Lehman Brothers 2003 CEO Energy/Power Conference

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Lehman Brothers 2003 CEO Energy/Power Conference

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Title: Lehman Brothers 2003 CEO Energy/Power Conference


1
Lehman Brothers2003 CEO Energy/Power Conference
  • September 3, 2003

2
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 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, 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 after the date on which such
    statement is made or to reflect the occurrence of
    unanticipated events. 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), and the Public Utility Holding Company
    Act of 1935, as amended (Holding Company Act),
    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 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 of 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, 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
    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.

3
  • 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 or the
    impact of unusual or adverse weather conditions
    (including natural disasters such as hurricanes),
    as well as the risk of performance below expected
    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 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 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 value of the reported fair value of these
    contracts. In addition, FPL's use of such
    instruments could be subject to prudency
    challenges by the FPSC and if found imprudent,
    cost disallowance.
  • There are other risks associated with FPL Group's
    non-rate regulated businesses, particularly 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, the price and supply of
    fuel, 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 its
    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.
  • 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
    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 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.

4
  • FPL Group's and FPL's results of operations can
    be 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. In addition, severe
    weather can be destructive, causing outages
    and/or property damage, which could require
    additional costs to be incurred.
  • 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 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 U.S., 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
    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 or 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 in the future.

5
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6
Capitalizing on Our Strengths
  • Premier integrated utility
  • high growth, stable customer base
  • favorable regulatory climate
  • operational excellence
  • Successful wholesale generation business
  • well diversified portfolio
  • substantially hedged
  • uniquely positioned for growth
  • Strong financial position
  • Substantial cash flow

7
FPL Group A Strong Balance
Earnings Contribution 2003E 1
  • 2003 Capacity
  • contracted 2 FPL
    100 FPL Energy 77
  • Total FPL Group 3 97

Florida Power Light
FPL Energy Corp. Other
Notes 1 Excludes the mark-to-market effect of
non-managed hedges, which cannot be determined at
this time 2 As of 7/7/03 3 Weighted average based
on 2003 estimated earnings contribution
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9
FPL Strong Top-Line Growth
  • Customer growth of 2.1 1
  • over 4 million accounts
  • favorable mix

Strong Demand Growth
3.7 avg annual kWh growth
of Revenues by Customer Class 2
FPL
2.4 avg annual kWh growth
Industry
55
35
FPL
Industry Average
  • Underlying usage growth of 1.6 1
  • inland expansion
  • increasing average home size

Notes 1 Over last 10 years 2 As of 12/31/02
10
Constructive Regulatory Environment in Florida
  • Appointed public service commission
  • 5 commissioners with staggered terms
  • Fuel, purchased power directly passed through
  • Rate certainty through end of 2005
  • incentive-based agreement allowing shareholders
    to benefit from productivity improvements
  • win-win revenue sharing provision instead of
    ROE measure
  • No current activity on wholesale restructuring

11
Delivering Value to Customers
Base Portion of 1,000 kWh Residential Bill
Real dollars (2002)
40
Nominal dollars
Residential Bill Comparison 1,000 kWh Bill
Rates of FPL as of 7/31/03 excluding municipal
taxes and franchise fees. Rates for PEF and TECO
as of 4/1/03 excluding municipal taxes and
franchise fees. Rates outside of Florida as
reported in EEI Typical Bills Report Winter 2003
(5/15/03).
12
Superior Cost Performance(OM per customer)
Industry Average
1
FPL
Note 1 Includes a one-time 35 million FPSC
approved addition to the storm fund reserve.
13
Operational Excellence at FPL
Plant Availability
Service Reliability Outage Time Per Customer
(Min.)
Fossil
Nuclear
FPL 50 better than average
FPL information as of 2002 industry information
as of 2001.
14
Emission Rates Leadership Position
Nitrogen Oxide and Sulfur Dioxide (lbs/mwh)
Industry Average SO2
FPL SO2
Industry Average NOx
FPL NOx
Carbon Dioxide (lbs/kwh)
Industry Average
FPL
FPL historic information Emissions from AOR's,
Generation from 1192's reflects FPL ownership
share only, purchased power not included.
Electric Utility Industry historical data from
DOE's EIA Electric Power Annual 2001
(3/03). Electric Utility Industry projected data
from DOE's EIA Annual Energy Outlook 2003
(1/03).
15
FPL Value Proposition
  • Growing demand for electricity in our service
    territory
  • Collaborative and progressive regulatory
    environment
  • Outstanding operating performance
  • Low environmental risk

Strong earnings and cash flow potential
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17
FPL Energy A DisciplinedWholesale Generator
  • Moderate risk approach
  • diversified by region, fuel source
  • well hedged portfolio
  • emphasis on base-load assets
  • Low cost provider
  • modern, efficient, clean plants
  • operational excellence
  • Industry leader in wind generation
  • Conservative, integrated asset optimization
    function
  • 9,691 1 net MW in operation
  • presence in 24 states

