新世紀能源 (NEE) 2012 Q2 法說會逐字稿

Good day, everyone, and welcome to the NextEra Energy 2012 second quarters 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. Julie Holmes, Director of Investor Relations for NextEra Energy, Inc.

Thank you, Audra.

Good morning and welcome to our second quarter 2012 earnings conference call.

Joining us this morning are Jim Robo, President and Chief Executive Officer of NextEra Energy, Moray Dewhurst, Vice Chairman of NextEra Energy, Armando Pimentel, President and Chief Executive Officer of NextEra Energy Resources, LLC, and Eric Silagy, President of Florida Power & Light Company.

Moray will provide an overview of our results, following which Jim will touch on our strategy for future growth.

We'll be making statements during this call that are forward looking, based on 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 today in the news release in the comments made during this conference call, in the risk factors of the accompanying presentation, or in our latest reports and filings in the Securities and Exchange Commission, each of which can be found in the Investor Relations section of our website, NextEraEnergy.com.

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

Please 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 additional information and reconciliation of the non-GAAP measure to the closest GAAP financial measure.

With that, I'll turn the call over to Moray.

Thank you, Julie, good morning everyone.

NextEra Energy delivered solid results during the second quarter of 2012 and built on the progress made in the first quarter.

The Company remains on track to achieve the goals we outlined for this year and we believe we are well positioned to attain our longer range expectations.

At FPL, we continue to in the business at a record rate to deliver even more value to our customers.

Regulatory Capital grew $3.7 billion, or 17.5% versus the second quarter of 2011 and we recorded a Regulatory ROE of 11%, consistent with the 2010 settlement agreement.

As a result, our net income increased $52 million compared with the same quarter last year.

Energy resources contribution to adjusted earnings in the second quarter increased $0.04 compared to the same quarter last year.

Contributions from new investments helped to offset declines from our existing assets which stem primarily from below average wind resources quarter versus above average wind resource in the second quarter of 2011.

Overall, we continue development on the renewable project in our backlog and remain on track for the goals we laid out for the beginning of the year.

In Florida, the early signs of economic recovery we witnessed in prior quarters appeared to have slowed.

After significant employment growth in late 2011, Florida's pace of job creation has slowed.

The Florida unemployment rate in June was flat compared to May, but has dropped more than 2% since this time last year.

Consumer confidence in Florida increased in June relative to last year, but declined versus the prior month.

We saw an up tick in tourism taxable sales, which are now trending above the level seen prior to the recession, and the housing market continues to show signs of modest improvement.

Notwithstanding the somewhat hesitant recovery, we continue to invest in the business to provide greater value for our customers and to keep our overall bills low.

We're making major investments to modernize our generation fleet and increase our nuclear generation output to be more efficient, to reduce emissions, and to drive down fuel costs for our customers.

Over the lives of these projects, we expect fuel and other saving will more than offset the capital and operating costs of these projects.

At Energy Resources, our focus has been on executing the plans for our record backlog of renewable projects.

All of our projects continue to proceed with no significant changes in the execution timeline.

As a result of the progress we have made in the first half of the year, our overall financial expectations remain about the same as we previously discussed.

For 2012, we expect adjusted earnings per share to be in the range of $4.35 to $4.65, and for 2014, we continue to see a range of $5.05 to $5.65, suggest to all of the usual caveats we provide, including normal weather and operating conditions.

Let's now look at our results for the second quarter of 2012.

I'll start with the results at FPL before moving on to Energy Resources, then the consolidated numbers.

For the second quarter of 2012, FPL reported net income of $353 million or $0.85 per share, up $0.13 per share year-over-year.

The principal driver of FPL's earnings growth was continued investment in the business.

During the quarter, we invested roughly $1.1 billion of the approximately $4.1 billion that we expect to invest in the business in 2012, and Regulatory Capital Employed, that's capital on which we're able to earn a return, grew 17.5% over the same quarter last year.

During the quarter, we amortized $165 million of surplus depreciation enabling us to maintain a regulatory ROE of 11%.

For the full year, we expect to amortize approximately $500 million of surplus depreciation up to which will remain $200 million to be amortized.

As we stated last quarter, utilization of $190 million of the surplus in 2013 is built into our rate case filing.

As we discussed on previous calls, FPL is in the midst of the largest cattle deployment phase in it's history.

In the second quarter, we received approval from the nuclear regulatory commission, or NRC, for power up rates on turkey point, units three and four, and earlier this month we received NRC approval for the upper eight at unit one of our St.

Lucie nuclear facility.

St.

