NextEra Energy's CEO Hosts 2013 Investor Conference (Transcript)

Mar.12.13 | About: NextEra Energy, (NEE)

NextEra Energy, Inc. (NYSE:NEE)

2013 Investor Conference

March 12, 2013 1:00 pm ET

Executives

Julie Holmes

James L. Robo - Chief Executive Officer, President, Chief Operating Officer and Director

Eric E. Silagy - President and Director

Moray P. Dewhurst - Vice Chairman, Chief Financial Officer and Executive Vice President - Finance

Armando Pimentel - Chief Executive Officer and President

Analysts

Brian Chin - Citigroup Inc, Research Division

Andrew Bischof - Morningstar Inc., Research Division

Julie Holmes

Everyone, if you could take your seat, please. Thanks. We'll get some water passed around. Thanks, everyone. Good afternoon, and welcome to the NextEra Energy 2013 Investor Conference. Today's agenda, we're going to have Jim Robo provide an overview of the company, and that will be followed by Eric Silagy, the President of our Florida Power & Light Company. We'll give everybody a little bit of a break and some snacks after that, and we'll come back and Armando Pimentel will give an update on NextEra Energy Resources and our transmission business. And then Moray will wrap everything up with a financial outlook.

We're going to hold Q&A until the end of the 4 presentations today, when all 4 of our execs will come up, and we'd ask that you please wait for a microphone. We are webcasting today. And if you could minimize your texting and e-mailing, to the extent we could avoid any interference, that'd be great. I'm not going to ask you not to do it, but please silence your phones. We'd appreciate it.

A couple of housekeeping items. We've got surveys on the tables. We'd really appreciate your feedback. So if you could take the time after the conference today and fill out the surveys, and leave them on the tables. We'll collect them after. For those who are listening on the webcast, our survey provider will send you a link to the -- or will send the survey to you with instructions to get it back to us.

Second housekeeping item is our cautionary statement. Today's presentations will include forward-looking statements and references to non-GAAP financial measures. You should refer to the cautionary statements and risk factors in our presentation, along with all of the recent SEC documents. And with that, I'm going to turn it over to Jim.

James L. Robo

Great. Thanks, Julie, and good afternoon, everyone. Thanks for being here. I have a few things I want to cover this morning before we get in to the other speakers. First of all, I'm going to spend a few minutes talking about 2012 and some of our accomplishments in 2012. I'm going to lay out a few thoughts on our business strategy going forward. I'm going to talk then about the growth strategy at FPL through 2016, spend a few moments talking about the Energy Resources growth strategy through 2016, and then I will pull it all together and share some thoughts on both our CapEx and our earnings going forward.

I think, today, if you take one thing away from our conference this afternoon, I want you to take this away: that we are positioned to grow off of a 2012 base, 5% to 7% per year, earnings, through 2016. The 5% is completely anchored by the $9 billion of capital that we have in our baseline forecast at FPL and the $3.6 billion we have of growth CapEx in our backlog in Energy Resources.

On top of that, we have $6 billion to $8 billion of terrific growth projects, at both FPL and Energy Resources, that I think will allow us to earn at the high end of that range, 7% a year compound annual growth off a 2012 base, that would get us to $6 a share in 2016. If you take away one thing today, that's the message I want you to take away.

So let me go in and spend a few moments talking about 2012. We had a terrific year in 2012. The best EPS -- adjusted EPS growth of any of the top 10 market caps in the space. We have the best dividend per share growth forecasted through 2014 of any of the top 10 market caps in the space. We had the #2 ROE in the space last year, the #2 total shareholder return on a one-year basis. On a 3-year basis, we had the #3 total shareholder return, when you look at the top 10 market caps.

Obviously, we're very pleased that we were able to come to a fair outcome to our rate case last year, an outcome that we think is very fair for customers and very fair for shareholders. It will provide us, I think, a terrific opportunity over the next 4 years to improve our customer value proposition at FPL and to do even more, to invest even more in that business, to improve that value proposition even more and continue to improve our position at FPL over the next 4 years.

On the Energy Resources side, last year, we were able to install an all-time record, something we're very proud of, an all-time record of U.S. wind megawatts, over 1,500 megawatts, the most done by any company in a single year.

Going into a few more details on FPL. In 2012, we grew net income by 16% versus 2011. We successfully completed 3 of the 4 nuclear uprates at our -- at St. Lucie and one of the units at Turkey Point, last year. We're in the midst of completing the fourth unit at Turkey Point, as we speak, and when those are complete, we'll have added more than 500 megawatts of new nuclear megawatts to our portfolio in Florida and adding much needed fuel diversity to our mix.

The thing I'm most proud about, that the team was able to accomplish last year, is they delivered terrific operating results across the board. It was our best ever safety year. We had our best ever year in reliability. We have had for a long time and continue to have top decile performance in O&M. That's not to say that I don't see a lot of opportunity now for continued productivity improvement at FPL. I think one of the things that is very important about the settlement agreement, we'll talk more about it today, Eric will spend some time talking about it today, is we have an opportunity now to focus on productivity at FPL for the next 4 years to take cost out of the business. That will allow us to invest in capital projects that will continue to improve the customer value proposition and will have benefits for both customers and for shareholders.

On the smart meter front, we nearly completed, last year, our smart meter implementation. And I'm pleased to say, right now, as of today, we're essentially complete with our smart meter implementation, 4.5 million smart meters. That is putting in place a technology that is going to also allow us to change the game at FPL, in terms of how we deliver service to customers. It will give us another lever to drive productivity and another lever to continue to add intelligence into the network to improve the customer value proposition.

On the Energy Resources front, Armando and the team delivered, in 2012, higher earnings than we expected at the beginning of the year. Obviously, the very first day of the new year, we were able to secure an extension of the wind production tax credit. That -- we effectively expect that to be a 2-year extension because of the language change allowing for qualifying for those credits, based on the start of construction. We had, as I said, continued strong performance in wind development, and we continue to make good progress on our solar backlog as well.

Overall then, we were able to grow EPS. As I said, it was the #1 of all the top 10 market caps in the space, it was only 4% EPS growth. That's not a year that I'll be satisfied with going forward, but it was the highest EPS growth of any of the top 10 market caps in the space. We were able to deliver shareholder return that not only beat the S&P utility index but also beat the S&P 500. Paul and the team on the treasury front had a terrific year raising close to $8 billion of capital. And overall, the company, not just at FPL, but overall, something that is very important to us, we had, overall, our best-ever safety performance from a OSHA recordable standpoint.

So 2012, we continued our track record, our very long-term track record, of delivering shareholder value. Over the last 10 years, we've delivered EPS growth of over 6%. We've delivered dividend per share growth over 7%. We've outperformed both the S&P 500 and the S&P Utility Index on a one-year basis, on a 3-year basis, on a 5-year basis and on a 10-year basis. I'm here today to tell you that myself and the team are completely committed to continuing that track record going forward for the next decade.

So let me spend a few minutes and talk about how we're going to do that, in terms of our business strategy. Our strategy starts with a vision, a very simple vision, and that's to be the largest clean energy provider in the U.S. At FPL, we want to be the best utility in America. How do we define that? We define that along 3 real measures: operational excellence, customer value, delivering a terrific value proposition to your customer and having a constructive regulatory environment.

On the Energy Resources side, we want to be the most profitable competitive energy supplier in the space, the largest renewable developer in North America and continue our profitable, focused gas infrastructure presence, that Armando is going to take you through in a little bit more detail.

At NextEra Energy Transmission, we're going to take our footprint, the footprint that we have in Texas and New Hampshire, and leverage that to grow a national transmission business. And overall, our goal is to leverage our position, leverage our scale and scope, leverage the skills that we've built up over the last decade, to continue to develop related new growth platforms and meet customer's needs across both our businesses.

So our growth strategy has been a key piece of our strategy over the last decade, and it's been based on some simple precepts. First of all, it's been based and embedded in a couple of the key core strategic elements that we've had for a very long time, more than 20 years, and that is, operational excellence and financial strength. We've built on that over the last decade, to add a set of commercial skills, to continue to build scope, to build scale and, as a result, start a variety of different businesses, at both FPL and at Energy Resources, that have grown quite profitably over the last decade. By -- just the businesses that we started since 2005 represent -- will represent roughly 20% of our net income in 2014.

Now as I've taken over as CEO in my first 9 months, I've been asked by investors, by rating agencies, by employees, the #1 question I get asked is, "What's going to change about your business strategy?" And I've consistently answer that question by saying that we're not going to change the underpinnings of what has been a very, very successful strategy over the last decade. Those underpinnings are things like our focus on customers, our focus on clean energy, being both low cost and highly reliable at the same time, having a strong balance sheet, commitment to financial discipline and attention to detail and a focus on execution, process discipline, knowing in every one of our processes how do we benchmark against the best and having plans laid out to get there, being effective in our risk management and having a toe in the water strategy when it comes to growth. That focus is not going to change, and it's going to continue to underpin our strategy going forward.

