edison electric institute conference november 6-9, 2005
TRANSCRIPT
Edison Electric Institute ConferenceNovember 6-9, 2005
2
Cautionary Statements And Risk Factors That May Affect Future Results
Any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix herein and in our SEC filings.
3
FPL Group
FPL FPL Energy
• $16.6 billion market capitalization
• $33.6 billion in total assets
• 32,843 mw in operation
• $10.5 billion operating revenue
• One of the largest U.S. electric utilities• Vertically integrated, retail rate- regulated utility• 20,843 mw in operation• 4.3 million customers• $8.7 billion operating revenue
• Successful wholesale generator, operating in 24 states
• U.S. market leader in wind-generation
• 12,000 mw in operation• $1.7 billion operating revenue
A Growing, Diversified Company
Revenue data as of 12/31/04, market capitalization data as of 11/1/05; all other data as of 9/3005
Jan-05 Feb-05 Mar-05 Apr-05 May-05 Jun-05 Jul-05 Aug-05 Sep-05 Oct-05 Nov-0590
95
100
105
110
115
120
125
130
135
Inde
xed
Ret
urn
(%)FPL Group
Comparative Total Shareholder Return*YTD thru Nov 1
FPL Group S&P 500 Electric Utilities Index S&P 500 Index
15.9{%}
15.1{%}
0.7{%}
* Dividends are reinvested 4
5
Total Shareholder Return
29%
11%
49%
44%
-11%
113%
Five-year return 12/31/99 – 12/31/04
Three-year return 12/31/01 – 12/31/04
Ten-year return 12/31/94 – 12/31/04
216%212%
184%
FPLGroup
S&P 500
Dow Jones Utilities
FPLGroup
S&P 500
Dow Jones Utilities
FPLGroup
S&P 500
Dow Jones Utilities
7
Florida Power & Light (FPL)Premier Electric Utility
• Favorable customer mix • Strong customer and usage
growth • Operational excellence • Proven cost management • Constructive regulatory
environment
8
FPL: Demonstrated Ability to Grow Earnings
Steady customer growth translates to steady earnings growth
Delivered Sales & Adj. Earnings
400
500
600
700
800
94 95 96 97 98 99 00 01 02 03 04
Ad
juste
d E
arn
ing
s (
$ m
illi
on
s)
0
25
50
75
100
FP
L D
eli
vere
d S
ale
s (
bil
lio
n k
wh
)
Adjusted Earnings2CAGR 3.5%
FPL Delivered Sales1 CAGR 3.1%
1 Delivered sales adjusted for the impact of the 2004 hurricane season2 See Appendix for reconciliation of GAAP to adjusted amounts3 CAGR calculated from 1994 to 2003; 2004 results not available
U.S. Delivered Sales CAGR 2.0%3
9
Volume Growth(10-year CAGR of 3.1%)
Customer Growth(10-year CAGR of 2.1%)
Usage Growth(10-year CAGR of 1.0%)
Mix Effects (10-year CAGR of 0.0%)
Top-line growth at FPL
• Economic growth• Larger houses• Appliances and
electronics• Price elasticity• Short-term effects• Weather variability
• Small over the long-term
• Short-term effects
• Continued population growth…
• …tempered by cyclical and short-term factors
Note: 10-year CAGR figures as of December 31, 2004
10
Robust job growth in Florida
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
1999 2000 2001 2002 2003 2004
US Florida
1999 - 2004
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jan
Feb Mar Apr
May
June
July
AugSep
t
US Florida
Source: U.S. Department of Labor
Through September 2005, Florida had created 11% of the nation’s jobs
2005 (1st nine months)
11
Florida ranks 1st in growth among most populous states
1 Estimated population by state as a percentage of total U.S. population; figures for 2030 are based on estimated population
Source: U.S. Census Bureau
1.1%United States
6.5%0.3%New York
4.3%0.6%Illinois
12.2%1.5%California
7.7%1.9%Texas
5.9%2.1%Florida