Note 1 As of 8/26/03.
18
Diversified Portfolio at FPL EnergyYear-end 2004
(Projected)
(11,763 1 Net MW in Operation)
Regional Diversity
Fuel Diversity
Gas
58
Northeast
Central
25
35
Wind
22
Other
Mid-Atlantic
1
24
Hydro
Nuclear
Oil
West
3
9
7
16
Note 1 As of 8/26/03.
19
FPL Energy Moderate Risk Approach2004 Hedging
Program
Notes1 Weighted to reflect in-service dates,
planned maintenance and a Seabrook refueling
outage in 2003 2 Reflects RTC MW 3 Reflects
on-peak MW
20
Other Projects/QF Portfolio Stable Earnings
  • 1,255 MW net ownership
  • Variety of fuels and technologies
  • 87 natural gas
  • includes solar, coal, waste-coal, and waste-wood
  • Bellingham/Sayreville and Doswell 80 of MW

Solid Long-term Contract Coverage 1
Note 1 As of 7/7/03.
21
Wind A Unique Advantage
  • U.S. market leader with over 40 market share
  • 1,767 net MW in operation
  • Supported by policy trends (RPS, PTCs) and
    economics
  • Attractive financial characteristics
  • long-term power contracts (15 25 years)
  • ROEs in the high teens/low 20s
  • accretive in first full year
  • Approximately 835 MW to be added in 2003

22
Seabrook Creating Significant Value
  • Acquired premier nuclear unit for 799 million
  • 1,024 MW ownership share (88.2 of total)
  • purchase price represents 34/kw per year of
    remaining operating life (license expires 2026)
  • Opportunity to create significant shareholder
    value
  • more than 500 million of NPV estimated in the
    acquisition pro forma
  • performance to date exceeding expectations (2003)

Contract Coverage 1
Note 1 As of 7/7/03.
23
Fossil Merchant Upside Leverage
Regional Diversity 1
  • Low cost, efficient base load generation
  • Liquid, gas-on-margin markets
  • Cash flow positive at weak spark spreads
  • Longer term upside potential

ERCOT
48
NEPOOL/PJM/NYPP
30
WECC/SERC
22
Note 1 As of 7/31/03. Includes projects under
construction/advanced development coming on-line
in 2003.
24
FPL Energy Value Proposition
  • Moderate risk approach
  • Well diversified by region and fuel source
  • Growth opportunities in wind building on our
    competitive advantage
  • Nuclear creating substantial value
  • Merchant portfolio offers longer term upside
    leverage
  • Disciplined hedging/optimization
  • Opportunity to pursue acquisitions that are
    accretive, strategically attractive and
    financeable

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26
FPL Group Strong Financial Position
  • Financial discipline
  • Strong credit ratings
  • Prudent dividend policy

FPL
Includes AEE, AEP, CEG, CIN, CMS, CNP, D, DTE,
DUK, ED, ETR, EXC, FE , FPL, PCG, PGN, PNW, PPL,
SO, TE, TXU, and XEL.
27
Total Shareholder Return
28
FPL Group Earnings Contributions by Major
Segment
FPL Energy Contribution to EPS
FPL Contribution to EPS
1
1
1
1
GAAP
GAAP
Adjusted
Adjusted
4
2
2
2
2
3
3
3
3
4
Notes 1 Assuming dilution. 2 2000 results
include merger-related expenses at FPL of 0.23
per share and at FPL Energy of 0.01 per share.
3 2001 results include merger-related expenses
at FPL of 0.09 per share and at FPL Energy net
unrealized mark-to-market gains associated with
non-managed hedges of 0.04 per share. 4 FPL
Energys 2002 results include the cumulative
effect of an accounting change of 1.28 per
share, restructuring and other charges of 0.42
per share and net unrealized mark-to-market gains
associated with non-managed hedges of 1 million
after-tax.
29
FPL Group Earnings Performance
1
1
GAAP
Adjusted
2
3
4
2
3
4
Notes 1 Assuming dilution. 2 2000 results
include merger-related expenses at FPL of 0.23
per share, at FPL Energy of 0.01 per share and
at Corporate Other of 2 million
after-tax. 3 2001 results include merger-related
expenses at FPL of 0.09 per share and at
Corporate Other of 0.02 per share and at FPL
Energy net unrealized mark-to-market gains
associated with non-managed hedges of 0.04 per
share. 4 2002 results include the cumulative
effect of an accounting change at FPL Energy of
1.28 per share, restructuring and other charges
at FPL Energy of 0.42 per share,
restructuring and impairment charges at Corporate
Other of 0.37 per share, a reserve for
leveraged leases at Corporate Other for 0.17
per share, a favorable settlement of litigation
with IRS at Corporate Other of 0.17 per
share, and net unrealized mark-to-market gains
associated with non-managed hedges at FPL Energy
of 1 million after-tax.
30
Outlook for 2003 Remains Strong
  • FPL
  • Expect earnings of 725 - 735 million assuming
    normal weather for the balance of the year
  • FPL Energy
  • Expect earnings of 165 - 190 million 1
  • Corporate and Other
  • Breakeven results at FPL FiberNet
  • Higher interest expense
  • Net drag of 20 - 30 cents per share