So let me start by talking about operational excellence. We're going to continue to have a focus on operational excellence, that's a key piece of our business strategy going forward. I think 2012 is a great example of that. Best-ever reliability at FPL and improving. We had our best ever fossil reliability at Energy Resources last year, as well as our best ever fossil reliability at FPL. Operational excellence is going to continue to be a core piece of our business strategy going forward.

Secondly, cost of performance. We have been a top decile cost performer for a very long time. We need to continue to be an outstanding performer in terms of cost. One of the things I'm very excited about is the fact that, with this 4-year settlement, we have a terrific opportunity to turn the attention of our business, which has been very focused over the last several years on the regulatory front, and focus it on improving our business going forward. We have a terrific set of O&M productivity improvements, that we're going to be talking about today. The team is focused on it. We're going to be able to leverage that O&M productivity to be able to generate room, to be able to invest incremental capital at FPL that will continue to improve our customer value proposition. That is a core piece of what we'll talk about on the FPL front going forward. So being outstanding on cost has been and will be a continued key piece of our strategy going forward.

Strong balance sheet, absolutely critical to our business strategy going forward. Having ratings that are on the high-end of the range, absolutely critical to our business strategy going forward, at both FPL and Energy Resources.

Financial discipline. We've grown a lot over the last decade. The chart on the left lays out the fact that we've acquired 4,500 megawatts of new generation. We've developed more than 12,000 megawatts of new generation over that 10 years and -- but we've also sold 3,500 megawatts of generation over that period of time. We are not focused on growth for growth's sake. It has to be profitable for us to be -- to invest the money. Financial discipline has been a core of what we've been about. It will continue to be a core of what we're about. It underlies our very conservative approach to hedging at Energy Resources. And we'll talk about this, it's very highly hedged. Obviously, FPL earnings are also protected against the commodity price fluctuations. Financial discipline is going to continue to be a core part of our business strategy going forward.

And so, through one of the most difficult periods over the last 5 years in our country's history, in terms of the tough economic times, we've been able to grow EPS by 5.5% off, of a 2007 base, through 2012. The #1 EPS growth of any of the top 10 market caps in the space. On a 5-year basis, we were able to do that. On a 10-year basis, we've been able to grow earnings faster than the top 10 market caps in the space. And our goal going forward is going to continue to drive to be at the best in the industry in terms of EPS growth going forward.

So let me spend a couple of minutes and talk about FPL. Our strategy at FPL is very simple. It starts with delivering superior customer value. If we can deliver superior customer value, that will drive customer satisfaction. Happy customers will drive a constructive regulatory environment. A constructive regulatory environment will give us a strong financial position to be able to make those investments that we've been able to make over the last decade and that we plan to make over the next several years, to improve that customer value proposition. And that is what we call, the "virtuous circle", and it's something that's been core to what we've done at FPL for a long time. We've been investing capital to improve the customer value proposition, make ourselves more fuel-efficient, make ourselves more O&M efficient, to improve the customer value proposition. That's been a key piece of our business strategy at FPL, and will continue to be a key piece of it going forward.

And so we think we have one of the best customer value propositions at FPL in the nation right now. We have the lowest bills in the state, bills that are 25% below the national average. The best reliability in the state, reliability that's in the top quartile of the nation, award-winning customer service and a clean emissions profile. When you put all of that together, we deliver a terrific value to our customers.

And one of the things that I'm most excited about is that we now have a 4-year period in which to continue to make those investments, to improve that value proposition even more going forward. How are we going to do that? First, we're going to do it by being focused on efficiency and productivity at FPL. We've identified a significant number of O&M cost savings opportunities, $75 million already, to date, in places like nuclear operations, transmission distribution and staff functions. We are focused on -- the whole team is focused on identifying additional productivity opportunities. Eric's going to talk some more about it, but our goal is simple. Our goal is to going to be to hold O&M, on a nominal basis, flat over the next 4 years at FPL, that's the stretch goal. And I'm very confident that we have a line of sight in order to be able to do that.

Every dollar of O&M savings that we can generate gives us $7 that we can invest back into the business, and have it be customer bill-neutral and invest in projects that improve the customer value proposition. That's a very powerful virtuous circle.

And so from a growth standpoint at FPL, we have $9 billion of growth in what I'll call our baseline case, and that's the baseline case that I mentioned earlier, that underpins our ability to grow EPS by 5% a year off of a 2012 base.

On top of that $9 billion of capital over the next 4 years at FPL, we have line of sight into $4 billion to $5 billion of incremental capital expenditures in very solid projects that will improve the customer value proposition, that will be win-wins for customers and win-wins for shareholders. Eric will spend more time talking about it, but it's things like incremental storm hardening, improving our overall reliability, some things that we're doing, obviously, on the natural gas pipeline that you know about. There are some environmental rules coming that may require us to do some generation upgrades. We have the Vero Beach acquisition, we have some opportunities for solar investment. We have line of sight to $4 billion to $5 billion, in total, of capital expenditures over that 4-year period, that will underpin our ability to earn at the high end of that 5% to 7% range through 2016.

Let me move now to Energy Resources. You all know Energy Resources, it's the largest renewable developer in North America. It's got a strong $3.6 billion backlog in projects that we've already signed, that many of them are already under construction, that we're going to be spending between now and 2016, and we have a terrific pipeline. Armando will speak more about the pipeline, but we have a terrific pipeline of new renewable projects as well.

It's a business that's diversified by fuel, by geography, by market. It has a strong and very profitable nuclear portfolio, has a great position in Texas with upside to spark spreads in that market that is -- that's challenged from a reserve margin standpoint, and has a very profitable and very focused position in gas infrastructure as well.

As I said, we have $3.5 billion in backlog at FPL. That $3.5 billion is simply building that out, coupled with the $9 billion that I mentioned earlier in the baseline of our FPL capital. That's what underpins our 5% low end of our range through 2016.

On top of that, we have visibility into a terrific pipeline of renewable projects in Armando's business. Armando will spend more time taking you through some of the details on this, but we believe that, given the PTC extension at the beginning of the year, we'll be able to add 500 to 1,500 megawatts of new wind through 2014, that's $1 billion to $3 billion of incremental capital, and up to an additional 300 megawatts of solar through 2016. That's anywhere from $1.5 billion to $3 billion of incremental growth capital above and beyond what's in our current backlog in Energy Resources. These opportunities, combined with the growth opportunities at FPL, are what underpins the high end of the range, the 7% a year EPS growth that will get us to $6 a share by 2016.

On the merchant side, in Energy Resources, obviously, we've been focused on reducing our exposure to the merchant business over the last several years. We have continued to make progress on that. We've continued to be focused on improving our business mix on the Energy Resources side. What that has meant is that we've been able to shift our business mix at Energy Resources towards more long-term contracted, renewable and other long-term contracted assets.

So 64% of the EBITDA at Energy Resources in 2014 will come from long-term contracted assets. That's going to grow to 66% by 2016. That business mix continue -- that improving business mix continues to underpin both our strategy at Energy Resources and also our focus in terms of continuing to keep a very strong balance sheet at an overall corporate level.

So let me pull it all together for you now in terms of what that means going forward. From a capital standpoint, as I said, it's very simple. We have a baseline of about $15 billion of capital, that's in our baseline case, $9 billion at FPL, $3.6 billion of backlog at Energy Resources, and a little bit of maintenance capital at Energy Resources on top of that. That baseline capital deployment is what underpins the 5%.

On top of that, we have great visibility into $6 billion to $8 billion of growth projects. Those growth projects underpin our 7% top end of our range. We have strong visibility into that. 60%-plus of those growth projects are at FPL. We're committed to maintaining that business mix of more than 60% of our capital and more than 60% of our earnings coming from our regulated business. The remainder of that CapEx is primarily in very long-term contracted renewable projects.

And as I said earlier, our balance sheet strength is paramount. It's very important to us. It's very important to our strategy. And so, if we're successful with this capital deployment strategy at the high end of this range, and I fully expect ourselves to be successful in doing that, we will be issuing equity in 2014, somewhere -- and Moray will talk more about this, somewhere between 0 and $1.5 billion, depending on how much incremental growth capital we put to place. But we're going to continue to maintain our balance sheet metrics through this growth phase.

Typically, we haven't shared credit metrics and targets with -- publicly, with you all. And that's in part because each of the rating agencies does these a little bit differently. But as I said, balance sheet strength is important to us. We have gone through a cycle of very large growth over the last several years.

That, coupled with the fact that the previous settlement agreement at FPL had a large element to it that was surplus amortization, means that our credit metrics in 2011 and 2012 have been challenged relative to where they have been historically. We expect them to get back to where they were historically by 2014. We're going to be targeting a 48.3% debt-to-total capital ratio in 2014. We're going to be targeting a 25% FFO-to-debt ratio in 2014. Our metrics and our rating are very important to us and they are a key underpinning to our business strategy going forward.

So what's this mean, what's this all mean from an earnings standpoint? First of all, on 2013, we're reaffirming today our guidance of $4.70 to $5 a share. In 2014, we are taking -- we're narrowing that guidance a bit. I think many of you had said a $0.65 range was a bit wide. We agreed with you. And there are 2 things that are driving us to take the top end of that range down. The first is we have taken all earnings from our Spain solar project out of this forecast. Moray and Armando will talk more about that, but we've taken all earnings from Spain out of this forecast going forward, given what's -- given the tariff changes that have happened over the last 2 months.