2000-2004 in 20041 CAGR % of Population
State
0.9%
0.1%
0.3%
1.1%
1.6%
2.0%
2000-2030CAGR
5.4%
3.7%
12.8%
9.2%
7.9%
in 20301
% of Population
12
Maintaining Operational Excellence
1 2004 lower then historical average due to refueling outages2 FPL data as of 2004 excluding the impact of the three hurricanes that hit FPL’s service territory; industry average data as of
2003
1.81 1.77
1.24
1.67
94 95 96 97 98 99 00 01 02 03 04
75%
80%
85%
90%
95%
100%
99 00 01 02 03 04
FPL Industry Average
O&M Reductions(cents per Retail kwh)
Industry
FPL
137
69
FPL Industry Average
Service Reliability Outage Time per Customer 2
(minutes)
Plant AvailabilityEquivalent Availability Factor
Nuclear 1
Down 26%since 1994
Superior Cost Management
(O&M $ per customer) $539$504
$291
$359
94 95 96 97 98 99 00 01 02 03 04
Industry Average
FPL
75%
80%
85%
90%
95%
100%
99 00 01 02 03 04
FPL Industry Average
Fossil
FPL Group achieves operational excellence by continuously improving the performance of its power plants
13
Delivering Value to Customers
$88$92
$98 $98
Gulf Power FPL PEF TECO
137
69
FPL Industry Average
1999$75.54
fuel charge $19.80
base rate $47.46
other $8.28
Comparatively low residential rates and outstanding service reliability have been rewarded with high customer approval
Residential Bill per 1,000 kwh1
Outage Time per Customer3 (minutes)
2005 Residential Survey Scores4
Good
2006$106.36 other
$12.02fuel
charge $56.22
base rate $38.12
While Base Rates have Declined, Fuel Charges have more than Doubled2
(1,000 kwh)
99
102
FPL Industry Average
1 Source: Company filings, bills exclude municipal taxes and franchise fees. 2 Excluding franchise fees and municipal taxes; rates as of March 1999 and September 2005, with fuel effective 1/1/06 as proposed3 FPL data as of 2004 excluding the impact of the three hurricanes that hit FPL’s service territory; industry average data as of 20034 Source: J.D. Power and Associates, July 21, 2005
Sept. 2005 Jan. 2006
$92
$106 $108 $108
Gulf Power FPL PEF* TECO
* Figure does not include an anticipated fuel re-filing
14
Diversified Fuel Sources
Further hedged through its use of multiple energysources at FPL
FPL Projected 2014 Fuel Sources(mWh produced)
FPL 2004 Fuel Sources(mWh produced)
Nuclear16%
Coal14%
Gas50%
Purchased Power
9%
Oil11%
Gas37%
Nuclear21%
Purchased Power18%
Oil18%
Coal6%
Source: FPL Ten Year Power Plant Site Plan, 2005 - 2014
15
26,283
18,146
94 96 98 00 02 04 06E 08E 10E
Managing Extraordinary Growth at FPL
4.69
4.22
3.42
Steady customer growth requires significant system expansion
Average Customer Accounts (mm)
Total Generation Capability(mw)
West County or
PPAsTurkey Point 5
West County or
PPAs
Source: FPL Ten Year Power Plant Site Plan, 2005 - 2014
16
FPL: Investing Capital to Support Growing Energy Demand
Steady customer growth translates into increased investment
Capital Expenditures(billions)
$-
$0.5
$1.0
$1.5
$2.0
$2.5
01 02 03 04 05E 06E 07E 08E
All other Transmission and Distribution New Generation
2005-2008 cumulativeCapEx of $6.7 bn
17
ROE Trends - Regulatory and Financial
Regulatory
Financial
9.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
94 95 96 97 98 99 00 01 02 03 04
Florida Power & LightReturn on Equity
Downside Protection of 10.0% Continued
1 Financial ROE is calculated by using a rolling 12-month GAAP net income before cumulative effect adjustments and any extraordinary items divided by simple average of beginning and ending equity.