Lucie unit two is currently moving through the approval process and we expect to receive NRC approval in the third quarter of this year.

In total, these four projects are expected to contribute approximately 490-megawatts of additional clean generation capacity, which in turn, will drive down customers fuel costs.

The modernizations at our Cape Canaveral and Riviera beach facilities are progressing as planned.

The projects are anticipated to come into service in mid 2013 and 2014 respectively, and are expected to provide $850 million to $950 million in total present value cost savings to our customers over the lives of the plants.

We experienced the first storms in the season in the second quarter with our service territory being affected by tropical storms Barrel and Debbie.

Tropical storm Debbie drenched the West coast of Florida for days before passing through the state and through the hard work of our employees, power was restored to 99% of the impacted customers within 24 hours.

In Florida, most economic indicators we follow have improved significantly from the troth of the recession.

However, we are seeing symptoms that the recovery is slowing in Florida just as it seems to be for the nation as a whole.

As we've repeatedly noted, we do not believe Florida will see a full recovery until the rest of the country sees more consistent signs of growth.

Many of the metrics we focus on have recently flattened creating a level of uncertainty around what we had hoped was evidence of a sustained economic recovery.

In June, the Florida unemployment rate was 8.6%, unchanged from the prior month.

On a positive note, the gap between the unemployment rate in Florida and US has narrowed and Florida is just now 0.4% worsethan the national rate.

Looking to job creation, in June, 70,900 new jobs were reported in Florida compared to the same month in 2011.

While the improvement in the job market has slowed recently, almost all residential housing statistics point to a continued recovery in Florida.

Mortgage delinquencies are at the lowest level since 2008.

The inventory of existing homes for sale reported by Florida realtors is at the lowest point in more than four years.

As Florida reduces the inventory of existing homes, more room is made for the addition of new homes and we're seeing that trend manifest in housing permit data.

In May, housing permits increased 58% year-over-year, the largest annual increase in roughly two years, although of course, on a very low base.

While the mortgage and housing data are encouraging, continued employment gains declining unemployment rates and improvement in the national economy are important to the sustainability of housing market improvements.

We will monitor these and other data points, but we continue to believe that Florida will provide above average growth opportunities over the long term.

Our customer metrics at FPL are naturally tied to the pace of economic recovery both in Florida and nationally.

With the recent lull in recovery, our customer metrics appear to have stabilized for the moment.

During the second quarter we had approximately 27,000 more customers than in the comparable quarter of 2011, representing an increase of 0.6%.

This growth rate has been fairly consistent for the last nine quarters and while we are encouraged by continued customer growth, we of course, would like to see the pace of that growth improved over time.

Underline usage increased for the third quarter, up 1.7% over the same quarter last year.

We're particularly encouraged in increases in the underlying uses in the residential sector.

The commercial sector seems to be lagging a little bit.

We hesitate to he extrapolate underlying usage to a broader context as usage over time can be volatile.

The number of inactive meters and the percentage of low usage customers, which are indicative to the number of empty homes, declined in June versus the same period last year, but were relatively flat compared to May.

Overall, our key customer metrics continue to improve, albeit more slowly than we would like.

As you recall in the first quarter, we formerly required a request for base rate increase and submitted testimony along with extensive supporting documentation for FPL's 2012 base rate case.

We requested a base revenue increase of $516.5 million effective the beginning of January 2013, with an additional step increase of $173.9 million when the Canaveral modernization comes into service in June 2013.

Included in these amounts is our request to reset the allowed ROE to 11.25%, plus a 25 basis points performance add on designed to recognize FPL's excellent overall customer value, but to be maintained as long as FPL's typical bill remains the lowest in the state.

Quality of service hearings will conclude in August and [inaudible] and staff testimony has been filed.

We will be submitting rebuttal testimony next week.

The technical hearing will begin in late August and we expect a staff recommendation and commission ruling on revenue requirements and rates in the fourth quarter.

The rate case thus far is proceeding much as we expected with interfere testimony and consumer sentiment in line with what we had anticipated.

As we have previously stated, at its core, the rate case boils down to three issues.

Recovering the capital and operating costs for Cape Canaveral, a plant we expect will more than pay for itself over its lifetime through fuel savings.

Addressing the impact of the accelerated amortization of surplus depreciation ordered by the prior commissions and implemented under the 2010 rate agreement.

And resetting the allowed ROE to a more reasonable level to the current 10%.

We remain open to the possibility of resolving the issues addressed in the rate case for settlement, but our focus is on preparing for the technical hearing in August.

We continue to believe our superior customer value, demonstrated by award winning customer service, high reliability, and the lowest average residential bill in the state provides strong support for our request.