The second thing is, given the fact that we may be issuing some incremental equity in '14 in order to support this new growth going forward, that puts a little additional pressure on 2014 as well. When we looked at it, we felt like it was not realistic for us to earn more than $5.45 in 2014, and so we brought the top end of that range down. That being said, myself and the team are committed to earn in the top half of this new range in 2014.

From a 2016 standpoint, as I said, we're going to be growing earnings 5% to 7% a year off a 2012 base. The 5% is completely anchored in our baseline CapEx of $9 billion at FPL, along with the $3.5 billion of backlog capital that we have already signed at Energy Resources. The 7% compound annual growth is driven by our ability to execute on what I think is a terrific set of new growth opportunities. Myself and the team are committed to executing on those growth opportunities. I fully expect us to be able to earn at or near the top end of this range by 2016.

So what's that all mean for you all? From an investment proposition, I think we have above-average and very highly visible growth prospects going forward, 4 years of regulatory certainty at FPL, a strong backlog at Energy Resources and a terrific pipeline that you'll hear more about today. Moray will talk about our strong and increasing cash flow from operations, but we have 2 businesses that have terrific cash flow from operations growth between now and 2016.

When you combine great growth prospects with 2 businesses that have very strong cash flow, on top of that, we have a very moderate risk profile. We have an improving business mix, and we have a very conservative approach to hedging. All of that is underpinned by one of the strongest balance sheets in the industry, and we have an increasing payout ratio. You pull all of that together, we think it is a terrific investment proposition going forward. And as Moray will show you, we still trade at a little bit of a discount, even given that very strong investment proposition going forward.

So with that, the rest of the day, we're going to be -- is going to be dedicated to Eric discussing more -- in more detail, FPL's growth through the rest of 2016, Armando taking us through his views on Energy Resources growth as well as our transmission growth in 2016. And then Moray will sum it up for us and pull it all together in terms of the financial forecast. So with that, I'd like to turn it over to Eric. Thank you very much.

Eric E. Silagy

Thanks, Jim. Before I get started, good afternoon, everybody. I want to spend just a couple of minutes expanding a little bit on what Jim talked about in the virtuous cycle and how the philosophy that we have on FPL. Focusing on the customer experience is critical for us. Making sure that the value proposition that they have is the best in the state, and our target is the best in the country, is what has given us the opportunity to be able, I think, to have success in front of our regulators in Tallahassee.

Look, I love to be able to get up and talk to audiences in Florida about the fact that we have the highest reliability, and you'll hear me say this once or twice today, the lowest bill in the state. I love being able to say that, it's terrific on a lot of levels. But the fact of the matter is, what that really allows us to do is to be able to keep more disposable income in our customers' pockets. And when they do that, when they have that in their pockets, they go out and they spend it. And when they go out down the street and they spend it in places like Walmart or Lowe's or Publix grocery stores, then they help those businesses grow and expand. And when they grow and expand, we grow and expand. It's really not more complicated than that. If we do a good job on being customer-centric and focused, we help grow Florida's economy and we get the benefit of regulators that are happy because we're providing great customer service, because they're not getting the complaints from customers, whether they be residential, commercial or industrial.

I'm going to explain a little bit more about the settlement agreement. What actually it means for the company, 4 years of regulatory certainty, how we're going to leverage that, with the ability to extract additional productivity gains and focusing on our O&M cost structure, and then the opportunity to deploy incremental capital that's smart, benefits our customers and also benefits all of you as investors.

So let me get started with just a very brief overview of the utility franchise itself. So FPL, many people, particularly those in South Florida, really don't seem to understand this. I get this a lot, they have no idea that our territory actually goes all the way to the Florida-Georgia border on the East Coast. It goes all the way down to the top of the Keys and around the horn and up to Sarasota. We serve 4.6 million customers, those are meters. That translates into more than half of the state's population of 19 million. So we serve probably about 10 million or so people.

We cover 35 counties, 27,000 square miles. We have 72,000 miles of line in our system. It's a big operation no matter how you measure it. As you can see from the map too, we have a very diverse, both geographically as well as technology-wise, fleet of assets. The majority of our electricity is produced from natural gas and then nuclear power.

And no matter how you measure us, and Jim touched on this, we are a top performer in every category that counts to our customers. Our customers tell us there's 2 primary things they care the most about: First, it's reliability. They want to make sure that when they walk in a room, they flip the switch, the lights come on and the air conditioner's running. And even in Florida, when it gets down to 40 degrees, the heater's going. That's cold in South Florida. And they want to know they've got affordability. They want to be able to pay the bill.

No matter how you measure us, we're the top performer in Florida and among the best in the country. From a reliability standpoint, we are the most reliable provider of electricity in the state of Florida among all of the IOUs and we're top quartile in the nation.

We also have the #1 customer service in the state of Florida and, frankly, in the entire land. We just won the award, now, for the 9th year in a row, best in the nation. We have the cleanest emissions profile, which in Florida actually matters. People focus on it. This is a state whose economy is driven largely by retirees, who don't frankly want to come in and live someplace where it's tough to breathe the air, and tourists, who don't want to come in and penetrate a smog bank because they're landing in Orlando or Miami or Fort Lauderdale. They want to walk clean beaches, they care about the environment. Makes a big difference and obviously, and you've heard me say it already, I'm going to say it again, we have the lowest bill in the state and that carries a lot of weight. There are 55 electric providers in the state of Florida and we're the lowest by far. In fact, since 2006, our bill has gone down 13%. I'll talk a little bit about why. But that makes a huge difference to our customers and gives us a lot of credibility in places where it counts, both locally and up in Tallahassee.

Now how have we gotten there? Well, a few years ago, we hit upon a strategy that really looked at investing capital to reduce expenses. And we've done that, I think, quite smartly, for the last decade, by investing in things like clean generation that's very, very fuel-efficient, and therefore reducing the fuel component of the bill for our customers, which makes up about 40% of the bill.

So if you're able, and by the way, they pay 100% of the fuel to pass through, that's the way it works in Florida, so we make no margin on it. So if we're able to save our customers $1 in fuel, it goes $1 into their pockets. That's one of the biggest drivers and opportunities that we've had and we've taken advantage of, and it's not small dollars. It's really translated into big savings for our customers. In the last decade, we've saved our customers $6 billion. That is $6 billion that, but for our investments in new fuel-efficient generation, they would have paid us, and we would have, in turn, sent over to fuel suppliers. This is not based on fuel prices, by the way. The chart that you see up here is based on mark-to-market actual fuel prices in the year that we incurred them, and the difference in the fuel efficiency that we gained by investing in new technology. That's what's driving that. That's $6 billion that stayed in our customers' pockets. It's $6 billion that stayed in Florida's economy and that got reinvested back into Florida, which helped it grow, which in turn helps us grow.

It also helps tremendously from an investment standpoint. It's driven significantly our ability to grow net income and our earnings, as you will see. So it's not only good for customers, it's good for shareholders because we've significantly increased our rate base. Everybody wins in this. This is what we're looking for when Jim talks about the virtuous cycle, win-win opportunities where we can smartly deploy capital, drive expenses out of the business, enhance the customers' experience through reliability and an emissions profile, and benefit all of you as investors by being able to grow our bottom line.

Let's talk a little bit about the settlement agreement. I think what we've done in the past was a big driver in our ability to actually come to an agreement with most of our major intervenors, including industrial customers, hospitals, the federal government, because they see the value that they're obtaining by being served by FPL. And I think this is the biggest reason why our Public Service Commission unanimously approved this, even over the objections of the Office of Public Council, which is unprecedented by the way, because they saw the value proposition that we brought to the table.

So the settlement provides us 4 years of stability through 2016, $350 million of base rate increase. That's cash coming in the door. It also very importantly provides us the opportunity to recover the expenses associated with bringing 3 large combined-cycle power plants on. These, again, are the kind of investments we were talking about before on efficient generation. There are currently 2 of them in construction, and one is going to be demolished in July, and I invite all of you to come down because it's a heck of a show when you blow these things up, and if not, go on YouTube, it will on there shortly after, and build a new power plant in its place. This represents over $3 billion worth of investment that we get recovery for the day the plant goes into service, without having to go back before the commission and having other rate case. That's the kind of stability and certainty that this settlement brings us.

So you see the commercial operation dates on these plants. Canaveral, that was a plant built in the 1960s, actually there's a Gemini Space Program, many of you weren't even alive then, and basically support of the Apollo program. We took that plant down. We built the Canaveral plant. It goes online. Here, it says June. Just been confirmed this morning actually, we're a month ahead of schedule. We're bringing it online May 1, commercial operations, this will go into base rates. The following June, we go in, and then in '16, Port Everglades, another $1.2 billion investment right by the Fort Lauderdale International Airport many of you [ph] fly in. If you come in over the ocean, look off to your right, you'll see 4 large stacks. Just be sure you do it before July, because they won't be there after July.