1
18
Regulatory proceedings – a recap• Storm cost recovery
– 2004 storm recovery proceedings closed out– recovery of all storm fund deficits assured– recent general rate case modifies approach to recovery
• prudently incurred restoration costs fully recoverable; several alternatives available to recover such costs
• General rate case resolved– four-year stipulation and settlement unanimously approved by Florida regulators in August– revenue adjustments in place to recover pre-approved generation build
• 2006 fuel clause filings– 2005 underrecovery projected to be $973 million1; seeking to recover over two-year period– 2006 projected fuel increase to be $1.8 billion– fuel clause in place; consistent track record of recovery in Florida – regulatory decision expected on November 9, 2005
1 Figure includes 2004 underrecovery of $7.7 million
19
FPL Rate Stipulation and Settlement: Key elements continued from prior agreement
• Revenue sharing– Thresholds and caps escalate per pre-defined formula
• No authorized ROE– 11.75% used for clause and other purposes
• Downside protection at 10% ROE• Continue $125 million depreciation credit
20
FPL Rate Stipulation and Settlement: New elements
• Generation Base Rate Adjustment (GBRA)– For new generation approved by PSC under Power Plant Siting Act (PPSA)– Revenue requirement set by PPSA application
• Modified approach to storm cost recovery– Prudently incurred restoration costs fully recoverable– No annual accruals to storm reserve– Additions to reserve and recoveries of shortfalls via securitization or base rate surcharge
• Suspension of annual nuclear decommissioning accrual for a minimum of four years
• Clause recovery for any RTO expenses• New rate structures
22
A Leading Wholesale Company
• Well diversified by fuel source and by region• Wind and nuclear continue to build substantial value
– PTC extension supports continued and consistent wind development – acquisition of 70% interest in Duane Arnold targeted for early 2006 close– Seabrook up-rate
• Commodity market continues to improve– expiring contracts renewing at higher margins
• Disciplined approach to potential new portfolio additions (nuclear, fossil, QF interests)
• Strength of operations - on path to acceptable ROEs by 2007 (includes CCGTs)
23
Wind26%
Merchant(fossil and
hydro)46%
Seabrook (nuclear)
9%
Contracted Fossil19%
FPL Energy’s diverse portfolio
12,000 Net mw in Operation
As of 9/30/05
FPL Energy operations
West17%
Central36% Northeast
24%
Mid-Atlantic
23%
Asset Type Regional Breakdown
24
Significantly Improved Market ConditionsMarket Update
Change in Change in Cal 06Cal 06 Forward Cal 06 Forward
9/30/05 1/3/05 – 6/30/05 6/30/05 – 9/30/05
Natural Gas ($/MMBTU) 1 11.71$ 1.91$ 3.72$
NEPOOL 7x24 Power 2 106.96$ 14.52$ 35.72$
NEPOOL Spark Spreads 3 30.90$ 2.28$ 11.49$
ERCOT Spark Spreads 4 25.98$ 7.26$ 6.41$
WECC Spark Spreads 5 25.57$ 2.87$ 0.81$
Forward
1 NYMEX2 Mass Hub3 Mass Hub, Tetco M3 and 7,000 heat rate4 ERCOT N, Houston Ship Channel and 7,000 heat rate5 SP15, NGI SoCal and 7,000 heat rate
25
1 Weighted to reflect in-service dates, planned maintenance, Seabrook’s refueling and power uprate in 2006, Duane Arnold’s refueling outage in 2007 and expected production from renewable resource assets. Includes the pending acquisition of a 70% interest in the Duane Arnold Energy Center. 2 Reflects round-the-clock mw under contract.3 Includes all projects with mid- to long-term purchase power contracts for substantially all of their output.4 Includes only those facilities that require active hedging. 5 Reflects on-peak mw under contract.6 Totals may not add due to rounding. All data as of 9/30/05
2006 2007
Asset Class Available
MW 1
% MW under
Contract
Available
MW 1
% MW under
Contract
Wind 3,098 98% 3,097 98% Contracted 3 2,465 99% 2,465 99% Merchant 4
NEPOOL 2,281 68% 2,454 38% ERCOT 2,559 88% 2,619 22% All other 1,417 30% 1,372 18%
Total portfolio 6 11,819 82% 12,006 60%
FPL Energy Contract Coverage
2
2
2
2
5
5
5
5
5
5
5
5
26
U.S. leader in wind energy
18%
22%
33%
37%
43%41%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
99 00 01 02 03 04
mw
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FP
L E
ner
gy
Mar
ket
Sh
are
Industry FPL Energy Market Share
Wind Generation Market Share
FPL Energy Wind Generation
3,2792,7582,720
1,7451,421
578460
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
99 00 01 02 03 04 05E
mw
1 As of 9/30/05, projected additions of 521 mw include 381 mw already placed into service with the remainder to be operational by late 2005 or early 2006. An additional 38 mw was placed into service as of 10/31/05.
