1 salomon smith barney power & merchant energy conference may 15, 2002 salomon smith barney...
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Salomon Smith Barney Power & Merchant Energy Conference
May 15, 2002
Salomon Smith Barney Power & Merchant Energy Conference
May 15, 2002
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Lew HayLew HayChairman and Chief Executive OfficerChairman and Chief Executive OfficerMoray DewhurstMoray DewhurstChief Financial OfficerChief Financial Officer
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Safe Harbor Statement: 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 substantially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in FPL Group's 2001 SEC Form 10-K.
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Growing, Top-Tier US Electric Company
21,682 mw21,682 mw Operations Operations
in 20 statesin 20 states 4 million4 million
customers customers $11.0 billion $11.0 billion
market market capitalizationcapitalization
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52001 net income and EPS, excluding merger-related items and effects of FAS 133
Three Strong Businesses
Net income: $792 mEPS growth: +7%Net income: $792 mEPS growth: +7%
FPLFPLEnergyEnergy
FPLFPLEnergyEnergy FPLFPLFPLFPL FPLFPL
FiberNetFiberNetFPLFPL
FiberNetFiberNet
FPLGROUP
FPLGROUP
$105 m+27%$105 m+27%
$695 m +8%$695 m +8%
$15 m +80%$15 m +80%
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Three Fundamental Attributes
FPLFPLEnergyEnergy
FPLFPLEnergyEnergy FPLFPLFPLFPL FPLFPL
FiberNetFiberNetFPLFPL
FiberNetFiberNet
FinancialDisciplineFinancialDiscipline
OperationalExcellenceOperationalExcellence
FPLGROUP
FPLGROUP
FinancialStrengthFinancialStrength
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FPL Group
Solid, integrated Solid, integrated electric companyelectric company
Attractive growth Attractive growth opportunities in all opportunities in all three businessesthree businesses
FPLFPLEnergyEnergy
FPLFPLEnergyEnergy FPLFPLFPLFPL FPLFPL
FiberNetFiberNetFPLFPL
FiberNetFiberNet
FinancialDisciplineFinancialDiscipline
OperationalExcellence
OperationalExcellence
FPLFPLGROUPGROUP
FPLFPLGROUPGROUP
FinancialStrength
FinancialStrength
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Favorable customer mix Favorable customer mix Strong customer growth Strong customer growth Operational excellence Operational excellence Proven cost management Proven cost management Constructive regulatory environment Constructive regulatory environment
Premier Electric Utility
Attractive financial returnsAttractive financial returns
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4 million customer 4 million customer accountsaccounts
Consistent strong Consistent strong growth growth
– 2.1% in customer accounts
– 1.1% in usage per customer
High percentage High percentage of residential & of residential & small commercial small commercial customerscustomers
Attractive Customer Demographics
Florida Power & Light
Industry Average
Residential
Commercial
Industrial
Other4%3%
32%
32%
33%
37%
56%
3%
Customer Mix
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Operational Excellence
Industry Average
Fossil Plant Availability
St. Lucie 2 & 1
Turkey Point 4 & 3
2001 WANO Performance IndexAll U.S. Sites
Data Source: Institute of Nuclear Power Operators (INPO) U.S. sites
95%
82%
-
25
50
75
100
90 92 94 96 98 99 00 01
(%)
-
25
50
75
100
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Operational Excellence
69
107
0
20
40
60
80
100
120
FPL Industry Average
FPL = 36% better than average
Service Reliability(2001 total outage time per customer; minutes)
527
481
275
407
250
300
350
400
450
500
550
600
91 92 93 94 95 96 97 98 99 00
Industry Average
FPL
Cost Management(O&M $ per customer)
FPL = 48% better than average
Source: FERC Form 1
Excludes Fuel, Purchased Power & ECCR
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Constructive Regulatory Environment
““Rate certainty” through end of 2005Rate certainty” through end of 2005 Incentive-based agreementIncentive-based agreement
– no ROE limits
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Revenue-Sharing Thresholds($ millions)
2002 2003 2004 2005
2002 est. revenue* 3,470
2/3 to customers 3,580 3,680 3,780 3,880
100% to customers 3,740 3,840 3,940 4,040
* Retail base rate revenue, as filed in Minimum Filling Requirements.