EPS of 4.80 to 5.00 1
1 Excluding the effect of non-managed hedges
which cannot be determined at this time.
31
FPL Group A Solid Investment
  • Premier integrated utility serving a vibrant
    territory
  • Growing wholesale generation business with
    moderate risk profile
  • Operational and environmental excellence
  • Financial strength and discipline
  • Proven track record
  • Solid corporate governance policies and practices

32
Appendix
33
Organizational Structure(Credit Ratings -
SP/Moodys/Fitch)
FPL Group, Inc. Holding Company A/Not
Rated/A Outlook Negative/Not Rated/Stable
Florida Power Light Company (Utility
Operation) Issuer Rating A,A-1/A1/Not
Rated Secured A/Aa3/AA- Commercial Paper
A-1/P-1/F1 Outlook Negative/Stable/Stable
FPL Group Capital Inc (Funding Co. for
Non-regulated Ops) Issuer Rating A,A-1/Not
Rated/Not Rated Unsecured A-/A2/A Commercial
Paper A-1/P-1/F1 Outlook Negative/Negative/Stable
FPL Energy, LLC (Non-rate regulated Operations)
34
Debt Maturities( millions)
2
1
Notes 1 At 6/30/03, 100 million and 72 million
of short-term investments were available for FPL
and Corporate Other, respectively. In early
July 2003, loan proceeds from long-term
financings at FPL Energy were used to pay down
approximately 500 million short-term debt. 2 At
6/30/03, 69 million of cash was earmarked for
FPL bond redemptions in late July 2003.
35
Liquidity Resources( millions)
Maturity
Total
FPL Group Capital
Florida Power Light
Syndicated Facilities
October 2003
1,436
957
479
October 2004
1,500
1,000
500
Bilateral Facilities
146
146
0
October 2004
3,082
2,103
979
Total
As of 8/8/03
36
Pension Update( millions)
  • Expected long-term rate of return is 7.75
  • Weighted average discount rate used for
    determining obligation is 6.00
  • FPL Groups pension status ranks very favorably
    relative to its peers

2,388
Fair Value of Pension Assets at 9/30/02
Pension Benefit Obligation at 9/30/02
1,405
Funded Status at 9/30/02
983
37
FPL Substantial Regulated Generation Fleet
Energy Sources (based on kWh produced in 2002)
  • 18,591 1 MW of generating capability in Florida
  • 300 additional MW to be added in 2003
  • 1,900 MW to be added in 2005
  • 1,100 MW to be added in 2007
  • Diverse fuel mix

Nuclear
Purchased Power
Natural Gas
Oil
Coal
Note 1 As of 6/30/03
38
FPL Superior Cost Management(OM per retail
kWh)
Industry Average
1
FPL
Note 1 Includes a one-time 35 million FPSC
approved addition to the storm fund reserve.
39
FPL Potential Drivers of 2003Earnings
Variability
Note 1 As of 2Q03
See Safe Harbor Statement and SEC filings for
full discussion of risks
40
FPL Energy Market Price SensitivityUnhedged
Segment
Notes1 Weighted to reflect in-service dates
all assets adjusted for 2003 outages, including
refueling outage for Seabrook2 Represents
range of variability observed Jan. July 2003.
Variability in the second quarter was lower. 3
Pricing based on NEPOOL RI Zone 4 Reflects
on-peak MW unhedged only As of 2Q03
41
U.S. Wind Market Share (MW)
Competitors with less than 50 MW (lt1) each 16.1
FPL Energy 42.3
Competitors at 1 to lt7 each 41.6
Yearly Market Share (MW) 2001 2002 2003
1 Total New Capacity Installed 1,697 410
1,534 FPL Energy Contribution 843 201 2
812 3 50 49 53
Notes 1 Estimated as of 8/26/03 2 Excludes 123
MW of acquisitions. 3 Excludes 24 MW of
acquisitions.
42
FPL Energy Wind Portfolio 2003
MW
In Operation
1,767
812
Advance Development
2,579
Total MW
43
FPL Energy Wind EconomicsCash Flow Profile
Illustrative 100 MW
ROE
IRR
44
Wind MW under Contract
As of 7/23/03. Excludes small project of 3 MW
45
States with Renewable Portfolio Standards
Source Union of Concerned Scientists
46
QF Restructuring (Illustrative)
  • Curtail plant during off-peak hours, sell fuel
    and supply PPA with low-cost wholesale power
  • Utility shares savings through reduced rates
    under PPA
  • Negotiated transactions with other project
    participants (steam host)

QF Savings
Utility Savings
5/MWh
5/MWh
MW
MW
Wholesale Power Market
QF Project
Utility
100/MWh
42/MWh
95/MWh
50/MWh
2/MWh
Fuel Cost
VOM Cost
47
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