Midpoint of our ROE is 10.5%, with 100 basis points on each side, so 9.5% to 11.5% is the spread that we're able to earn. Jim talked about this as well, in the previous settlement, we had a large amount of surplus depreciation that we could amortize. Here, we have about $400 million that will give us some financial flexibility. And then importantly, we also have the same language we had under the last settlement agreement for storm. We currently have a storm reserve, that's money that's literally in a bank account, that we're able to utilize to pay for the costs associated with storms, something you guys are all familiar with Sandy. But the reality is, if we have a major storm, it's not enough. So this provision allows us the opportunity to collect from customers immediately within a certain band, and then if it goes a certain amount, we go before the commission. It's very important language for us from a risk mitigation standpoint.

So what does this mean for us from a settlement perspective as well for growth? We have a real opportunity here to grow in a variety of different avenues. We have a number of them. Obviously, adding $350 million in base rates, that's a lever for growth. We also have the service territory. I talked about that earlier, about its growth, and I'm going to show you some numbers about how it's looking for growth from a standpoint of organic growth within our territory. Having a low-cost position also -- excuse me, and a very efficient fleet provides us with some real benefits and opportunities to provide wholesale power. There are 54 other utilities in the state of Florida, and 50 of those are munis and coops. Most of them buy their power from third parties like us. Having a very fuel-efficient fleet allows us now to compete at a different level in that wholesale and that muni market.

I'm going to go into little bit more detail about some of the abilities to do that through smart capital deployment, extracting our expenses, reducing those expenses. Jim touched on it, and I'll talk a little bit more about the peakers. We have 42 peakers in our fleet. We're looking at those right now for environmental reasons particularly, but we think it makes sense to look forward as to how best to replace those, solar generation and then the pipeline, and I'll cover those in some more detail.

Again, big picture here, we're looking to really drive O&M savings out of the business, efficiency and productivity. And the settlement is critically important because it gives us 4 years to be able to really focus on the business in the area that we really excel, and that's in the operational side of the business. When you're focused on rate case after rate case, it's more difficult to be able to do that. It takes a lot of manpower to be able to prosecute a rate case successfully. When you don't have to do that, you have the ability to look more inward and see how can you extract additional productivity gains out of the business. And then when you do that, it allows you to actually deploy more capital without putting upward pressure on the bill.

For every dollar we can extract in productivity and O&M savings, we can deploy more capital into the business. If you do that smartly, the customers benefit overall from an experience standpoint because they get better reliability, they get better responsiveness when we do have storms, they get more fuel-efficient generation, a cleaner emissions profile. And all of you, as investors, benefit because we're growing the business.

So a few minutes on what's going on in Florida. For those of you who don't know, I've looked at all the metrics. We track this religiously every month, and I will tell you that Florida has turned the corner from an economic standpoint from a few years ago. Every metric that we look at has turned the corner and is now more positive than we've seen.

Construction is up. Housing starts are up. Permits for new housing is up. In fact, for the last 6 months, Florida has actually filed and pulled more new home permits than any state in the country next to Texas. There's typically about a 7- to 8-month lag when somebody pulls a permit to when they build something, but that's a very positive sign, and it has been now consistent for the last 6 months. I'll go into some details and show you some charts.

Unemployment's looking much better, significantly better. And I will tell you I was just with the governor of Florida yesterday, announcing 200 new jobs at an aviation company that manufactures components for jet engines. This is a company that was actually considering leaving the state, and because of an economic development rate that we offered, as well as the state stepping in and bluntly, a governor that is religiously focused on trying to bring jobs into the state, which -- if you don't think that's important, go look at states that aren't doing that. When you have somebody at the top who is doing everything they can, cold calling CEOs in the dead of winter in Chicago and saying, "Your taxes are significantly higher and your weather stinks, come on down to Florida, and I'll help you out," it makes a difference. And that's been driving new business into Florida and driving down unemployment consistently now for a number of quarters, and I'll show you some charts on that.

And overall, when we look at all the various indicators, it's very, very positive both short term and longer term. So let's talk about some of the details. Unemployment rate, we've gone from a high of 12% to now right about the national average. We're at 8%. We're 1/10 above the national average. I suspect those lines are going to converge here in the next quarter based on what we're seeing right now. Significant change in the unemployment picture, which also has a significant impact on the health of the state, because obviously, when you take that many people out of unemployment rolls, it helps the overall Florida economy and budget because the state's not pumping hundreds of millions of dollars into unemployment benefits and instead, they're investing in other areas.

We're seeing it in taxable sales. We're almost back, actually, to where we were during the pre-recession, very close to it. Consumer confidence, also significantly higher than before. We've turned the corner, and we've seen it now consistently be up.

These are 2 metrics that we look at as a utility to kind of understand what are we looking at from the standpoint of homes and accounts, growth and folks that are not active. So you'll see this percent of inactive accounts. Really, the best way to think about that, and it really should be labeled differently, is percent of inactive meters. There's a meter actually at the premise where this is. And what we've seen is a significant drop in the number of inactive meters. As a matter of fact, we're approaching our long-term average now. I'll tell you this is the lowest number that we've seen now for 5 years.

Low usage customers, these are customers that use 200 kilowatt hours a month or less. These are typical folks like snowbirds, who haven't come down at all during the season, or it might be a home that is owned by a developer but not occupied, or a bank that's still in foreclosure, so there's an actual account. Somebody's paying it, but it's low usage. We've seen that now drop off. It's starting to flatten out. We still have a ways to go, but it's very positive that we're starting to see that drop off. A lot of times what that means is, homes start to move out of foreclosure, and they become occupied, and the usage goes up.

Population growth. From a long-term perspective, Florida is still a very, very attractive place for folks to locate to. The colder weather up north, when it's up here, the happier I am because people want to start looking. When their pocketbooks open back up, Florida is still a very attractive place to come. Higher than national average in population growth. A matter of fact, a recent study that was published by the Florida Chamber of Commerce just estimated that, between now and 2030, there'll be an additional 6 million residents that move to Florida, so we have to prepare for that.

Customer growth we're seeing in 2013. We're forecasting very good customer growth, about 1.5% increase in volume growth. About 1% of that is in the customer growth side and the rest is on usage. So positive trends on growth as well.

So let's talk a bit about O&M productivity and what we're focused on and what we intend to do. So we've seen about a 2.6% growth in our O&M costs since 2006. And you can look at that and say, largely, that's driven by inflation. We're subject, like everybody else is, to the increase of medical costs, cost of goods and services provided to us. But all that said, we're not satisfied with just keeping up with inflation. We think there's opportunities to help drive that cost, to actually keep it flat and drive costs out.

I mean, look, we benchmark right now, you saw this chart from Jim, we're top decile in the country on our nonfuel O&M, and I'm very proud of that, and our team is proud of that. And it makes a big difference to our customers. If we were an average utility, our customers would pay us $1.6 billion more every year if we had average O&M costs. $1.6 billion, that's about $16 on the average residential customer bill. And I promise you we would have a different outcome in Tallahassee if we were acting that way and we were satisfied with that. So being in the top decile really benefits the customers in a very material recurring way, but it's not good enough. And I'll tell you why. Because I look at this chart, and I see where we went to and where we've gone in the past few years. So what you see here are 2 lines, nominal on top, inflation-adjusted or real on the bottom. In '96, you see we're about $1.34, and we worked very hard to drive costs out of the business, and we were successful. On an inflation-adjusted basis, we got down to about $0.97 in '08. And then we started seeing an uptick, and that's the chart you saw before, the growth in O&M expenses.

Now we're looking very hard internally at how can we manage this, how can we actually improve it. And you can see from the nominal chart, there's some real opportunities here that impact O&M favorably if you can manage this. Our goal on this is to keep our nominal O&M growth flat. And this is not pie in the sky. It's not easy, but Jim and the entire management team has been focused on this. I am religiously focused on this. The entire leadership team of FPL is. And just in the first 3 months of this year, not even really, 2, we've identified $50 million to $75 million, Jim said $75 million, so it's now $75 million, of savings that we're going to drive out of the business.

And I know we could do better because this is just what we've started with. And what this does is, again, allows us to do more in growing the base rate of the company if we can take out these costs. Now we have to be smart about it because it's very easy to strip out costs and also negatively impact that customer experience if you're not careful, right? I could close a call center tomorrow and reduce my O&M expenses. I could reduce vegetation management, and a lot of folks don't even know that's the tree trimming.

And for any of you who went through Sandy and the complaints that are [indiscernible], particularly on vegetation management. It will come and bite you during storms, particularly, if you don't do it regularly, so you have to be very smart about this. So there's a few examples, some of the things we're doing. One of them as an example is we've just -- in the past 2 weeks, we're offering now an early retirement option for a targeted group of employees that we think makes sense to take out of the business.

So I'll give you an example. Jim talked a little bit about the uprate projects. We've been on a multiyear, multi-billion-dollar program of expanding our nuclear fleet in Florida. We are on the final weeks of the program, and it makes sense now to rightsize the organization, recognizing that, that work is coming to a close.

We're also looking, how can we deploy capital smartly to more automate the systems, be smart about how we actually leverage our existing workforce and don't just grow it every year, but instead get more productivity out of them by deploying capital smartly to do it. We are going to continue to look at ways that we can save on the fuel. Fuel is a huge driver in the bill, and that's an opportunity that goes straight to our customers' bottom line and helps them, which, in turn, helps us.