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Constructive Regulatory Environment
““Rate certainty” through end of 2005Rate certainty” through end of 2005 Incentive-based agreementIncentive-based agreement
– no ROE limits– shareholders benefit from productivity improvements
Ability to reduce depreciation expense by up to Ability to reduce depreciation expense by up to $125 million per year$125 million per year
Limited support for deregulationLimited support for deregulation
““Rate certainty” through end of 2005Rate certainty” through end of 2005 Incentive-based agreementIncentive-based agreement
– no ROE limits– shareholders benefit from productivity improvements
Ability to reduce depreciation expense by up to Ability to reduce depreciation expense by up to $125 million per year$125 million per year
Limited support for deregulationLimited support for deregulation
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Major US Wholesale Generator
Presence in 18 statesPresence in 18 states 5,063 mw portfolio5,063 mw portfolio Experience in developing, Experience in developing,
constructing, operating constructing, operating and acquiring power plantsand acquiring power plants
Strong asset optimization Strong asset optimization teamteam
Major diversified wholesale electric generator whichMajor diversified wholesale electric generator whichadds value by actively managing and trading energyadds value by actively managing and trading energy
commodities in conjunction with our assets commodities in conjunction with our assets
Major diversified wholesale electric generator whichMajor diversified wholesale electric generator whichadds value by actively managing and trading energyadds value by actively managing and trading energy
commodities in conjunction with our assets commodities in conjunction with our assets
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NortheastNortheast
Mid-AtlanticMid-Atlantic20%20%
28%28%
16%16%
36%36%
WestWest
Regional DiversityRegional Diversity Fuel Diversity
GasGas46%46%
28%28%WindWind
OtherOther4%4%
OilOil15%15% 7%7%
HydroHydro
Diversified Portfolio
5,063 Net MW in Operation5,063 Net MW in OperationYear-end 2001Year-end 2001
CentralCentral
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NortheastNortheast
Mid-AtlanticMid-Atlantic21%21%
26%26%
16%16%
37%37%
WestWest
Regional DiversityRegional Diversity Fuel Diversity
GasGas59%59%
21%21%WindWind
OtherOther2%2%
HydroHydro3%3% 7%7%
OilOil
Diversified Portfolio
11,588 Net MW in Operation11,588 Net MW in OperationYear-end 2004Year-end 2004
CentralCentral
NuclearNuclear9%9%
Assumes addition of 1,000 mw of wind. Percentages may not add to 100% due to roundingAssumes addition of 1,000 mw of wind. Percentages may not add to 100% due to rounding.
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13
32
58
83
105
-
25
50
75
100
125
1997 1998 1999 2000 2001
($)
Excluding non-recurring items and effects of FAS 133
Track Record of Consistent, Strong Earnings Growth
($ millions)
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Disciplined Growth Strategy
Grow generation portfolio in prudent wayGrow generation portfolio in prudent way– aggressive wind development – focused fossil development– pursuit of M&A opportunities
Optimize asset valueOptimize asset value – integrated operations, business management and
marketing and trading capabilities Hedge position via substantial contract coverageHedge position via substantial contract coverage Moderate risk by regional and fuel diversity Moderate risk by regional and fuel diversity Manage portfolio activelyManage portfolio actively
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Achievable Growth Strategy
20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth
Existing Portfolio
Portfolio
Build-out
Optimization of assets (5,063 mw)
4,000+ mw of announced gas-fired plants
Close Seabrook by YE 2002
1,000-2,000 mw of wind projects
Assumes prices roughly equivalent to current market forwards
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Achievable Growth Strategy
Additional Additional Greenfield Greenfield
DevelopmentDevelopmentAcquisitionsAcquisitions
Focused on high contract coverage projects
Gas Wind
Ranging from single plants to IPPs
Multiple fuels– gas– nuclear– wind– coal– hydro
Additional Upside Potential
20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth20%-30% Average Annual Earnings Growth
Existing Portfolio
Portfolio
Build-out
Optimization of assets (5,063 mw)
4,000+ mw of announced gas-fired plants
Close Seabrook by YE 2002
1,000-2,000 mw of wind projects
Assumes prices roughly equivalent to current market forwards
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Wind Energy: Capitalizing on our Strength
Nearly 1,500 net mw in operation Nearly 1,500 net mw in operation Wind is profitable Wind is profitable We have a leading positionWe have a leading position We can build projects faster and cheaperWe can build projects faster and cheaper We can operate with higher availabilityWe can operate with higher availability 1,000 - 2,000 mw of new wind projects 1,000 - 2,000 mw of new wind projects