If our request is granted, our typical residential bill is expected to remain the lowest in the state, emphasizing the affordability of our service.

In April, we updated our expected total bill impact to reflect revised estimated fuel prices, costs for ongoing construction of upgrades at our Florida nuclear facilities, and adjusted data related to the requested base rate increase.

Based on the April data, the base portion of the typical residential customer's bill is expected to increase by $7.09 per month, or roughly $0.23 per day, while the total bill impact will be just $1.41 a month or $0.05 per day, which is lower than we initially projected.

Some commercial customers are likely to see their total bills go down.

We will continue to monitor the changing bill impact throughout the rate case process as fuel prices fluctuate.

Regardless of the level of prices, our investment in high efficiency generation will mean fuel savings for our customers.

Let me now turn to Energy Resources, which reported second quarter 2012 GAAP earnings of $251 million or $0.60 per share.

Adjusted earnings for the second quarter were $173 million or $0.41 per share.

Adjusted earnings exclude the effect of the mark on non-qualifying hedges and net other than temporary impairment from certain investments for OGTI.

Overall, energy resources contributions to adjusted EPS increase $0.04 year-over-year driven primarily from contributions from new additions.

Earnings from existing assets delineated $0.09 versus the second quarter last year, due in large part to less favorable wind resource when compared to the same quarter last year.

This decrease was offset by the fact that last year's second quarter results were reduced by $0.08 from asset impairment charges.

All other effects were minor as shown in the accompanying slide.

We continue to execute on our back log of renewable projects with the remainder of our 1300 megawatt's of US wind on track to come into service in the latter portion of the year.

Our solar projects continue to make good progress with no significant to our expected in service date.

In Spain, we are closely following the actions of the government, but have no official word yet on a course of action.

Looking at the Company on a consolidated basis for the second quarter of 2012, NextEra Energy's GAAP net income was $607 million or $1.45 per share, NextEra Energy's 2012 second quarter adjusted earnings and adjusted EPS were $527 million and $1.26 respectively.

The corporate and other segment were down $0.09 cents from the same quarter last year when we experienced an uplift primarily due to consolidated income tax adjustments related to state tax law changes.

Separately, our Lone Star Transmission project remains on track and we continue to expect to bring the line into full service in the spring of 2013.

As we evaluate our growth for the balance of the year and into 2013, we remain focused on maintaining solid credit metrics.

As we have previously discussed, we consider our credit rating important and a competitive advantage in this market.

We are committed to a strong cash position and to sourcing the right mix of financial products in order to maintain our rating.

We presented the principles underlying our approach to managing our balance sheet and credit position at our fixed income investor Conference in May.

The presentations from which are posted on our website.

As stated there, both Energy Resources and FPL are in the largest investment phase either have seen in recent history and this places stress on our balance sheet and credit metrics.

We expect to continue accessing a diverse group of financial instruments to support our growth plans and maintain our balance sheet strength.

As we've noted, we expect our credit metrics to improve as we move into 2013 and 2014, but it's important to maintain our strength in 2012 as well.

We expect to issue another round of equity units later in the year, although at this point we have not determined what the aggregate amount should be.

We may go above the upper end of the range of 500 million to 1 billion that we have previously disclosed.

However, whatever amount we choose to issue is not expected to have a material impact on the EPS expectations that we have shared with you for 2012 and 2014.

Our development team continues to look for growth opportunities in the market, but absent additional investment we continue to expect to be free cash flow positive in 2014.

As we stated earlier this year, we are targeting at 55% dividend payout ratio in 2014 as a consequence of a mix of our portfolio continuing to shift towards more regulated and long-term contracted assets.

This translates into a compound annual growth rate for dividends of approximately 10% using a 2011 base.

Separately, we have received a number of questions on differential membership interest transactions, also known as tax equity.

In an effort to provide more detail in how these structures work, the benefits they provide to us and the impact on our financial statements, we have posted a presentation on our investors relations website.

We encourage you to examine this and follow-up with additional questions.

In light of the results achieved year-to-date and the progress made against our execution objectives, we see no reason to change our EPS expectations for this year or for the longer term.

We continue to expect adjusted exception EPS to be in the range of $4.35 to $4.65 for 2012, and for 2014 we currently see a range of $5.05 to $5.65.

As always, our expectations are subject to the usual caveats we provide, including normal weather and operating conditions.

While we have not looked as deeply at the numbers beyond 2014, we also expect to maintain our growth momentum into 2015 with continued contributions from new assets expected to come into service at both FPL and Energy Resources.