And I will talk a bit more about some of the other productivity gains that are sustainable. What I'm interested in is finding productivity gains that aren't just good for 2013 but is something that's sustainable through the business and we could drive through '16 and then even beyond.

So some of the capital investments we're looking at. So as I've talked about before, we've invested a ton of capital into this business in the last decade. You see this chart, $28 billion since 2000. We're the largest investor in the state of Florida, largest construction program, by far and away, than anybody. And it's really made a difference for the customers and for the state. Now a lot of it was in the clean generation, so it's a variety of new combined-cycle plants, it's the uprates for nuclear fleet, that provides the customers with net savings over, actually, the cost of the plant. So I really didn't talk about this before, but I'm going to give you one example. That Canaveral plant, that cost about $1 billion to build. The customer savings over the 30-year life of that plant actually pays for the entire plant and then saves an incremental $400 million at today's fuel cost. If fuel prices go up, customers just save that much more. This is about fleet efficiency. This is about having one of the most fleet -- fuel-efficient fleets in the nation, which means that the customers continuously save as prices fluctuate.

The other big benefit, by the way, that we've gotten a lot of credit for recently because we finally started talking about it, is by investing in this new generation and switching from oil to gas, we've saved our customers billions of dollars, based on not only a fuel spread but also what we're sending overseas.

So I'll give you an example. 10 years ago, we burned more oil than any utility in the nation to generate electricity, about 40 million barrels a year. This year, we're going to burn about 600,000. That's a 98% reduction in oil, that we're not burning. At today's prices, that's $4 billion of our customer money, which they're quite happy not sending overseas to places that don't like us or fund people even worse, who hate us. And that sells, that resonates, not just with our customers, by the way, but that resonates with our regulator and our political leadership in Tallahassee. And it gives us the opportunity to [indiscernible] and support U.S. businesses and gives us the opportunity to deploy more capital, like through the pipeline projects, which I'll talk about.

So Jim talked about this baseline of our capital expenditure program, $9.2 billion. This is what, right now, we've got in the pipeline, we're planning to invest between now and 2016. So we see strong visibility on being able to deploy even more capital. Again, smartly deploying the capital, which gives us the opportunity to actually benefit the customers without putting upward pressure on the bill.

So I'm going to go into some detail on these on a high level. It's incremental storm hardening. It's infrastructure, like our transmission and distribution system. It's the generation upgrades that we're doing and the other areas that we can focus on. It's that natural gas pipeline that I just talked about. It's the opportunity to look at the peakers, Vero Beach and then finally, some incremental renewables.

So let me talk about storm hardening investment. Unfortunately, we have a heck of a lot of experience on dealing with hurricanes. It's part of living in Florida. In 2004 and 2005, we had 7 major hurricanes in 18 months, and you learn a lot from every single storm. You learn a lot of lessons. One of the things we clearly saw is that there's real benefit for investing in hardening your system.

Investing in different types of poles, going from wood to concrete, as an example, different thickness on wire, spacing them differently, a variety of different things that you could do that helps make the system more resilient, and it also provides you an opportunity to restore even faster.

What we've seen in this investment that we've made, now nearly $0.5 billion since 2006, which -- that was right after our last storm, Hurricane Wilma. And we really went in and we focused on hospitals, 911 centers, the ports, because you learn very quickly, and I think all of you who lived up here saw this. If your ports aren't working, you run out of gasoline pretty quickly, right? And society breaks down. Fresh water could become a problem, particularly in a state like Florida, which is surrounded by water, and you've got only a couple of interstates, it becomes hard to move goods and services. So we focused on those key areas and working with our political leadership at the local level to understand what the needs were, and we made those investments.

And last year, fortunately, we didn't get hit with any major hurricanes, but we did get hit with 4 major tropical storms, one in May, which was very early. And then most of you aren't focused on this, but we actually got hit pretty good by Sandy, and Isaac before that. And here's what we saw. We had our feeders, and a lot of them were hardened, our feeders performed 50% better, those that were hardened, than those that weren't, and we didn't have a single pole failure on those that were hardened versus those that weren't.

So that allows the company then to be able to allocate resources much more efficiently. So when something does fail that hasn't been hardened, we're able to target those very quickly. That's why, even though we had, like around Isaac, 2 days of feeder bands that came in with 60-plus-mile-an-hour winds, it's only a few miles an hour less than an actual Category 1 hurricane, we had 96% of our customers restored in 24 hours or less, and Sandy was 98%.

And by the way, that also gives us one other big opportunity which I'm very proud of. When we're done restoring, like we did with Sandy, in 24 hours we pivot, and we rolled 1,000 people north, here in New Jersey, in New York, to try to help restore. That's one of the intangible benefits that I think makes a big difference. And while our customers don't get a direct benefit, we realize we also get an indirect benefit because, you know what, we've been on the receiving end of that, too. And the more people that we can help at times of need, we know that when a storm does hit Florida, we'll get that back in return.

Now the other benefit, by the way, is not just during storms but the day-to-day benefit that comes from hardening the system. Let me go back just one because I want you to see this on the bottom here, right? Our ongoing reliability to hardened feeders is 37% better than those that aren't. Because it just doesn't take a hurricane, right? So you get regular weather that comes through. You can have a thunderstorm that rolls through that produces a 70-mile-an-hour burst of wind very easily. And our hardened system provides day in and day out reliability for our customers, and they deeply appreciate that. So we're going to continue to invest in incremental storm hardening. We're going to actually look to accelerate our storm hardening program. The Public Service Commission's been very positive about storm hardening. We're going to look to actually accelerate that, because we see not only the benefits on the day-to-day storm activity that you have to go through when it hits, but the day-to-day benefits on the reliability and that customer experience that you get when there's not a storm.

And all of you, I'm sure, can appreciate the challenges and the cost to society when a storm comes in and knocks the power out. But Florida is the 19th largest economy in the world. If the power goes out, the cost to the economy is measured in billions. So we get a lot of pressure to get the power back on. Of course, we want it back on because that's how we make money, but also, we have a greater responsibility, we understand it, to make sure the economy continues to function as quickly after a storm as possible.

Now reliability also goes beyond just the hardening. One of the things that we've seen in our smart grid program was that technology really makes a difference. We've now finished our deployment of smart meters. We have over 4.5 million smart meters installed throughout our entire service territory. 3.7 million of those customers are now fully activated, and the rest will be coming on in the coming months. But along with the smart meter deployment, we actually deployed over 10,000 smart devices on our system. So these are devices that help the grid actually do self-analysis, the -- seeing analysis at the speed of light, and it's helping the grid start to figure out ways to self-heal, redirect and reroute before you actually have a problem that causes the lights to go out.

So automatic feeder switches is one example of this, and we've deployed this technology, and what we've seen is it really makes a big difference on your reliability rates. We've seen our SAIDI drop significantly. And we believe by incrementally deploying more of these devices smartly throughout our transmission distribution system, we can actually take another 8 minutes out of our SAIDI, which is tremendous in the next 5 years, again, driving that value proposition for the customers. And when you do that, then they're going to give you the opportunity to deploy capital elsewhere that may not be as obvious as really good reliability that they see every single day.

So one of the other areas that we're going to have to go and talk about with customers and regulators is on our peakers. So we currently have 42 peakers in our system, and most of these were deployed in the 1970s. These are aero-derivatives, so if anybody out there who remembers the 707 or is a pilot out there, these are basically jet engines off of a 707. That's what they are. Quick start, get up online very quickly. You don't run them very much. When you do, they burn a lot of fuel. And they're not the cleanest machines, right, because they're quick-start.

So we're fortunate as a utility that we really don't have much of an issue on our emissions profile, because we're the cleanest in the nation. So from an EPA standpoint, they actually love us, and we're in good shape. But the reality is we've modeled our peakers and understand that, with the EPA rules that have come down, these facilities are going to be challenged, from an environmental standpoint, on running them. Even though we only run them a few percent for the year. They don't run very often. When they do, they're not really clean nor are they fuel-efficient.

So we've actually met with the DEP, that's the Department of Environmental Protection for Florida, because in our opinion, it's important to be proactive on this, to do the right thing. And we're talking to them now about what's the best way to rotate these out of the fleet and put in a smaller number of highly efficient peakers. Because when you need these, by the way, you've got to have them. They're critically important, and you have to have this to meet that needle peak. But if we're going to have them, we need to have the most fuel-efficient and the cleanest machines that we can have. And you can't run those machines if you don't have gas to get to them.