1
27
Leading the U.S. in Wind Energy
• Public policy support required – Production Tax Credits (PTCs) extended through 2007
18%
22%
33%
37%
43%41%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
99 00 01 02 03 04m
w0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FP
L E
ner
gy
Mar
ket
Sh
are
FPL Energy Industry FPL Energy Market Share
Our Competitive Advantages:
• Business scale• Project development track record• Quick-to-market (3 - 6 months)• Tax appetite• Creditworthy• Efficient third party financing
access
Wind Generation Market Share
28
-
200
400
600
800
1,000
1,200
05 06 07
Wind is a Significant Source of Income Growth
Wind Generation Additions (mw)
Projected Wind Generation Additions
(mw)
-
200
400
600
800
1,000
1,200
Pre-00
00 01 02 03 04 05
625-750
Each 100 mw adds roughly ½ - 1 cent/share first twelve months
Expect the addition of 625 to 750 mw per year in 2006 and 2007
1
1 Actual through 9/30/05
2 Including in-service projects and those currently under development with anticipated in-service dates of late 2005 or early 2006.
2
625-750
521
29
Top 10 U.S. Wind Developer/Owner
0
500
1,000
1,500
2,000
2,500
3,000
3,500
FP
L E
ner
gy
PP
M E
ner
gy
Sh
ell W
ind
En
erg
y
Mid
Am
eric
an
Ho
rizo
n W
ind
(Go
ldm
anS
ach
s)
Inve
ner
gy
Bab
cock
&B
row
n
En
Xco
Eu
rus
AE
S/S
eaW
est
MW
3,279
773
355 350 298 264 262 257 196 187
1Projected MW at YE 2005 as of 9/30/05; 2005 additions include Callahan, Horse Hollow, Weatherford, and Wilton.
1
30
“Wind 101” Economics
• Production Tax Credit available for every kWh produced;– 1.9¢ in 2005, escalating with inflation, for first 10 years of operation– credit available for new projects that achieve COD by 12/31/07
• MACRS depreciation over 5 years• PPA market in U.S. typically 15-25 years, 3-6 ¢/kWh• All-in construction costs in 2006/2007 will likely range
from $1,300 - $1,700/kw, depending upon size of project, region, interconnection requirements
• Typical wind project size: 50-150 MW• Typical capacity factor: 25-40%
31
FPL Energy Acquired the Seabrook Nuclear Station in 2002
92.9%
85.3%
Average 1995 - 2002 Average post FPLEnergy
788
915
2002 2005
Reliability (capacity factor)Headcount1
• Financial performance well above original forecast
• Substantial upside performance– 80+ net mw uprate
– Recontracting at higher prices
Additional expected contribution margin $80 - $100 million in 2007
Market Price for Electricity (MA Hub)
$-
$20
$40$60
$80
$100
$120$140
$160
$180
11/1/02 11/1/04 11/1/06 11/1/08 11/1/10
$/m
wh
1 As of year-end
32
$175$175$126$105$83
$58$32$9
97 98 99 00 01 02 03 04 05E 06E 07E
Strong Track Record of Growth at FPL Energy
Adjusted Earnings1
($ millions)
49% Compound Annual Growth Rate
1 See Appendix for reconciliation of GAAP to adjusted amounts2 2005 estimate is based upon FPL Energy EPS expectations provided on slide 36, and assumes normal weather and
excludes the cumulative effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges, neither of which can be determined at this time.
