JUNO BEACH, Fla. - FPL Group, Inc. (NYSE: FPL) today reported 2007 second quarter net income on a GAAP basis of $405 million, or $1.01 per share, compared with $236 million, or $0.60 per share, in the second quarter of 2006. FPL Group’s net income for the second quarter of 2007 included a net unrealized after-tax gain of $58 million associated with the mark-to-market effect of non-qualifying hedges. The results for last year’s second quarter included a net unrealized after-tax loss of $20 million associated with the mark-to-market effect of non-qualifying hedges and $4 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 $347 million, or $0.86 per share, for the second quarter of 2007, compared with $260 million, or $0.66 per share, in the second quarter of 2006.
The difference between 2007 second quarter GAAP results and adjusted results is the gain associated with marking to market non-qualifying hedges. The positive mark in the second quarter is the result of decreasing forward prices for natural gas and power during the quarter.
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 delivered very good results overall in the second quarter of 2007, despite unfavorable weather impact at both FPL Energy and FPL. FPL’s results were hurt by very weak cooling degree day comparisons, while FPL Energy’s wind portfolio experienced its worst quarter in at least the last 13 years in terms of wind resource availability. Together, these weather effects amounted to over $50 million of lower earnings for the quarter,” said Lew Hay, chairman and chief executive officer of FPL Group. “Even with the negative impact of weather, FPL Group grew adjusted earnings per share by 30 percent quarter-over-quarter. Being able to deliver strong earnings growth despite unfavorable weather demonstrates the robustness of FPL Group’s business model.
“Looking forward, we expect normal weather conditions for the balance of the year so we cannot expect to make up the lost ground caused by unfavorable weather in the second quarter. Nevertheless, the underlying operating performance of FPL Energy and FPL continues to be very strong and we remain comfortable that we are on track to deliver in the upper half of our original 2007 earnings range of $3.35 to $3.45. Our prospects for 2008 and beyond continue to look very good and we are raising our 2008 earnings per share expectations to $3.70 to $3.90 from the previous range of $3.60 to $3.80 per share, based on our new expectations of additional wind capacity.”
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.
Florida Power & Light Company
FPL, the rate-regulated utility subsidiary of FPL Group, reported second quarter net income of $211 million or $0.53 per share, compared to $182 million, or $0.46 per share, for the prior-year quarter.
Retail sales of electricity decreased 3.1 percent during the second quarter, largely due to weather. Usage growth associated with weather declined 7.4 percent quarter-over-quarter, which negatively impacted earnings by approximately 11 cents per share.
Customer growth, however, continued at a very strong pace. In the last 12 months, the average number of FPL accounts increased by 95,000 or 2.2 percent, which is slightly ahead of FPL’s long-term historical growth rate.
For the second quarter, FPL’s 2007 O&M expenses were $366 million, up $7 million from the prior year figures. Higher nuclear, employee benefits and customer service costs were offset by lower distribution expenses. Last year’s second quarter saw unusually high distribution spending, driven by additional maintenance and repair activities after the 2005 hurricane season.
Looking ahead, increases in nuclear and fossil generation, employee benefits, customer service and the Storm Secure® program will be the main drivers of an expected increase in full year base O&M.
For the next few years, FPL expects to spend about $50 million of O&M per year in support of the storm hardening initiatives. In addition, FPL expects to commit anywhere between $75 million and $200 million per year in incremental capital.
Depreciation in the second quarter fell $3 million to $194 million as higher distribution and generation depreciation, including the impact from the addition of the Turkey Point 5 unit, were more than offset by reductions in certain amounts recovered through the capacity clause. Underlying base depreciation increased by $9 million.
“FPL performed well in the second quarter with the noted exception of extremely mild weather,” said Hay. “Despite the negative weather comparisons, financial performance was good, and customer growth continued at a good pace as the Florida economy remains strong, notwithstanding the housing slowdown.”
In May, an FPL subsidiary issued $652 million of storm recovery bonds for the repayment of prudently incurred restoration costs associated primarily with the 2004 and 2005 storm seasons and to replenish the storm reserve. The pricing of this debt set a new benchmark for utility securitization transactions. As part of this issuance, the storm reserve was replenished to give FPL the capacity to absorb up to about $200 million in possible future restoration costs. The issuance of these securitized bonds was enabled by legislation enacted in 2005 and authorized by the Florida Public Service Commission (PSC) last summer.
Also in May, FPL’s 1,144 megawatt Turkey Point 5 power plant began commercial operation, slightly ahead of schedule and under budget. Construction of the West County Energy Center continued to make good progress during the quarter and the first of the two 1,220 megawatt units is expected to be placed into service in 2009.
