JUNO BEACH, Fla. (April 30, 2007) - FPL Group, Inc. (NYSE: FPL) today reported 2007 first quarter net income on a GAAP basis of $150 million, or $0.38 per share, compared with $251 million, or $0.64 per share, in the first quarter of 2006. FPL Group’s net income for the first quarter of 2007 included a net unrealized after-tax loss of $126 million associated with the mark-to-market effect of non-qualifying hedges. The results for last year’s first quarter included a net unrealized after-tax gain of $23 million associated with the mark-to-market effect of non-qualifying hedges and $3 million of after-tax merger related costs.
Excluding the mark-to-market effect of non-qualifying hedges (and merger-related costs in 2006), FPL Group’s adjusted earnings were $276 million, or $0.70 per share, for the first quarter of 2007, compared with $231 million, or $0.59 per share, in the first quarter of 2006.
The difference between 2007 first quarter GAAP results and adjusted results is the negative impact of marking to market non-qualifying hedges. The negative mark in the first quarter is the result of increasing forward prices for natural gas and power during the quarter and implies an increase in underlying values for FPL Energy’s power generation assets, not marked to market under GAAP, as well as improved market conditions for future contracting opportunities.
FPL Group’s management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and as inputs in determining whether performance targets are met for performance-based compensation under the company’s employee incentive compensation plans. FPL Group also uses earnings expressed in this fashion when communicating its earnings outlook to analysts and investors. FPL Group management believes that adjusted earnings provide a more meaningful representation of FPL Group’s fundamental earnings power.
“FPL Group is off to an excellent start in 2007 with another outstanding quarter of earnings growth at FPL Energy coupled with a solid contribution from FPL,” said Lew Hay, chairman and chief executive officer of FPL Group. “FPL Energy once again posted double-digit adjusted earnings growth and, similar to last year’s first quarter, exceeded the contributions of FPL on an adjusted earnings basis. FPL Energy’s results were driven by incremental asset additions, strong results from our wholesale marketing activities and favorable market conditions.
“FPL also performed well in the quarter and benefited from strong customer growth reflecting the continued attractiveness of the Florida economy, but, similar to recent quarters, usage growth, adjusted for weather, remained weak.”
Florida Power & Light Company
FPL, FPL Group's rate-regulated utility subsidiary, reported first quarter net income of $126 million or $0.32 per share, compared to $122 million, or $0.31 per share, for the prior-year quarter.
Retail sales of electricity grew three percent during the first quarter. Much of this was driven by customer growth: in the last 12 months, the average number of FPL accounts increased by 98,000 or 2.2 percent, which is slightly ahead of FPL’s long-term historical growth rate.
For the first quarter of 2007, operations and maintenance (O&M) expenses were essentially flat compared to the prior-year quarter. Higher customer service, nuclear, employee benefit and insurance costs were offset by lower distribution expenses. Last year’s first quarter saw unusually high distribution spending, driven by additional maintenance and repair activities after the 2005 hurricane season.
Full-year O&M is not expected to remain flat. FPL expects increases in nuclear and fossil generation expenses, employee benefits costs, and the impact of the Storm SecureÂ® program to be partially offset by continued productivity gains in other areas. Storm Secure is FPL’s comprehensive program to further strengthen its electric infrastructure and power plants against hurricane impacts. For the next few years, FPL expects to spend about $50 million of O&M per year in support of its infrastructure hardening activities. In addition, FPL expects incremental capital investments of $70 million to $200 million per year for its Storm Secure efforts.
Depreciation in the first quarter fell $7 million to $188 million, with higher transmission and distribution depreciation more than offset by reductions in certain amounts recovered through the capacity clause.
Depreciation costs are expected to increase as FPL continues to invest in generation and distribution infrastructure to support customer growth.
“FPL’s overall performance for the first quarter was in line with our expectations,” said Hay. “FPL had another strong quarter of customer growth and favorable weather related sales comparisons; however, underlying usage, or that portion of usage which cannot be attributed to weather, declined slightly in the quarter.”
In early April, FPL filed its ten-year resource plan with the Florida Public Service Commission (PSC) and said it anticipates needing to add approximately 6,700 megawatts of new generation through 2016, in addition to incremental demand side management programs equivalent to nearly 1,500 megawatts of capacity. Over the last 25 years, FPL’s demand side management programs have avoided the need for 3,660 megawatts of capacity.
FPL’s 1,144 megawatt Turkey Point 5 power plant is expected to become operational in May, slightly ahead of schedule and under budget. The West County Energy Center is currently under construction and the first of the two 1,220 megawatt units is expected to be placed into service in 2009.
Also in April, the PSC began hearings on the need for the proposed 1,960 megawatt Glades Power Park (FGPP). During the hearings, FPL presented evidence to the PSC that the FGPP is not only needed, but that it is expected to be the cleanest coal power plant in the nation with the highest level of efficiency and the lowest CO2 emission rates. The plant will set a standard of excellence for emission controls as it will be 23 percent more efficient than the average existing U.S. coal power plant and produce significantly lower emissions. Including the addition of FGPP, FPL still expects to reduce its CO2 emission rate per megawatt hour 15 percent from 2005 to 2015. The PSC is expected to issue a final order on the need for the FPL Glades Power Park in June 2007.