Some interesting statistics you may not be aware of. So Florida is the second largest user of natural gas in the nation. Texas is first, California is third. Florida, unlike Texas and California, has no production. Florida, unlike Texas and California, has no gas storage. We just don't have the geology for it. Anybody looked at the pipeline map of Texas lately? Looks like a spaghetti bowl. That's Florida. We have 2 major pipes, and they're both full. And they're not even materially interconnected anywhere, so it's like having 2 interstates that run parallel with no interchanges. And if you have an accident on one that shuts it down, you're just out of luck if you happen to be on that one. So here, we lose a pipe, we lose a pipe. And in the peak of summer, when it's hot, that means it's tough to keep the lights on for more than a couple of days, and by the way, this is not just FPL. Most utilities in Florida are heavily dependent on natural gas. So we're proposing a third pipeline. And we've actually gone out an RFP on this. It's a pipe that will go up into Western Alabama. Station 85 is in Butler, Alabama. Now for the non-gas people, here's what you need to know. That's a major existing interconnect point for interstate transmission pipelines that already run all the way up to the northeast. We want to tie into that. We want the pipeline to come down to the center of the state and connect into Orlando, what we call a hub. We're going to create it. It's a physical hub where the third pipeline will come in and tie in the other existing 2 pipelines, so now we'll have a liquid point, that interchange, if you will. So if there's a problem on one, you can reroute around that problem and continue to flow the gas.

And then there's a second segment or a southern piece that will go from Orlando down to Martin, which is our existing -- a big gas facility, and kind of an existing liquid point for us from a gas perspective, where the pipelines come in to serve our southern piece of it.

Now I don't know what the cost of this is going to be yet, because we released the RFP and the bids are due April 1. I'm hearing from folks, and there's a number of interested people on this, close to a dozen companies have expressed interest, $2.5 billion, $3 billion or so in investment. That's what we're looking at for this system. It's material, and it is critically important for the State of Florida, because without it, we don't have the energy security and the fuel diversity we need to keep the lights on for the long term and even in the short term, God forbid, if there's an accident on one of those 2 pipes.

The other great thing about this system is it allows us to get diversity of supply. So instead of relying on gas that comes out of the Gulf of Mexico itself or from the surrounding wells right onshore, we'll actually be able to tap into the shale plays at the Barnett, which is in Texas and Oklahoma, and the Haynesville in Louisiana, even backhauling gas out of Pennsylvania or the Marcellus Shale. Who would've thunk that, where you're actually pulling gas out of the Northeast. But that's what actually producers are talking about. And when you have that, that will provide opportunities for us to get more reliable supply and better pricing for our customers.

By the way, we are -- our company is going to put in a bid for the southern piece. We're going to have a division of the company that is going to go ahead and put in a bid on that southern leg of it, because effectively, that's a driveway for our plants. And then we've also, in the RFP, let it be known, because it is such a big investment, that as a corporation, NextEra Energy will consider investing in that upstream piece if it's needed to move that project forward, and that is a big investment for a lot of these companies.

So some other areas. Again, I talked about this a little bit, just a little more on this. We have a very low-cost position right now in our generation fleet. We have the opportunity to expand into the muni market and the wholesale market, right? So 75% of the generation in the state is munis and coops. When you look at it, we have roughly 34 munis, there's 16 electric cooperatives. That's about 21% of the market, and our rates are significantly lower than what they provide to their customers.

So we think there's opportunities to provide them services, because I won't just say power but services, including power, whether it be wholesale or even retail, and help their customers get the same experience that our customers do. And you know what, our advertising, our communications about lowest bills in the state and highest reliability, the upside to that, if you will, is the fact that we now get calls from leaders in these communities saying, "Hey, we'd like a little of that." That's what happened at Vero Beach. The business community at Vero Beach started seeing our ads and figured out that their bills were close to 30% higher than ours, a competitive issue. And they approached us and said, "Would you consider buying our electric system and making it part of the FPL family?"

And so over the last, almost 2 years, we've been in negotiations with them to do just that, and we've made great progress. We've actually signed a purchase and sale agreement. The city council has approved that. And today, the last step in the city approval is taking place through a voter referendum. It's happening right now.

And I can't tell you exactly where it's going to come out, but I can tell you that all the polling we've seen has overwhelming support for Vero Beach coming into the FPL system. And it's not hard to understand why, right? It's $24 million a year in annual savings if you're a current Vero customer versus being an FPL customer. They're going to get the highest reliability in the state and the #1 customer service in the country.

So they see the benefits. We structured a deal that helps them meet all of their needs financially from a standpoint of getting out of their existing contracts. And by the way, the power plant that they own and that they operate for about 4% of the time of the year, yet they have 60 people sitting there to maintain it, we're going to tear it down and we're going to give them back the land, so they can turn it into a pretty park on the water. It's all those little benefits, but mostly, it's the savings that they get that really drives the interest in this, and a lot of other munis and coops are taking note, and some, I suspect, will have interest on going forward. And you can see the difference in their bills. It's really significant. It really makes a difference for these folks, and this is what makes it so compelling. I mean, I'll tell you it's both good and bad. One of the things that's happened is I've now got the governor of Florida going around to the munis saying, "Why aren't you selling yourself to FPL?," which of course, you can imagine, I'm flattered, but at the same time, I get some folks in the munis who say, "That's really not helpful." But I can't help it. But it's because he's trying to drive more cost competitiveness into the state and sees that's a really great way to do it.

Wholesale power contracts. This is a really good opportunity for us on growing a new business line. We effectively exited this business in the 90s. Back when we thought the state was going to deregulate and we were going to get out of the generation business, we kind of exited this. Well, the world changed, and we've now reopened the book on this business. It's been something that Jim has been passionate about. We've gone in and started looking at opportunities to provide wholesale power to a variety of different coops. And as you can see, we've actually made some pretty good-size sales. These are good deals both for the coops and also for FPL, it's customers and for the shareholders. And I think there's a lot more opportunity in this. We are very focused on this business. We have a dedicated team going out and originating transactions on this. It's a really great opportunity and a way for us to leverage our existing fleet and generate incremental value for our customers and for our shareholders.

And then finally, on the solar side. Look, we are the largest producer of electricity in Florida from solar generation. A few years ago, the legislature passed a law that said anybody who wants to come in and bring before the commission proposals for up to 110 megawatts of solar generation, the commission is allowed to consider that and put it in the base rates. Well, we showed up, and we showed up, actually, the second day we were allowed to. And we got permission that very day, and we've built 110 megawatts of solar at 3 different sites.

In the process, we also permitted a lot of other sites, so we have over 500 megawatts of sites that are fully permitted, ready to go. And I think there are some incremental opportunities to do something here, primarily because the price of solar has gone down so significantly, particularly on the PV side. And I know Armando will probably talk about that a little bit coming up, but we've seen significant change in PV pricing. And there's more interest than I've seen on this. I'm not suggesting that there's going to be legislation passed, but I do think the Public Service Commission, because of both fuel diversity and energy security issues, is interested in seeing if there's a way we can do this, particularly with the pricing that's happening in the PV market.

So let me talk a little bit, just a quick summary on the CapEx and our financial position. So we've got really strong visibility on over $13 billion of capital investment between now and '16. Those are real projects that we see a real opportunity to be able to deploy in the next 4 years that we think are smart, that benefit our customers and obviously grow rate base and benefit the shareholder. And if we do that, we're going to grow net income between 5% and 9%.

Now let me give you some specifics on this. Jim touched on it but on a more global basis, but at FPL, if we just deploy our $9.2 billion in capital, or as Jim would say, like falling out of bed, and we turn around then and don't really wring out productivity and O&M savings out of the business, we're going to grow net income by 5%. And if we incrementally deploy that capital and get productivity and savings that, I think, are very, very achievable, not super stretch goals, then we're going to grow it at 9%. And in the process, we're going to continue to drive the best value proposition that is in the State of Florida. We're going to continue to have high, high reliability, excellent customer service and most importantly, as we deploy all this capital and people scrutinize that from a regulatory standpoint, we're going to be able to maintain the lowest bill in the state. And when you maintain that low bill and you're able to show how you took costs out of the business and deployed smart capital in its place, without putting upward pressure on the bill, you get a lot of support to do that. That's why I think we're going to be successful over the next 4 years. And if we do a good job at this, then the real opportunity for us as well is to be able to not have to file that rate case for 2017, but to push that out at least 1 year and try to maintain that cost position and not be in front of the regulators again, so we can stay focused on the business instead of on the regulatory world. Thanks very much.

Julie Holmes

Thanks, folks. We're going to take a break for 30 minutes. There's some snacks and drink outside, if you head out the way you came in and go to the left. We'll come back at 10 till.

[Break]

Moray P. Dewhurst

Okay. Thank you, everybody. I think in the interest of trying to keep this thing moving along, we are going to get started here. Armando Pimentel is going to come up and talk about what's been going on at Energy Resources.

Armando Pimentel

Thank you, Moray. So as everybody comes in from their Diet Cokes and chips, I figured we could start a new trend for the next 2 presenters because I thought I -- a little earlier, thought it was a little quiet. So after I get done, I'll start clapping for myself. And if you guys want to join in, that'll at least make me feel good and then we can do the same for Moray and so on. It'll make me at least believe that some of you folks are really vibrant and awake, maybe.

Before I get started, I just want -- I want to talk about a couple of things that I'll cover during the presentation -- actually, 5 things, and really the 5 things that this presentation was built around. If you want to write these 5 things down, that'd be great. I'm going to mention them again at the end. But it's really what I think about when I think about the Energy Resources story from now through 2016. Now some of you that I've seen out in the hallway or in the room have asked me am I enjoying it, how's it going on and so on, I think I have a consistent answer to that. I'm excited as hell. I love what I'm doing. I love Energy Resources. There's a ton of opportunities at the company and I'm learning every day. So I'm really happy for all of our employees at Energy Resources, and really happy about all the opportunities we have.