3 FPL Energy’s 2006 and 2007 figures are based upon FPL Energy EPS expectations provided on slide 36 and are believed to be appropriate for this point in time. As a result, they should only be read in conjunction with the Company’s standard earnings expectations, which is usually delivered upon the release of quarterly earnings or in another Reg FD forum.
$250 - 2802
$350 - 3903
$450 - 5253
33
Disciplined Acquisition Strategy
• Strategic • Fits the portfolio
• Largely hedged / “Deep in the money” • Financeable
• Operational upside • Attractive economics
• Immediately accretive to earnings
ContractedFossil
PartnersNuclear Wind
FPL EnergyFocus
Acquisition Criteria
35
FPL Group Outlook1
• Annual sustainable EPS growth of 9-10% through end of decade– composition of growth is transparent– assumes no incremental asset acquisitions beyond those already announced
• Corporate Outlook1, 2
– 2005: $2.50 – $2.60 per share prior to Wilma impact – 2006: $2.80 – $2.90 per share – 2007: $3.15 – $3.35 per share
1 Assumes normal weather and excludes the cumulative effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges neither of which can be determined at this time
2 Excludes any impact from Hurricane Wilma, which can not be estimated at this time
36
Adjusted Earnings per Share expectations
20041 2005E2 2006E2 2007E2
FPL $2.07 $1.98 - 2.05 $2.05 - 2.10 $2.15 - 2.25
FPL Energy 0.49 0.65 - 0.73 0.90 - 1.00 1.15 - 1.35
Other (0.10) (0.15) - (0.18) (0.15) - (0.20) (0.15) - (0.20)
Consolidated $2.46 $2.50 - 2.60 $2.80 - 2.90 $3.15 - 3.35
Note: the 2005, 2006 and 2007 adjusted earnings expectations are valid as of November 4, 2005 and should be viewed in conjunction with the “Assumptions” page (slide 37) and with the Company’s Cautionary Statements contained in the Appendix to this presentation.
1 See Appendix for reconciliation of GAAP to adjusted amounts2 Assumes normal weather and excludes the cumulative effect of adopting new accounting standards as well as
the mark-to-market effect of non-qualifying hedges neither of which can be determined at this time
--- EXCLUDES IMPACT OF HURRICANE WILMA ---
37
FPL Group: Key Assumptions1
• 2% customer growth• No usage per customer growth in 2006; 1% in 2007• Continued cost control• Turkey Point expansion remains on schedule (mid-2007)• Normal weather
• Wind development: 625 - 750 mw each year, 2006 and 2007 • Market forwards as of early September (excludes recent forward market
peaks)• Timely close of Duane Arnold acquisition• Operational performance consistent with historical levels
• Yield curves as of late September • Balanced financing plan maintains current credit position• Incremental non-recourse debt where net credit impact is
favorable
FPL:
FPL Energy:
Corporate and Other:
1 Excludes impact of Hurricane Wilma
38
Expected 2005 EPS Range $0.65 – $0.73
New investments 0.24 – 0.28
Existing portfolio 0.08 – 0.12
Asset restructuring, marketing and trading (0.02) – 0.02
Interest (0.07) – (0.05)
All other, including share dilution (0.04) – (0.02)
Expected 2006 EPS Range $0.90 – $1.00
1 Assumes normal weather and excludes the cumulative effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges neither of which can be determined at this time
Drivers of FPL Energy Earnings Growth: 2005-20061
39
Expected 2006 EPS Range $0.90 – $1.00
New investments 0.12 – 0.24
Existing portfolio 0.10 – 0.20
Asset restructuring, marketing and trading (0.01) – 0.01
Interest (0.05) – (0.03)
All other, including share dilution (0.02) – 0.02
Expected 2007 EPS Range $1.15 – $1.35
Drivers of FPL Energy Earnings Growth: 2006-20071