From a commodity prospective, we're highly hedged in 2015 as well.

Note that our financial expectations take into account current market conditions and we are not depending on or anticipating great strengthening in the natural gas market.

As we do each quarter, we have updated our 2012 and 2013 equivalent hedge gross margin slides for energy resources and they can be found in the appendix to the presentation.

There were no significant changes compared to the first quarters earnings release.

To reiterate what we've said in the past, our financial expectations do not include any additional US wind build beyond 2012 due to the uncertainty surrounding the extension of the production tax credit after the end of this year.

We continue to be optimistic that the PTC will reemerge in some form following this year's election and should that be the case, any investment in US wind beyond 2012 would contribute upside to our current expectations.

Before taking your questions, I'd like to turn the call over to Jim Robo.

As you know, Jim assumed the CEO role at the beginning of the month, having served as Chief Operating Officer for nearly six years and having led Energy Resources for four years before that.

Jim?

Thanks, Moray, and good morning everyone.

It gives me great pleasure to talk to you in my new role.

Moray has given you an overview of another solid quarter for our Company and I won't repeat his comments.

Instead, I want to say a few words about our future.

I know a number of you have asked whether you should expect any changes in strategy under a new CEO and I'm sure all of you will appreciate any insight I can give you into our plans for the future.

The short answer to the question about strategy is that I expect our strategy to be consistent, but our implementation will need to adapt as it has repeatedly in the past to changes in the outside world.

At Florida Power & Light the core of our strategy has been for many years to strive constantly to improve the value we deliver to our customers.

Today, FPL offers its residential customers a bill that is 25% below the national average and the lowest typical bill of all 55 utilities in the state of Florida, coupled with top reliability, award winning customer service, and a very clean emissions profile.

We're investing heavily in the business to ensure that our value delivery gets even better over time.

We expected our investments in new generation will save our customers fuel costs, and improve our emissions profile, that investments in our transmission and distribution infrastructure will increase our systems resiliency and reliability, and that investments in advance meters will offer customers more feedback and control of their electricity usage, as well as make our internal procedures more efficient.

If we receive fair and balanced treatment through the regulatory process, our investors will benefit along with our customers.

At Energy Resources, our strategy is not as easy to capture in a few words, but it's always reflected a balance between a steady view of a long-term vision, captured succinctly by loose terms, scale, skills, and scope, and a pragmatic recognition that every goal in the competitive power space must be pursued opportunistically.

A decade and more of sustained effort has led to the creation of a business that is not only the largest renewable energy producer in the country, but one that also contains many other business capabilities all linked together by a strong economic logic.

We'll seek ways to continue to build the business subject to the opportunity set that the external world offers us.

Across both businesses, I expect us to maintain our focus on clean energy, on being low cost, and on maintaining our track record on excellent execution.

In addition, under pinning our success in both of our major businesses has been an important competitive weapon; our balance sheet.

We have long been believers in the need for financial strength in this capital intensive cyclical business and I do not expect that to change.

We have also combined our financial strength with a culture of financial discipline and a commitment to strong risk management.

That, too, will not change.

I do not claim that we have never made mistakes nor that we never will in the future, but I do believe that our discipline and risk management has served us well in the past and will continue to serve us well going forward.

As a new CEO, I consider myself very fortunate.

I have been an integral part of all of the major decisions of the past decade that got us to where we are today, so I understand the situation I'm presented with.

Our business overall is in great shape and I can concentrate immediately on two things.

Continued execution against the practical objectives listed on this slide that will see us grow out through the middle of this decade, and putting into place the building blocks for new initiatives that will help us carry that growth into and through the second half of the decade.

This is not the occasion for a detailed discussion of our plans for 2016 and beyond, other than to say that we feel comfortable that the Company has an attractive set of growth opportunities going forward.

I look forward to the opportunity to speak with you in more depth on this suggest at the various conferences that some of you will be hosting in the fall and at our next investor conference which we're tentatively scheduling for late in the year.

To close, I'd like to remind you of our track record over the last decade under Lew's leadership.

During that period, we have significantly outperformed the relevant industry benchmarks, as well as the S&P 500 index 500 index, and in the process have added more than $24 billion in value, $18 billion through price depreciation and more than $6 billion through dividends.

That value creation is a tribute to Lew's leadership and to the hard work of all of our NextEra Energy employees.

Not the least of Lew's achievements has been the development of the team that has been responsible for delivering these results.

I'm fortunate to have that team with me today, ready to meet the challenges of the next decade.

We're all fully committed to seeing that we continue our long-term track reported of out-performance.