But there's 5 things really in this presentation. The first thing to remember is, Jim spoke about our backlog, right? So I want to make sure we're all on the same page about what our backlog is. What is a backlog? A backlog is signed long-term power purchase agreement for which the projects have not been built yet. And we've got a lot of those projects. You heard the number, $3.6 billion in backlog, that's the cash spend. So for those of you that do your cash flow from operations on a year-by-year basis, that's the cash that there still is still to spend.

But the more important number about our backlog is really the $6 billion number. We have $6 billion of projects. When they get completed, it'll be $6 billion of capital in solar and wind that all have long-term contracts, that will all be in before the end of 2016. That's $6 billion of projects that we're spending money on today that are not adding to our cash flows today and are not earned -- and are not adding to our earnings today. So that's significant. Those projects, the projects that we have under construction today, by the time they get in, right, in 2015 or so, that adds roughly $900 million of EBITDA. Just those projects. That's significant. And we've talked about this backlog now for a couple of years. It's a very real thing. Yes, there's a lot of execution. I think I've talked to some of you folks before. Have you ever built your own house? Have you ever tried to just redo your bathrooms and stuff, right, something always goes wrong. But guess what? They're going very, very well for us. And those projects will be in, adding a significant amount of cash flow and earnings. That's the first thing to remember about us. This is not stuff that we're thinking about, that's real backlog.

Second piece you should take away from today's presentation is, there is stuff that we're thinking about. There's a lot of stuff that we're thinking about both on the wind and the solar side. The fact that we got the PTC extension on January 2, that was a huge positive for us. We've got pipelines. I'm going to talk to you about the pipelines today, they're good pipelines. We're having real discussions with real customers on virtually all of the projects that you will see, that I will flash up here in a couple of minutes. And so when you think about Energy Resources from 2013 through -- 2012 through 2016, you've got to remember that it's the backlog but it's also this pipeline of projects, I'll give you some details on a couple of them, that are very real at this point. In the last 1.5 weeks, just on the solar side, we have signed or about to sign roughly 120 megawatts of long-term power purchase agreements. So that's real work, that's real positive. Michael Sullivan and the team, which many of you know, is doing a great job.

The third piece to remember from what we discuss today is, in 2016, Jim showed this number before, 86% of the gross margin from existing or new generation is locked in. That's 2016, right? You can just about point to any year, 2016, '17 or '18, because we have so many long-term contracted assets, we -- our gross margin is very heavily locked in. So again, 2016, already today, 86% locked in. That's a great position to be in. For some of you folks that like a little commodity exposure, we have some of that, too. We've got a great position in ERCOT. We're excited about our position in ERCOT. It's 2,800 megawatts in 2 plants, combined cycle generation. And we think there are some good things coming down that pipeline, which would be very positive to us in 2016. The numbers that you see today are essentially mark-to-market, like we do every time that we show you numbers. We take whatever the curve is, we don't make up our own curve, and we put the numbers in there. That's upside for us.

And the fifth piece, which is really not part of Energy -- well, not really, it's not part of Energy Resources, but I'm responsible for it, is our transmission business. Our transmission business -- yes, I know, everybody has a transmission business. Yes, I know everybody talks about the transmission business. But the fact is, it's only a very small number of folks that are actually making a difference in the transmission business, and one of them is us. Yet, we have a new utility in Texas, $800 million of capital, that's earning a nice return from regulated rate. There are more opportunities out there, more RFPs that we're participating in right now, and I'm very excited about that business. And I'm hopeful that the next time we get together, that will be a major piece of the discussion that we have with you.

Okay. What is Energy Resources? You've seen this in different presentations before. Over the last decade, Energy Resources has built up a nice set of skills. You see those here on the top left. And we've used those skills to deploy profitable capital over and over and over again. Jim showed you what earnings have been. Jim showed you what we've done for dividends and so on over the last decade. Energy Resources has done a nice job in deploying a heck of a lot of capital. We've done more construction than anybody else on the generation side. We have more long-term contracts than anybody else. We have more greenfield development than anybody else in the industry. We're taking those skills, and we keep using those skills in different parts of our business in order to create value. It's led to what you see over on the right, the largest renewable player in North America, again, 11,000 megawatts of contracted assets, and a strong, very nice portfolio in the Northeast in terms of Seabrook, and in ERCOT in terms of our fossil assets and our hedged wind assets.

That leads us today to a set of opportunities, a set of opportunities I've already discussed. The one that I haven't discussed is the long-term environmental upside from the position that we're in, and that will be beneficial. Now, I don't know whether that will be ultimately beneficial in '17 or '18 or '20 or so on, but it's really nice for this management team to spend its time on figuring out ways to create value instead of figuring out where the next scrubber is going to be, when is the EPA next rule going to come out, what are we going to do about it, we are putting in capital potentially for assets that we may have to retire. We are not having to worry about those types of issues at Energy Resources. And so we're spending time deploying profitable capital. You've seen this before. It's mostly a wind portfolio, 10,000 megawatts of wind. We reached 10,000 megawatts last December. It was a nice little celebration for the team. And -- I don't know -- where's Julie? I don't see Julie. Is the gift tonight a surprise? The gift tonight is not a surprise, okay. Then you'll be receiving a nice memento. I think -- I guess only if they come to dinner, is that right? Okay. So for those of you that are not coming to dinner, you receive nothing. But for those of you that are coming to dinner, there's a nice memento of our 10,000 megawatts that you'll be receiving. It was very nicely done. So very clean portfolio, very happy with the portfolio, functioning very well.

But the wind part of the business has been a significant driver from a bunch of fronts, right? Clearly, it's led us to the top of the class on the environmental front, on the clean front and so on. And -- but it's also led to really what you see here, and you'll see this slide over and over again. We have consciously been looking at the EBITDA mix of the Energy Resources portfolio. And really, what you see from 2009 through 2012 -- yes, I know natural gas prices have declined. Yes, I know that power prices have declined. And therefore, the contribution from the merchant assets should have gone down. But there are other actions that we've taken, which I'll talk about.

One of those actions is to make sure that we're building renewable assets, that those renewable assets have long-term contracts. And so that goes a long way into shifting that 49% to 59%, by 2014, simply the long-term contracted wind portfolio. So just the long-term contracted wind portfolio of Energy Resources will contribute about 40% of the overall EBITDA to the business. So it is primarily a wind portfolio. Because the solar business that we're growing and the solar assets that we have under construction, when you start seeing 2012 to 2014, that's not only being moved by the wind, a lot of the wind that we've put in place in 2012, it's also being moved by a lot of those -- a lot of that solar gross margin, that again, comes in, in 2013 and in 2014.

We're going to talk about our long-term contracted assets first, 11,000 megawatts, we've said that before. That includes roughly 1,600 megawatts of nuclear assets in our portfolio that many of you know, Point Beach and Duane Arnold in MISO. But this will continue to grow. We have roughly 775 megawatts of wind and 900 megawatts of solar in that backlog. Again, in the backlog, not the pipeline, that will continue to add to this portfolio over the next couple of years. And again, that is really what's shifting our EBITDA mix from 2012 to 2014.

For all those assets, if you take a look at the gross margin slide, which is really very meaningful on a gross margin basis, half of our gross margin comes from our MISO assets. So those are MISO wind assets, our MISO nuclear assets, our West assets, primarily wind assets, account for another 24% of that. So the bulk of our contracted assets, gross margin basis, 3/4 or so are in the MISO region.

A couple more minutes on our backlog. This is $3.6 billion. So when we talk about $3.6 billion, again, this is how the cash flow, for those of you that do a cash flow statement, this is how the cash will be spent from 2013 through 2016. The way the megawatts will come in is a little differently. You're going to have roughly 700 megawatts of that backlog portfolio come in, in 2013. It's roughly half wind, half solar, not exactly half wind, half solar. You have another roughly 700 megawatts come in, in 2014. That's a lot -- a little bit more wind than solar. And what you see in 2015 and '16 is just solar projects. There are no wind projects in this backlog in 2015 and 2016. So again, it's $6 billion of capital that will come in from '13 to '16, that will start generating cash flow and will start generating earnings. But it's only another roughly $3 billion or so of cash that we have to spend.

On a return basis, if you look at that bullet down on the bottom left, the returns are good. They're very good, high-single -- I'm sorry, high-double digit returns, high-teens on the wind portfolio and the solar portfolio. That's over the average life of the portfolio. Obviously, in the earlier years, it's a lot less than that because you've got a lot of capital in the business and your earnings aren't sufficient enough because you've got all the depreciation. But as it goes on over the life, we're looking at high-teen returns, which is in today's environment, a very, very nice way to deploy capital.

Let me spend a couple of minutes on Spain. Jim said earlier that we have removed the -- all of the earnings and cash flows from the Spain project. In the numbers that you will see here today, and Moray will talk more about our 2014 and 2016 or so, we've removed those. We've not removed the additional capital that we have to contribute to Spain. But frankly, that's not very significant at this point.