FPL Energy, the competitive energy subsidiary of FPL Group, reported first quarter net income on a GAAP basis of $45 million or $0.11 per share, compared to $154 million, or $0.39 per share, in the prior year quarter. FPL Energy’s net income for the first quarter of 2007 included a net unrealized after-tax loss of $126 million associated with the mark-to-market effect of non-qualifying hedges. The results for last year’s first quarter included a net unrealized after-tax gain of $23 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges, adjusted net income for FPL Energy was $171 million, or $0.43 per share, compared to $131 million, or $0.33 per share, in 2006.
The loss in the non-qualifying hedge category is offset by increases in the fair value of physical asset positions in the portfolio, which are not marked-to-market under GAAP. The same factors that drove the decline in value of the hedges also increased the future value of many of FPL Energy’s physical assets.
FPL Energy’s growth in adjusted earnings in the first quarter was driven primarily by incremental asset additions and growth in the contribution from the wholesale marketing activities.
“The outstanding performance at FPL Energy reflects the strength of our balanced business model,” said Hay. “We entered the year highly hedged. Our existing portfolio delivered results comparable to last year’s very strong performance, while new assets and favorable results from our full requirements business led to strong growth overall.”
FPL Energy’s hedged gross margin position for 2007 remains essentially unchanged from the pervious quarter, while hedging of 2008 expected output increased modestly. Over 90 percent of FPL Energy’s 2007 equivalent gross margin is protected against commodity price volatility. For 2008 the comparable figure is 85 percent.
FPL Energy’s 2007 wind program continues to make excellent progress. Thus far in 2007, the company has well over 500 megawatts of new wind projects under construction, all of which are expected to reach commercial operation by the end of the year. FPL Energy expects to add at least 1,500 megawatts in the 2007/2008 timeframe.
Corporate and Other
Corporate and Other negatively impacted net income by $21 million or $0.05 per share, primarily driven by interest expense.
“At this early stage of the year we are not changing our previously disclosed adjusted earnings expectations for 2007 and 2008. For 2007, we expect adjusted EPS to be in the range of $3.35 to $3.45, while for 2008, we expect adjusted EPS to be in the range of $3.60 to $3.80,” said Hay. “Although we are not changing our official earnings expectations for 2007 and 2008 at this time, I am pleased with the general trend of the first quarter and optimistic that we can achieve better than the mid-points of the respective ranges.”
For 2007, the strong start made by FPL Energy is tempered somewhat by continuing uncertainty over trends in usage per customer at FPL.
For 2008, FPL Group now expects some additional contribution from the pending acquisition of Point Beach Nuclear Plant, which was not factored into adjusted EPS expectations last fall. However, as noted when the transaction was announced, the impact in 2008 is only a few pennies, and the major impact is not expected until after that time.
As always, FPL Group’s earnings expectations assume normal weather and operating conditions and exclude the effect of adopting new accounting standards, if any, and the mark-to-market effect of non-qualifying hedges, neither of which can be determined at this time.
As previously announced, FPL Group’s first quarter earnings conference call is scheduled for 9 a.m. ET on Monday, April 30, 2007. The webcast is available on FPL Group’s website by accessing the following link,http://www.FPLGroup.com/investor/contents/investor_index.shtml. The slides accompanying the presentation may be downloaded at www.FPLGroup.com beginning at 7:30 a.m. ET today. For persons unable to listen to the live webcast, a replay will be available for 30 days by accessing the same link as listed above.
This press release should be read in conjunction with the attached unaudited financial information.
FPL Group, with annual revenues of nearly $16 billion, is nationally known as a high quality, efficient, and customer-driven organization focused on energy-related products and services. With a growing presence in 26 states, it is widely recognized as one of the country's premier power companies. Its principal subsidiary, Florida Power & Light Company, serves 4.4 million customer accounts in Florida. FPL Energy, LLC, an FPL Group competitive energy subsidiary, is a leader in producing electricity from clean and renewable fuels. Additional information is available on the Internet at www.FPLGroup.com , www.FPL.com andwww.FPLEnergy.com.
Cautionary Statements And Risk Factors That May Affect Future Results
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 providing 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 press release, 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 complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions, including initiatives regarding deregulation and restructuring of the energy industry and environmental matters. FPL holds franchise agreements with local municipalities and counties, and must renegotiate expiring agreements. These factors may have a negative impact on the business and results of operations of FPL Group and FPL.
The operation and maintenance of power generation facilities, including nuclear facilities, involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.
The construction of, and capital improvements to, power generation facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful, the results of operations and financial condition of FPL Group and FPL could be adversely affected.
The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses that negatively impact the results of operations of FPL Group and FPL.
FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.
FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including the effect of increased competition for acquisitions resulting from the consolidation of the power industry.
Because FPL Group and FPL rely on access to capital markets, the inability to maintain current credit ratings and access capital markets on favorable terms may limit the ability of FPL Group and FPL to grow their businesses and would likely increase interest costs.
Customer growth in FPL's service area affects FPL Group's and FPL's results of operations.
Weather affects FPL Group's and FPL's results of operations.
FPL Group and FPL are subject to costs and other effects of legal proceedings as well as changes in or additions to applicable tax laws, rates or policies, rates of inflation, accounting standards, securities laws and corporate governance requirements.
Threats of terrorism and catastrophic events that could result from terrorism may impact the operations of FPL Group and FPL in unpredictable ways.
The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be affected by national, state or local events and company-specific events.
FPL Group and FPL are subject to employee workforce factors that could affect the businesses and financial condition of FPL Group and FPL.
The risks described herein are not the only risks facing FPL Group and FPL. Additional risks and uncertainties not currently known to FPL Group or FPL, or that are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.