Thank you for your continued support of our Company and Moray and I now look forward to taking your questions.

Thank you.

(Operator Instructions).

We'll go first to Dan Eggers at Credit Suisse.

Good morning, guys.

Good morning, Dan.

To ask my first question, there wasn't any changes in backlog for wind and solar in the quarter, but could you share a little color on opportunities you may be seeing or the conversations that may be going, for example, adding more solar projects over the remainder of this year over the bag log?

Sure, let me ask Armando to address that.

Great.

Dan, good morning, we're certainly seeing some opportunities in the market, both on a short-term basis and a longer term basis.

I'm not ready to talk about specifics of what those might be on the short-term, but on the longer term basis during the quarter, you did see us close on a $10 million purchase on a 1,000 megawatt area out in California, which supports four 250-megawatt sites.

There's no power purchase agreement associated with those sites, but those sites do bring some very favorable transmission and resource adequacy to our portfolio.

We're out looking for power purchase agreement at this point and we're hopeful that we would have something to talk about at some point next year.

In the near term, I will say that the uncertainty over production tax credits moving forward in 2013 and 2014 is creating some opportunities both here in the US and Canada that we are taking a look at closely.

Armando, does that mean that there's people looking to sell developed or in process projects or just that you're seeing people actually willing to sign contracts on things for 2013 and 2014?

Actually, both.

We're seeing a few opportunities of folks, some developers, that have projects that have taken pretty far into the development process, but their uncertainty regarding production tax credits in 2013 and 2014 is making them seek some additional capital outside of what they have, but we're also seeing, not as much, and Moray has talked about this before.

We and others are building a significant amount of renewable in the US for 2012.

It should be a record year for the industry and a record year for us.

That has certainly sapped some of the 2013 demand even if there's production of the production tax credit.

But we are seeing some of our customers ask for quotes and bids on 2013 and 2014, both on a contingent PTC basis and on a non-contingent PTC basis.

Got it.

I guess, Moray, one question on tax equity.

You guys said you were going to start being a cash taxpayer in 2014.

Does that mean you guys are done in the tax equity market for the time being, given the fact you visibility to get into the excess backlog?

No, it continues to be the balance that we talked about before that we need to strike between essentially the incremental costs that you pay through a differential partnership deal versus the present value benefit of pulling forward in time when you would otherwise realize your tax credit.

So that tradeoff exists almost regardless of when you expect the cash tax position to flip around.

The closer in it is the less valuable the tax equity will be.

You should not assume that means that we won't be doing more transactions.

Okay, thank you, guys.

Next, to Michael Lapides from Goldman Sachs.

Congrats on a good quarter.

Two things, one housekeeping in Florida, then the other, Spain.

In Florida, did the storms that occurred, I think it was late last month, have an impact on O&M and if, so could you quantify, how much did it increase O&M versus expectation?

Then second, you made a comment, Moray, about waiting to hear about the Spanish government regarding the project there.

Can you just give a little bit more detail?

On the FPL O&M, non-material.

On Spain, as I think many of you are aware, there have been a whole variety of proposals, is probably too strong a word, but possibilities floated around, trial balloons, some of which we believe have some basis, in fact, some of which we're not sure have any basis, in fact.

But certainly there's discussions about the potential for taxing the energy sector either in aggregate or differentially by technology, and clearly to the extent that our project was subject to an excise tax or something of that nature that would affect the economics.

We just don't have enough insight at this stage to know which way the government is going to go or how significant those might be.

It seems pretty clear that if the impact was limited to what is needed to address the tariff deficit within the electricity sector, that could be achieved shall we say with levels obtained that are tolerable.

If the government seeks to really try and attack a portion of the broader fiscal deficit on the backs of the energy sector, then that could have a different impact.

As I say, we're sort of monitoring the thing, we're staying close to it.

Obviously, we are articulating our viewpoint as if everybody else there, and we just have to wait and see.

Do you have the ability to pull back on the project if the operating or the government environment for renewable there turns against you?

In principle we always have that ability, but we're well along in construction.

We still like the project, we think it's going to be a good project so I think it would have to be a fairly extreme situation for us to completely reverse course.

I think what we're talking about is what is the impact on the economics, and more broadly, what is the impact on our view of Spain as a place to do business and invest further capital in the future.

Okay, thanks, guys, much appreciated.

Thank you.

Next, to Steven Byrd at Morgan Stanley Smith Barney.

Good morning.

I was wondering if you could talk to the appetite for the development of a regional natural gas transmission pipeline.

I know that's been a potential topic of discussion in the past.

