

The second project that we mentioned is our Genesis solar project.

It's a 250 megawatt thermal project out in California.

125 megawatts of that project will come in mid to last half of 2013, and the other 125 megawatts will come in around mid 2014.

The third project is Desert Sunlight.

That's a -- it's an equity investment by us, 50%.

That megawatt is currently -- those megawatts are currently scheduled to come in roughly 150 megawatts later in 2013, roughly 90 megawatts I'd say probably throughout 2014, and roughly 30 megawatts I'd say probably the first half of 2015.

Then we've got McCoy which we talked about today.

McCoy is a 250 megawatt, also a PV project like Desert Sunlight.

That's actually -- there is some CapEx for McCoy in our forecast period.

It's not significant.

By our forecast period, I mean through 2014.

But we don't expect any earnings associated with McCoy until 2015.

Most of that, most of those earnings though will probably be in 2016.

Okay.

On the wind side, the CapEx you're showing for wind post 2012, largely driven by the Canadian development I assume?

It is all driven by our Canadian projects.

Got it.

Last item.

If I just take the very low end of your 2011 guidance, so $4.35, take the midpoint of your 2012 guidance, let's say $4.50-ish, to get to the midpoint of your 2014, that's implying almost a 10 % year-over-year growth in '13 and '14 from 2012.

Is that -- can I ask the question what in terms of pricing assumptions -- granted you don't have that much exposure to the forward curves, but that's a pretty big uptick, and just trying to put my arms around it a little bit.

It's the things we laid out.

I'm not going to remember the slide.

The slide is probably in the upper teens, but it's 2012, 2013 -- I'm sorry -- drivers.

The 2013 drivers really come in three pieces.

First, you've got Florida Power & Light company, which is making significant investments, the rate base in 2011, 2012, and will have new rates in 2013 since our rate agreement ends at the end of 2012.

That's the first big driver.

The second big driver is $800 million of rate base in our Texas utility, our transmission utility, Lone Star.

The next big driver which we laid out really on 19, and we laid it out from '11 to '13, but it is really the Energy Resources solar projects, which I talked about in my prepared comments.

So you've got the first half of Genesis; you've got Spain solar; you've got Desert Sunlight; and you've got a whole bunch of wind that you're putting in primarily in '12 as opposed to '1.

Those when projects that are going in in '12 will have a full year of operations in 2013.

When you put all of that together, that accounts for the big driver from '12 to '13.

The other piece that we shouldn't forget I also mentioned in my prepared remarks, we've got, at Energy Resources, a significant amount of headwinds from the roll-off of above-market hedges from 2011 to 2012.

So if you look at Slide 19 and you look at the merchant pricing down of $85 million from '11 to '13, $60 million of that is actually from '11 to '12, and so you have much less headwinds in 2013.

Now, I'm going to just make this comment because you also had merchant in there.

On the merchant side of the business, our merchant gross margin at this point is -- it's not fully locked up, but even in 2014, as I mentioned in my prepared remarks, we've got 70% of that margin in 2014 locked up and, in 2013, if you look at the new slide that's in the appendix, we've got 86% of that gross margin currently hedged.

So we feel fairly comfortable that there will be a big up in adjusted earnings per share, assuming we can execute on our plans, but if we execute on our plans, there should be a pretty big up and adjusted EPS from 2012 to 2013.

Thank you for that.

One last item, a little bit of a modeling one.

O&M trajectory at Energy Resources, it actually, if I just look at the financials in the back or your tables, it actually was down a little bit year-over-year from third quarter last year to third quarter this year.

Just curious -- A, the driver of that especially since you've added some new assets?

B, kind of the trajectory going forward?

Trajectory going forward I don't think is going to be -- well, we've got a whole bunch of new projects that are going in, right?

So all of those new projects going in are going to have their own O&M.

Let me just -- I'm going to get to the rest of your question in a second, but if you go to Slide 19, for those of you that are out there trying to model all of this, the green bars that you see there, those ups that you see on those projects, those green bars are already net of the O&M for those new projects.

So the O&M increase that you see on that slide, which I think is part of your questions, Michael, is really for existing projects, not new projects.

As far as our expectations just on a general basis going forward, I wouldn't expect it to be much more than inflation and maybe slightly even less than inflation on a go-forward basis.

Got it.

Thank you guys.

Much appreciated.

Paul Patterson Glenrock Associates.

Good morning, guys.

The CITC benefit in 2011, 2012 and 2013, I wasn't completely clear as to how we should be thinking about the level of CITC contribution to your growth rate.

Let me give you a little shortcut.

From 2010 to 2011, this is an adjusted earnings, from '10 to '11, you're down about $28 million.

That's the $0.07 per share that I talked about in my prepared remarks.

From 2011 to 2012, you're going to be roughly up $18 million.

That's all -- actually all associated with wind.

From 2012 to 2013, you will be up roughly $12 million.

That $12 million is a net number though because you will not have any CITC for wind in 2013, so you'll be down on the wind side probably around $62 million.

That's the gross number.

You'll will be up on solar roughly $74 million.

Okay great.

What's the total number of CITC in that year?

CITC in 2013 is probably somewhere around 275 megawatts or so, all of solar.

That equals what kind of dollar amount?

Roughly $70 million to $74 million after-tax.

Excellent.

Then when we're looking at the slides on the hedging, the merchant wind in New England seemed to be moving in different directions year-over-year.

The megawatt hours seem the same, but in some cases it seems like there's a big increase in what we're seeing.

Yes, Paul, that's true.

You should -- you and the rest of the folks should understand we try to hedge really on a what I'll call corporate-wide basis at Energy Resources.

That means, at times, we may need some hedges from some of our wind assets to some of our power assets and back-and-forth.

We're not really doing that to confuse you, although it might have confused folks.

I think the better way to look at it would be actually to look at the total amounts that you see, especially when you're looking at Texas wind and Northeast, what's happened to those total numbers.

Okay great.

Thanks so much.

Jonathan Arnold, Deutsche Bank.

Good morning, guys.

Just to follow-up on Paul's question, and thank you for the disclosure on the '13 CITC.

How should we think about that number in '14 with respect to your guidance and growth rate?

The '14 CITC number?

Yes.

That's actually a number I don't have in front of me.

Hold on just -- do you have another question actually, Paul?

I'm sorry.

Do you have another question, Jonathan?

I don't have that number in front of me.

I do have another one.

Should we try that first?

The other one was, on the gas plants that you recently sold where you got the operating contracts back I think versus varying numbers of years, could you quantify what the benefit of those ongoing operating contracts is likely to be to earnings and where we'd be looking for that?

Is it something we'd notice as and when they roll down?

We'll go back to your first question because we're not going to answer that question.

You're not going to answer either half of that question?

Yes, that's -- I think that's a competitive question that I don't think it's really appropriate for us to answer.

But on your first question where you were wondering how many megawatts of CITC we would have in 2014, I'd say roughly between 200 megawatts in 215 megawatts and it's all solar at that point.

So it will be a little -- it will be a slight headwind versus '13, but not significant.

Not significant.

Okay.

On my other question, is this a number we'll notice when those contracts end rather than asking for a specific?

Is it a driver we should even think about?

You know, here's what I would say about it, which is obviously it's accretive right now to earnings, but it's small.

We're not doing it for free, but that O&M services is a competitive business and so accretive, it's small and not going to be a giant driver one way or another.

Okay thanks a lot.

At this time, I would like to close the conference out.

We thank you for your participation.