by year-end 2003 by year-end 2003
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Seabrook Acquisition
Attractive priceAttractive price Plays to our strengthsPlays to our strengths
– superior operating skills– northeast trading expertise
Immediately accretiveImmediately accretive– 1 - 4 cents in 2003– 10 - 12 cents avg. ‘03-’06– accelerating thereafter
Attractive financial returnsAttractive financial returns– strong cash flow– substantial NPV– 18 - 20% ROE
Based on current forward price curves
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Well-Hedged Position
2002 = 80%2003 = 50%
0%
20%
40%
60%
80%
100%
Jan-02 Sep-02 May-03 Jan-04 Sep-04 May-05 Jan-06 Sep-06
Delivery Period
Committed mw
Merchant mw
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FPL FiberNet
Profitable niche businessProfitable niche business– despite poor
telecom market Great example of Great example of
leveraging FPL skillsleveraging FPL skills
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Three Fundamental Attributes
FPLFPLEnergyEnergy
FPLFPLEnergyEnergy FPLFPLFPLFPL FPLFPL
FiberNetFiberNetFPLFPL
FiberNetFiberNet
FinancialDisciplineFinancialDiscipline
OperationalExcellenceOperationalExcellence
FPLGROUP
FPLGROUP
FinancialStrengthFinancialStrength
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3.573.85
3.98
4.38
4.69
2.00
2.50
3.00
3.50
4.00
4.50
5.00
1997 1998 1999 2000 2001
($)
7.1% average annual EPS
growth rate
Excluding nonrecurring items and effects of FAS 133
Financial StrengthEPS Growth
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Debt Ratio
52
61
25
50
75
FPLGroup
IndustryAverage
(%)
Financial Strength
Strong balance sheet Strong balance sheet Strong credit ratingsStrong credit ratings
– A = FPL Group Strong cash flowStrong cash flow
– $1.4 billion 2001 operating cash flow
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Healthy 3.7% Healthy 3.7% yieldyield
48% payout48% payoutratio allowsratio allowsfor growthfor growth
-
1
2
3
4
5
93 94 95 96 97 98 99 00 01
($)
Earnings per share
Dividends per share
Financial DisciplinePrudent Dividend Policy
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87%
13%
FPL 100%
FPL Energy 50 - 83%
Total FPL Group 94 - 98%(weighted average)
Financial DisciplineWell-Hedged Position
Florida Power & Light
FPL Energy
Capacity% contracted:
EPS Contribution %2001
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Marketing & Trading Serves Two Fundamental Purposes
Marketing & Trading
Risk ReductionAsset
Optimization
Risk ControlRisk ControlRisk ControlRisk Control
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ERCOT Spark Spreads($ per mwh)
Current Forward Contract % under
Spark Spread Spark Spread Contract
2002 $9.58 $14.31 79%
2003 $7.48 $15.92 48%
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Enhancing Profitability in ERCOT
0
2
4
6
8
10
12
14
16
18
20
CurrentForward Spark
Spread
North/SouthSpread
Firm vs Non-Firm Contracts
Water Cooled AdditionalTrading
Opportunities
PotentialRealized Spark
Spreads
($)
6.00 - 7.00
7.00 - 8.00
0.50 - 1.50 0.2514.75 - 17.001.00+
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Projected Capital Sources & Uses2002 - 2005
($ billion)
Operating cash flow less dividends
Equity issuance
Incremental debt capacity
FPL commitments
FPL Energy commitments
Seabrook
Additional wind
$7.9 - $9.9 $8.2 - $10.2
$1.4 - $1.9
$1.3 - $2.0
$5.5 - $6.3
$1.0 - $2.0
$4.5 - $5.5
$0.8
$1.6
Sources Uses
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Strong Rating Valuable, but not a Fixed Target
Long-term goal: ‘A’ Long-term goal: ‘A’ or equivalent…or equivalent…
……subject to subject to fluctuating agency fluctuating agency standardsstandards
CreditCreditRatingRating
InvestmentInvestmentGradeGrade
Absolute goal - strong investment gradeAbsolute goal - strong investment grade
Relative goal - upper band of peer groupRelative goal - upper band of peer group
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Earnings Guidance for 2002
FPL approximately flat with 2001FPL approximately flat with 2001– assuming normal weather
FPL Energy up 15 - 20%FPL Energy up 15 - 20%– reflects modest capacity growth and delay in PTC’s– reflects poor hydro conditions in 1st quarter – assumes no major changes in market prices
FPL Group EPS $4.78 - $4.82FPL Group EPS $4.78 - $4.82
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Earnings Guidance for 2003 and Beyond
Expect FPL to return to strong underlying Expect FPL to return to strong underlying fundamentalsfundamentals– 4%-5% average annual earnings growth
Continue to target average annual growth of 20% Continue to target average annual growth of 20% - 30% at FPL Energy- 30% at FPL Energy
FPL Group Average EPS Growth: 6% - 8%FPL Group Average EPS Growth: 6% - 8%FPL Group Average EPS Growth: 6% - 8%FPL Group Average EPS Growth: 6% - 8%
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Relative Low Risk, High Return
FPL Group represents one of best combinations of risk, return and earnings growth among major electric companies
Risk
FPL Group
Earnings Growth/Return
Low
High
High
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