Just curious in your conversations how that's progressing.

As we discussed several times before, we continue to believe there's a need for or a good case to be made for a third pipeline into Florida.

I don't really have a lot to update you on.

We said before that we are optimistic that we'll be able to be in a position to come forward later in the year with more specifics.

We're continuing to evaluate a bunch of different possible scenarios on that I think getting closer to what we think makes the most sense, but I think timing is still hopefully later in the year for us to be more explicit about that.

Understood.

Shifting to Texas.

In your conversations in the states, could you give us a sense for the degree of appetite that you see for consideration of a capacity like mechanism to ensure that the market is adequately incensing folks to build new plants in the state?

Well, I'm not sure we want to mention the capacity word, but some reliability supplementary payment mechanism may be appropriate.

Let me ask Armando to comment on that.

Yes, there's been a ton of discussion obviously, and there's proposals on the table that folks are responding to.

My sense is that the word capacity, let's take the word out.

The mechanisms that would allow payments to be made to generators, hopefully to support the generation, and to bring new generation into the area, which is clearly needed in 2014, both by ERCOT's estimates and by our estimates, that it's moving along more favorably, I'll say, than it was over the last six months.

That doesn't mean that there's going to be a capacity market, but as Moray pointed out, we are hopeful that there will be some mechanism that recognizes the generators need an incentive in order to guild a new generation.

So I'm hopeful that there will be changes.

In the near term for 2013 and 2014, ERCOT is frankly short of capacity.

Steven, let me just supplement that with noting that without that supplement reliability payment, you get a market that's either very flat as it has been so far this summer because there hasn't been much tightness, or a market which peaks out and induces a lot of stress for a short period of time with consequent trouble for suppliers and customers alike.

We don't think that that's a very functional structure.

Getting more supplementary capacity into the market clearly would be a good thing long term for customers.

Understood, well said.

Thanks very much.

Next we'll go to Jonathan Arnold at Deutsche Bank.

Good morning, guys.

Good morning.

Just curious on the resources results.

You called out an absent of the $0.08 impairment charge from last year as one of the drivers I believe in the $0.09 interest G&A and others.

There seemed to be like a $57 million gain on disposals in the quarter.

Can you shed any light with that one specific item or the number of items, and what's the right tax rate we should be using on that?

Yes, sure.

It's a number of items.

We did have a small gain of a few million dollars on a sale of a project, but the bulk of it is associated with the de-commissioning funds, and actually more than half of it, this may get a little technical, is effectively not included in our adjusted earnings because it's an offset to OTTI that we previously took out of adjusted earnings in prior periods.

In other words, in prior period for GAAP purposes we marked down certain securities in the nuclear de-commissioning trusts because we didn't have substantive evidence that they would recover, but in fact they have recovered.

We have sold them now at a gain in the course of the regular management of the NDT's, and so we can't in fairness take that gain into adjusted earnings when we took the negative that it's now offsetting out of adjusted earnings.

So more than half of that is netted out and is a reversal in the OTTI piece.

There is a little piece of real gains on just the normal transactions in the de-commissioning trust.

That's what's going on now.

So where does that reversal show up?

Sorry Moray, but I'm not following that.

It shows up in the reconciliation between GAAP earnings and adjusted earnings down below in the OTTI piece, so the adjustment has a different sign than it typically has.

Okay, thank you for that.

Very helpful.

We can follow-up and take you through the numbers later on if you'd like.

Okay, let's not take time on that now.

Thank you.

Okay.

We'll go next to Hugh Wynne at Sanford Bernstein.

I had two quick questions on the Florida Power & Light side of the business.

In our estimates of the base rate impact of the rate request that you've put to the commission, you estimate also the savings to the customers from lower fuel costs.

Can you share the expected sensitivity of customer bills to a $1 move and the price of natural gas?

I don't have that off the top of my head.

We'd be happy to follow-up and take a rough crack at it.

It's a little hard to see because it filters through, it depends on your assumptions about the dispatch of the fleet, so typically when we come up with these estimates, we're hypothetically displacing the fleet against the forward curve, so we don't have that sensitivity ready at hand, but we'll follow-up with you on that.

Okay.

The second question regarding the target higher dividend payout ratio, which you point out is associated with a shift to a greater earnings contribution from your regulated and contracted businesses.

Ordinarily the payout ratio, I think, is also a decision that's taken light of the capital requirements of those businesses, and the growth and their asset base.

Based on 2014 rate base growth, it would seem to me that longer term there's an expectation of something like 3.5% growth and FPL rate base.

I wanted to ask you, what was the assumption that you factored into that 55% dividend payout decision?