1 Assumes normal weather and excludes the cumulative effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges neither of which can be determined at this time
40
FPL: Potential Drivers of 2006 Earnings Variability
Issue Variability
Potential Impact 2006 Weather variability at 80% probability ± 7¢
Revenue growth ± 1% ± 2 - 3¢
O&M expenses sensitivity ± 2% ± 4¢
Interest rates ± 1% ± 2¢
See Company’s Cautionary Statements contained in the Appendix and the Company’s filings for full discussion of risks
41
Issue Sensitivity Variability Potential
Impact 2006 Weather Wind portfolio wind resource ± 1 wind index ± 3¢
Maine hydro rainfall, snow pack
± 20% 1 ± 4¢
Market risk
commodity prices
± $2/mmbtu ± 6 - 7¢
Oper. performance EFOR ± 1% ± 1 - 3¢ New growth Wind New development 625 – 750 MW ± 2¢
Asset restructuring
0 – 2% of FPLE earnings
1 From historic mean
FPL Energy: Potential Drivers of 2006 Earnings Variability
43
Sound credit profile reflected on balance sheet and credit ratings
Total Debt toTotal Capitalization 1 S&P Moody’s Fitch
FPL Group, Inc. Issuer
A/Negative
A2/Stable
A/Stable
FPL First Mortgage Bonds
A/Negative
Aa3/Stable
AA-/Stable
FPL Group Capital Senior Unsecured
A-/ Negative
A2/ Stable
A/Stable
1 All data as of 12/31/04
61%
FPL Group IndustryAverage
56% (GAAP)
44% (Adjusted)
44
Financial Strength
S&P Issuer Credit Rating
Early 2002 Rating
Current Rating
Early 2002 Rating
Current Rating
A+
A
BBB+
BBB
A-
BBB-
Best Rating in the Industry
Ratings as of 11/1/05
FPL Duke Southern Exelon Entergy Dominion AEP Progress
45
Credit Facilities($ millions)
Current
5-Year 3-Year Total
Florida Power & Light $1,000 $500 $1,500L/C sublimit $750
FPL Group Capital $1,000 $1,000 $2,000L/C sublimit $750
Total $2,000 $1,500 $3,500
46
Growing, stable dividend
Dividend Payout
56% 54%
FPL Group Industry Average
2/15: Raised quarterly
dividend by 4%
1 Annualized split-adjusted quarterly dividend2 Dividend payout is based on earnings of $2.55, the mid-point of 2005 EPS estimate
range of $2.50 to $2.60 given on slide 36. 3 Dividend payout is based on 2005 First Call EPS estimate
$1.04 $1.08 $1.12 $1.16 $1.20$1.30
$1.42
99 00 01 02 03 04 051
Increaseddividend by
13%
2 3
47
The Building Blocks of Long-Term Growth
Base Growth atFlorida Power & Light
Base Growth atFPL Energy
+
+
Return to MerchantMarket Equilibrium
Continued Wind Development
+
Long-Term EarningsGrowth Potential
FPL Group =
New Capital Deployment
+
=
Appendix
50
FPL - Reconciliation GAAP to Adjusted Earnings and EPS
There were no adjustments to GAAP earnings from 1994 to 1998 and from 2002 to 2004
1999 2000 2001
Net Income 576$ 607$ 679$
Adjustments, net of income taxes:
Settlement of litigation 42
Merger-related expenses 38 16 Adjusted Earnings 618$ 645$ 695$
1999 2000 2001
Earnings Per Share (assuming dilution) 1.68$ 1.78$ 2.01$
Adjustments, net of income tax:
Settlement of litigation 0.12
Merger-related expenses 0.11 0.05 Adjusted Earnings Per Share 1.80$ 1.89$ 2.06$
($ millions, except per share amounts)
51
FPL Group - Reconciliation GAAP to Adjusted EPS
1999 2000 2001 2002 2003 2004
Earnings Per Share (assuming dilution) 2.03$ 2.07$ 2.31$ 1.37$ 2.50$ 2.45$
Adjustments, net of income taxes:Litigation settlement at FPL 0.12 Impairment loss at FPL Energy 0.30 Gains on divestiture of cable investment at Corporate & Other (0.47) Merger-related expenses - $0.11 per share at FPL and $0.01 per share
at Corporate & Other 0.12 Merger-related expenses - $0.05 per share at FPL and $0.01 per share at
Corporate & Other 0.06 Cumulative effect of change in accounting principle (FAS 142) - FPL Energy 0.64 Charges due to restructuring - $0.21 per share at FPL Energy and $0.18
per share at Corporate & Other 0.39