In early June, the PSC rejected FPL’s proposal to build an ultra super-critical pulverized coal facility in Glades County, citing uncertainties about the long-term economics of the project. This decision has no material impact today, and the likely practical consequence is that FPL will see moderately increased reliance on natural gas during the middle years of the next decade. However, the PSC’s discussions together with Governor Crist’s orders coming out of the Florida Global Climate Summit suggest that the outlook for new nuclear construction is becoming more favorable. FPL continues to pursue all necessary steps to ensure that it can add new nuclear capacity if and when both economics and regulatory circumstances justify it.
FPL Energy, the competitive energy subsidiary of FPL Group, reported second quarter net income on a GAAP basis of $203 million or $0.51 per share, compared to $90 million, or $0.23 per share, in the prior year quarter. FPL Energy’s net income for the second quarter of 2007 included a net unrealized after-tax gain of $58 million associated with the mark-to-market effect of non-qualifying hedges. The results for last year’s second quarter included a net unrealized after-tax loss of $20 million associated with the mark-to-market effect of non-qualifying hedges.
Excluding the mark-to-market effect of non-qualifying hedges, adjusted earnings for FPL Energy were $145 million, or $0.36 per share, compared to $110 million, or $0.28 per share, in 2006.
FPL Energy’s growth in adjusted earnings in the second quarter was driven primarily by incremental asset additions, strong performance of its existing assets, favorable market conditions, especially in New England and Texas, and growth in the contribution from wholesale marketing activities. These favorable conditions were partially offset by a very weak wind resource, increases in overhead costs to support the growth of the business and increased interest expense.
FPL Energy continues to make good progress toward completing its previously announced acquisition of the Point Beach Nuclear Power Plant in Wisconsin. Regulatory hearings were completed during the second quarter before the Wisconsin and Michigan Public Service Commissions. FPL Energy expects to complete the acquisition later this year.
“FPL Energy had another very strong quarter, with adjusted earnings per share growth of nearly 30 percent,” said Hay. “As we anticipated, our New England portfolio benefited from the roll off of old hedges to higher values and we had very good operational performance across the fleet. About the only negative in the quarter was wind resource, which was the worst in our 13 years of observations relative to normal. Our outlook for the balance of the year at FPL Energy remains strong, with the drivers of growth consistent with what we experienced in the first half of the year.”
FPL Energy’s hedged gross margin position for 2007 remains essentially unchanged from the previous quarter, while hedging of 2008 expected output increased modestly. Commodity price fluctuations for 2007, unless they are extreme, will have little impact on FPL Energy’s expected results for the year. FPL Energy’s hedge position for 2008 increased slightly, with more than 85 percent of expected gross margin for next year protected against market price movements.
FPL Energy’s 2007 wind development and construction program continues to make excellent progress. Thus far in 2007, FPL Energy has more than 1,000 megawatts of new wind projects under construction, all of which are expected to reach commercial operation by the end of the year. Given the success of the 2007 wind program to date, FPL Energy now expects to add at least 2,000 megawatts of new wind to its portfolio in the 2007/2008 timeframe.
Looking ahead, FPL Energy plans to expand the growth of its wind business. With a strong pipeline of projects already in place, a proven project development, construction and operations organization and the ability to increase the scale and scope of its activities, FPL Energy expects to add 1,500 to 2,000 megawatts per year from 2009 to 2012. In total, FPL Energy expects to add 8,000 to 10,000 megawatts of new wind projects to its portfolio within the 2007-2012 timeframe.
FPL Energy has a pipeline of wind projects representing more than 14,000 megawatts in various stages of development and more than one million acres of land under its control across the U.S. As always, FPL Energy’s wind development program assumes continued public policy support. It also assumes normal economic conditions and appropriate expansion of transmission facilities and the global supply chain.
Corporate and Other
Corporate and Other negatively impacted net income by $9 million or $0.03 per share, primarily driven by interest expense.
“FPL Group’s performance during the first half of 2007 was very good and the company is well positioned for the balance of the year,” said Hay. “Although weather was a disappointment in the second quarter, we still expect FPL Group to be at the upper end of our previously announced range for 2007 adjusted earnings per share. FPL Energy is ahead of where we would otherwise have expected, while FPL will clearly be challenged by the tough weather comparisons experienced during the second quarter and is likely to come in around the low end of our original range.
“Looking ahead, our prospects for 2008 continue to be encouraging. Based on what we see today, we believe a range of $3.70 to $3.90 per share, up from our previous expectation of $3.60 to $3.80 per share, is now appropriate.”
As previously announced, FPL Group’s second quarter earnings conference call is scheduled for 9 a.m. ET on Monday, July 30, 2007. The web cast 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 web cast, 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.