The board felt comfortable with targeting the 55% in 2014 based fundamentally on the mixed shift and view of a range of possibilities for where we might be going beyond that, so you mentioned 3.5% number.

I don't think we have enough insight today to really know what the growth in rate base might be beyond 2014, but we felt that 55% was sufficiently conservative that under most of the likely scenarios we would still be able to fund the growth without having to resort too much to coming to the capital markets in order to raise capital in order to pay the dividend, you see what I mean.

I don't have a specific expectation going out, but I think if you look at how we derived, in essence, the 55% number, it was the function of saying, okay, what do fully regulated businesses typically payout in terms of payout ratio, what's the range there, what sort of payout ratio is supportable by a business that is fundamentally around long-term contracts, that's obviously a lower amount, and then what's the payout ratio of a business who has merchant assets which is essentially zero, then we weight averaged those.

In a sense, it's a sustainable payout ratio based on the portfolio mix as it will be in 2014.

So going on beyond that, if that mix itself changes radically beyond 2014, that may cause us to rethink that for future years.

Very well.

Thank you.

We'll go next to Steven Fleishman at Bank of America Merrill Lynch.

Hi, good morning.

Just, Moray, you mentioned in your prepared remarks that you might go above the high end on the equity units offering for the year.

Could you just give some sense on what, if so, what would be driving that?

Is that a function of more investment opportunities that you're seeing?

Is that a function of the stock price?

It's more a function of the tactical issues around where we're likely to come out on cash flow, making sure that we have enough liquidity through the end of the year, making sure that the cash balances are roughly where we want to be.

A couple of things that I would note.

As we often discussed on the project finance side, we really like to have our projects as far along and complete and clean as they can be when we go to project finance market because that's how we get the best deal out of those.

So given that the build here is concentrated heavily late in the year, we actually may not get to execution on some of the project finance transactions, but really are associated with the CapEx for this year until next year, so that means we have to come up with cash in the meantime, and as I've said before, we've got to watch the 2012 metrics as well, so that's one thing.

Another thing is that we have some opportunities, for commercial reasons I don't want to go into details, but we have some opportunities to accelerate capital expenditures in the year in exchange for commercial advantages, but obviously we have to have the cash to come up with that.

So all of that gets factor into the liquidity analysis, says how much cash do you need, and you have to have a balanced mix of financing.

Right now my thinking is that we may well do another issue comparable size to the one we did earlier in the year, but as I said in the prepared remarks, we haven't settled on a final amount yet.

Okay.

And then any kind of updates on what you're seeing in Washington on the PTC and some of the renewable related legislation that has popped up?

I don't really have a lot new to report there.

There continues to be a lot of discussion.

I think at the margin the discussion is proceeding a favorable direction.

By which I mean that more people are coming to recognize that it doesn't make good economic sense to cut the PTC off 100% instantly.

At the same time, as I've also said many times before, we do see a strong political view to the effect that there has to be a definite end in sight for this kind of support, and that's a concept that we have indicated publicly that we can accept, obviously the devil's in the details.

I think we're making progress on the discussion, but we continue to believe that we're not likely to see anything really happen until after the election and that this is just one small part of a much broader set of discussions and compromises that are going to have to be worked out after the elections.

Not a lot new.

Okay, thank you.

We'll go next to Paul Patterson at Glenrock Associates.

Good morning, guys.

Good morning.

Just back to Jonathan's question just to make sure I understand this.

The $57 million of dispositions is not in adjusted earnings for the most part; is that correct?

Yes, I would say roughly a little over half is out of adjusted earnings and a little less than half is in.

Okay.

Then on the tax equity market, any thoughts we should have with respect to the tax equity market and the fiscal cliff, so to speak, for all of these tax adjustments that might potentially occur?

Could you give us any feeling for what's happening in that market and what the outlook is there?

Well, there continues to be an active market.

I can't say that the prospect of comprehensive tax reform at least to date has had significant impact on the market, although that doesn't mean it couldn't in the future.

Really, they're kind of separate questions at the moment.

I think there's a high degree of scepticism about whether comprehensive tax reform really will occur or if so, what time frame.

At least at the moment it hasn't had a real impact on the tax equity market.

Then finally, the situation in Spain, just to put into prospective.

What is the total exposure?

I don't mean to be cataclysmic or anything, but when you read what you're hearing coming out of what the situation is in Spain, just for investors, how much is the total exposure, if the situation were to get untenable, how much exposure do you have in Spain as an investor there?