Reserve for leveraged leases - Corporate & Other 0.09 Gain on settlement of IRS litigation - Corporate & Other (0.09) Cumulative effect of change in accounting principle (FIN 46) - FPL Energy 0.01
Net unrealized mark-to-market losses (gains) associated
w ith non-qualifying hedges, FPL Energy (0.02) (0.06) 0.01 Adjusted Earnings Per Share 1.98$ 2.19$ 2.35$ 2.40$ 2.45$ 2.46$
52
FPL Energy - Reconciliation GAAP to Adjusted Earnings
Totals may not add due to rounding
($ millions, except per share amounts) 1999 2000 2001 2002 2003 2004
Net income (Loss) (46)$ 82$ 113$ (169)$ 194$ 172$ Adjustments, net of income tax:Impairment loss 104 Merger-related expenses 1
Cumulative effect of change in accounting principle (FAS 142) 222 Restructuring and other charges 73
Cumulative effect of change in accounting principles (FIN 46) 3 Net unrealized mark-to-market losses (gains) associated
with non-qualifying hedges (8) (22) 3 Adjusted Earnings 58$ 83$ 105$ 126$ 175$ 175$
Earnings (Loss) Per Share (assuming dilution) (0.13)$ 0.24$ 0.33$ (0.49)$ 0.54$ 0.48$
Adjustments, net of income taxes:Impairment loss 0.30 Merger-related expenses
Cumulative effect of change in accounting principle (FAS 142) 0.64 Restructuring and other charges 0.21
Cumulative effect of change in accounting principles (FIN 46) 0.01 Net unrealized mark-to-market losses (gains) associated
with non-qualifying hedges (0.02) (0.06) 0.01 Adjusted Earnings Per Share 0.17$ 0.24$ 0.31$ 0.36$ 0.49$ 0.49$
There were no adjustments to GAAP earnings in 1997 and 1998
53
In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) are hereby filing cautionary statements identifying important factors that could cause FPL Group's or FPL's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this presentation, on their respective websites, in response to questions or otherwise. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could cause FPL Group's or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and FPL.
Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
The following are some important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL Group's and FPL's actual results or outcomes to differ materially from those discussed in the forward-looking statements:
• FPL Group and FPL are subject to changes in laws or regulations, including the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), the Public Utility Holding Company Act of 1935, as amended (Holding Company Act), the Federal Power Act, the Atomic Energy Act of 1954, as amended, the Energy Policy Act of 2005 and certain sections of the Florida statutes relating to public utilities, changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the utility commissions of other states in which FPL Group has operations, and the U.S. Nuclear Regulatory Commission (NRC), with respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, operation and construction of plant facilities, operation and construction of transmission facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, return on common equity (ROE) and equity ratio limits, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs). The FPSC has the authority to disallow recovery by FPL of any and all costs that it considers excessive or imprudently incurred.
• The regulatory process generally restricts FPL's ability to grow earnings and does not provide any assurance as to achievement of earnings levels.
• FPL Group and FPL are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife mortality, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or require additional pollution control equipment and otherwise increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.
Cautionary Statements And Risk Factors That May Affect Future Results
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• FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity. FPL Group and its subsidiaries will need to adapt to these changes and may face increasing competitive pressure.
• FPL Group's and FPL's results of operations could be affected by FPL's ability to renegotiate franchise agreements with municipalities and counties in Florida.
• The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source, including the supply and transportation of fuel, or the impact of unusual or adverse weather conditions (including natural disasters such as hurricanes), as well as the risk of performance below expected or contracted levels of output or efficiency. This could result in lost revenues and/or increased expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. In addition to these risks, FPL Group's and FPL's nuclear units face certain risks that are unique to the nuclear industry including the ability to store and/or dispose of spent nuclear fuel, as well as additional regulatory actions up to and including shutdown of the units stemming from public safety concerns, whether at FPL Group's and FPL's plants, or at the plants of other nuclear operators. Breakdown or failure of an FPL Energy, LLC (FPL Energy) operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages.
• FPL Group's and FPL's ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin construction or capital improvements to existing facilities within established budgets is contingent upon many variables and subject to substantial risks. Should any such efforts be unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of their investment in the project or improvement.
• FPL Group and FPL use derivative instruments, such as swaps, options, futures and forwards, to manage their commodity and financial market risks, and, to a lesser extent, engage in limited trading activities. FPL Group could recognize financial losses as a result of volatility in the market values of these contracts, or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. In addition, FPL's use of such instruments could be subject to prudency challenges and if found imprudent, cost recovery could be disallowed by the FPSC.
• There are other risks associated with FPL Energy. In addition to risks discussed elsewhere, risk factors specifically affecting FPL Energy's success in competitive wholesale markets include the ability to efficiently develop and operate generating assets, the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of fuel (including transportation), transmission constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant volatility in market prices for fuel and electricity, and there are other financial, counterparty and market risks that are beyond the control of FPL Energy. FPL Energy's inability or failure to effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly impair FPL Group's future financial results. In keeping with industry trends, a portion of FPL Energy's power generation facilities operate wholly or partially without long-term power purchase agreements. As a result, power from these facilities is sold on the spot market or on a short-term contractual basis, which may affect the volatility of FPL Group's financial results. In addition, FPL Energy's business depends upon transmission facilities owned and operated by others; if transmission is disrupted or capacity is inadequate or unavailable, FPL Energy's ability to sell and deliver its wholesale power may be limited.
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• FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power industry, in general, as well as the passage of the Energy Policy Act of 2005. In addition, FPL Group may be unable to identify attractive acquisition opportunities at favorable prices and to successfully and timely complete and integrate them.
• FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows. The inability of FPL Group, FPL Group Capital Inc (FPL Group Capital) and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms, particularly during times of uncertainty in the capital markets, which, in turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely increase interest costs.
• FPL Group’s and FPL’s results of operations are affected by the growth in customer accounts in FPL’s service area. Customer growth can be affected by population growth as well as economic factors in Florida, including job and income growth, housing starts and new home prices. Customer growth directly influences the demand for electricity and the need for additional power generation and power delivery facilities at FPL.
• FPL Group's and FPL's results of operations are affected by changes in the weather. Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities.
• FPL Group’s and FPL’s results of operations can be affected by the impact of severe weather which can be destructive, causing outages and property damage, may affect fuel supply and could require additional costs to be incurred. At FPL, recovery of these costs is subject to FPSC approval.
• FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the effect of new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.
• FPL Group and FPL are subject to direct and indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been identified as potential targets. The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the United States, and the increased cost and adequacy of security and insurance.
• FPL Group's and FPL's ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national, state or local events as well as company-specific events.
• FPL Group and FPL are subject to employee workforce factors, including loss or retirement of key executives, availability of qualified personnel, collective bargaining agreements with union employees and work stoppage.
The issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face. Additional issues may arise or become material as the energy industry evolves. The risks and uncertainties associated with these additional issues could impair FPL Group's and FPL's businesses and financial results in the future.