Equity commitment to the project roughly 300 million Euros, the rest has been borrowed on a non-recourse basis against the project in Euros so ultimately the equity commitment is that order of magnitude.

You can figure out by applying whatever reasonable ROE you want to that what the potential range of earnings impact is but that's what we're talking about.

I want to emphasize, at least on everything we're hearing to date, we don't think the project is fundamentally threatened.

We think the issue is around what are ultimately going to be the returns on the project.

Oh, sure.

I wanted to get a sense just to put it into prospective.

Okay.

I appreciate it.

Thanks so much.

Thanks.

We'll move next to Jay Dobson at Wunderlich Securities.

Thanks, and good morning.

Most of my questions have been answered.

But Moray, following up on the Spain question.

If I recall, there were some carve outs in the financing that handed or pushed a little of this political risk, broadly calling it that, to the debt side of the equation.

I don't remember exactly how it works, but if you could remind how that works, and with your best view, how that might play into something that didn't, as you point out, fundamentally eliminate the project, but more challenge the economics?

All right, sure.

I don't want to play amateur lawyer here, so I'm going to sort of simplify things pretty significantly.

The financing protects us against change in tariff risks, simply put.

So if there's fundamentally a change in the tariff, then banks share in that risk.

To the extent that what the government ends up talking about or imposing is simply a tax that's kind of consistent with what's all ready on the books or is an adjustment to an existing tax that would presumably not be a complete change in the tariff to the extent, but it was extreme, you might well argue that it was a change in tariff, so I think that's what we're talking about.

Again, I think the realistically we're trying to figure out what level of tax there is going to be hence what impact on what the returns from the project would be.

And again, I would just emphasize that our take on the numbers is that the government can solve the problem that they have with the electricity sector tariff deficit through the imposition broadly on the energy sector of taxes that would not have a materially negative impact on ours or many other projects in which people have committed billions of Euros.

But to the extent that they want to try and use this as an opportunity to help address the broader fiscal deficit that they're dealing with, then that's a different matter.

Okay, that's helpful.

How much of the 300 million Euro equity has been committed to date, actually funded?

I think we're at 75%, 80%.

We're well along in construction.

Construction is proceeding very.

We're on target for delivering those units next year.

Okay, great.

Thanks very much, I really appreciate it, guys.

Thanks.

(Operator Instructions).

We'll go next to Andy Bishop at Morningstar Financial Services.

Most of my questions have been answered, but I do have one follow-up question to the solar element in California that you purchased.

If you sign a PPA in 2013, can you put a possible time frame of when you expect that development to be operational?

I'm trying to get a handle on the CapEx and when you'd be spending that amount.

Realistically, it won't be before 2016 and it could probably slip beyond 2016 under some scenarios.

Total CapEx would be somewhere in the neighborhood of $800 million to $900 million for one 250-megawatt project, and in the near term I would say that the better likelihood for modeling purposes would be one 250-megawatt project.

Certainly, we would love to build out that entire 1,000-megawatt facility, but right now I wouldn't plan on anything other than 250 in the models.

Great, appreciate the clarity.

I think we have time for one more question.

We'll go to Ashar Kahn at Visium Asset Management.

Good morning and congrats.

Can I just ask what's happening on the Seabrook, if I read today even, it's running at 85%.

When do you expect that to come back to 100%?

No update on Seabrook.

It continues to run a little bit below full output because of the rate associated with cooling limits.

It will continue do so through the next outage which is scheduled sometime in the third quarter.

I think it's September.

I think we previously discussed the full year impact of that being reflected in the numbers.

It's really been no change.

Okay.

And then, Moray, can I just asked based on the results year-to-date, it seems like you're running at least ahead at least towards the top end of the range; is that a fair thing to say that you're running a little bit ahead of where plan would be or indicating toward a top end of the range for the year?

No, I wish that were the case, but I think right now we're right in the middle of where we expected to be.

Obviously, there's always puts and takes that go one way or another, but I don't see any reason to change the range for the year, and we could end up in a variety of places in that range.

We still feel pretty good about the year, but I will say that it's a very, very tough environment for the energy resources folks.

Any asset or piece of the business that's exposed to competitive markets, it's just a tough market environment so they're having to work very hard to, as a say, scratch and claw every penny that they can get from the business.

It's not a great market environment, but despite that we're doing pretty well, so we're sort of pleased at where we are at this stage.

Okay, thanks.

Thanks, Ashar.

That does conclude the question and answer session.

At this time, I'll turn it over to managing for any closing remarks.

Thank you for being with us this morning.

We look forward to addressing follow up questions.

That does conclude today's conference.

Again, thank you for your participation.