The irony of what's going on here is that it's really the tale of 2 projects, if you will. On the construction side, it's done phenomenally well. It's going to come in on schedule, under budget. It's going to be working very nicely. We've been testing it. A lot of the concerns we had at the very beginning of the project in terms of labor and timing and so on, we've done a great job, honestly, of managing those risks.

The risk on the financial side, so the other side of the project, which is the financial economics piece, is a risk that we believed was real back in 2009. And it's a risk that we wanted to limit. And I know I've spoken to many of you before about our capital structure on the Spain project, and we limited it by essentially going to something close to a nonrecourse basis on a construction loan, which indicated that if there was a significant change in the tariff, it's a little bit more technical than that, in the future, that would make the project uneconomic, that we would have the ability to put in the roughly $300 million at that point in total capital, and we would have no further obligations. And that was important to us to make sure that we did that. It was something that, back in 2009, 2010, we weren't exactly sure that we would be able to work out with the lenders, but we did. And that piece is proving to be pretty significant today.

I can't tell you, ultimately, what's going to happen to either this project or the other projects in Spain. I can tell you that in -- the latest revision to the tariff in February 2013 was totally, absolutely unexpected. There was a question asked at our last earnings call, last week of January, on the Spain project. I said, look, the project is going fine. Looking forward to completing the project and so on. I would have been -- I would have hedged a bit more, if I would have had -- or anybody in Spain on the development side would have had an inkling of what was coming down the pipe. But the previous changes to the tariff weren't great, but we were able to manage through that based on the economics of the project. But this latest February 2013 change is not one that we can just take and move on. The project is going to require a restructuring of the debt -- a restructuring of the debt that we are currently working on. But I can't tell you here today that, that will or will not be successful. So we're considering our options. And while we're doing that, we thought it would be best to remove all earnings and cash flows associated with this project in the numbers that you are -- that you have seen from Jim and you will see from Moray.

Our pipeline of opportunities are different than the backlog. The backlog is real long-term contracts that we have signed. The pipeline of opportunities is honestly pretty exciting at Energy Resources right now. I'm going to show you a little bit of detail, which I will, hopefully, will get a couple of chuckles from, at least from some of you in the audience when I show you that detail. But the PTC extension that we received on January 2 was significant for us. We had actually started in the third quarter of last year to contribute a little bit more capital into our pipeline efforts. And we were certainly hopeful. We were getting all of the appropriate indications from folks in DC that the PTC extension was real. So we had a bit of a head start. And we had planned and we are now executing on a plan to go visit all -- virtually, all of our customers in the wind space. And again, Mike and the team are in the process of doing that. And I guess my first comment is that I'm a bit surprised at the positive inbound calls and requests that we've been getting from our traditional wind customers. It's been very positive, which is good. We've signed 175 megawatts already for 2013. Again, I'll say more on -- when we have that, when we put that on the pipeline -- put the pipeline charts up. But we have the opportunity on the wind side, in my view, to deploy somewhere between $1 billion to $3 billion of capital, that's all capital that we would deploy if the economics are there: One, we have a long-term contract; and two, the project is accretive and profitable. But I feel pretty good about that actually at this point.

On the solar side, a lot of what's driving the interest on the solar side are the significant reductions in costs that we're seeing, specifically on the module side. And we're getting some inbound calls on that. But more importantly, really just in the last 1.5 weeks, as I said earlier, we've signed a couple of PPAs or in the midst of signing some PPAs. So that's important to us. It's a business that we like an awful lot, the solar business. And it's one that if we can do 300 megawatts from 2013 to 2016, that's roughly another $1 billion of profitable capital in the business.

What's driving the demand both on the wind and solar side? We've done a lot of work. Others have done a lot of work on a steady state basis, from now through 2020, to fill in really the RPSs that are out there, including the voluntary RPS. You probably got -- I'm sorry, have support for 3 to 5 gigawatts of wind and solar on an annual basis, again, through 2020. That's out there, that's real. I know there's a lot of discussions about changing administrations in states and push backs and so on. But I've got to tell you, we're seeing the inbound. So that number doesn't surprise me at all.

But the other thing that's really driving new investment, and really, new requests on -- for both of these, is what's going on in the economics. And a very simple chart out here, levelized PPA price over the term of the contract in dollar per megawatt-hours. Most of this information comes from a public source. 2012 is really a typical project for us in the Midwest. And you can look at where we were or where the industry was in 2009 and where the industry was in 2011, and again, our expectations for 2012, which you can probably copy, you have at least the range of what they would be going forward. This is driving demand, right? If you can sign a 20-year agreement at $35 a megawatt-hour for wind, you're going to do that. It's likely to be the cheapest source of power that you can get. That's what's driving it. Last year, I'd say at least 40% of our portfolio of the new projects that we signed were done [indiscernible] basis. It was economic for the utilities to sign long-term agreements with us. We believe this is going to continue at least for a while. There's also been some margin reductions from the vendors that have clearly helped out. But the biggest piece is just -- I mean, it's very simple, right? If you have a taller tower and you have longer blades, you're going to capture more wind. And the amount of wind capture has been significant. We are now seeing real projects. This isn't like we did it in the lab at home-type of thing. Right? We're seeing real projects with capacity factors in the high 50s, which was unheard of just a couple of years ago. That's significant. There is one project that we're looking at, which may have been done from a model at home, that has the capacity factor over 60%. So we're going to look at that one a little bit closer. But a lot of what we're seeing is real.

On the solar side, the same thing is going on in the solar side. Costs are being driven down significantly. Here, you have a predominately on-peak resource as opposed to the wind side, which can be off-peak a little bit -- on-peak also, but a lot off-peak. This is an on-peak resource and you're seeing what's going on with solar cost. These are significant reductions. For those of you that follow this space closely, you know that RFPs out in California for 20-megawatt projects, that those were awarded in the last week or so for 2014, Mike, 2014 projects? And I will not be at all surprised if you will see a 7 [ph] handle on those solar projects, which is great for the California utilities, great for the California consumers and equally great for us.

Our wind pipeline. So when I said a chuckle, I meant project A, B, C, you didn't really expect me to tell you where these were, except that we did give you the regions. But let me spend -- I want to spend just a couple of minutes on this. This is in addition to the 175 megawatts that we already have in the bank, if you will, for 2013. You see Project A, a MISO project, 150 megawatts. I will be very, very surprised if a PPA for that is not signed by the end of this month. So it's another 150 megawatts. That could be a late 2013, early 2014 project. You see that third project, Project C. We know that there's an RFP coming out on that project in the next couple of weeks. That's significant. I think we're in a pretty darn good position on that project. Project F, which is up to a maximum of 100 megawatts. We are shortlisted on Project F right now. And as I tell Mike and the team, a short list is -- I won't put the short list in the forecast, but a short list is just as good of a win, and if they don't get it, it's a loss. And that's a really bad day for the team around Juno Beach. So that's 3 examples.

For every single one of these projects on here, except one, I will tell you the one so you don't have to guess, it's Project L, we are talking to at least one real customer about the project. We understand the RFP process and we think we're in a great position. That does not mean that we're going to get all 1,900 megawatts. What it does mean is this is a high-quality, near-term pipeline of opportunities that really are coming to us because of the PTC extension on January 2. So I feel great about that wind pipeline.

Very similar, Project A through H, on the solar side. For those of you that remember our acquisition of the Blythe solar asset, we bought that asset out of bankruptcy last year. That's that 250 megawatts that you see up top. That project has been submitted to 2 RFPs at this point. My hope is that -- and it's a goal of the team that, that project gets a PPA this year. It's a great project, it's in a great location, it's a great price. So I'm very hopeful -- again, that's not necessarily -- well, that's not in our numbers, but I'm hoping that, that gets picked up. Now when I said in the last 1.5 weeks that we had signed a couple of PPAs and some we're close, that's Project B, Project C and Project H. It's 120 megawatts that we feel really good about. Project H is a set of Puerto Rico projects that we've been looking at for a while. The longer we look at that region, the more we like it, primarily because it's very similar in terms of economics to Hawaii. In other words, renewables are economic in some of these island states, if you will. And so we feel pretty good about that project.

So will we get to our 300-or-so megawatts? I don't know. I'm certainly hopeful. And we'll do everything that we can to get there. But having picked up 120 megawatts very recently, in the last 1.5 weeks, makes me very hopeful that we can get beyond 300 megawatts.

I'll spend a few minutes on distributed solar. It's a piece of the business that we've been spending a little bit more time on, really, since the fall. If you look at the pie chart on the left, there's a lot of capacity that's really going into the distributed solar part, not the utility scale solar part of the equation. That's expected to continue. We spent some time looking at the C&I space. It's very similar to our utility-scale space. So it's not 20 megawatts but it might be 1.5 megawatts, it might be 2 megawatts, 3 megawatts, 4 megawatts, 7 megawatts. I mean, these are smaller-type projects.

The business, if you will, feels pretty good to us. It's being driven, again, by the cost. I will tell you, we've also done a little bit of work on the residential side to understand that piece of the business. And at this point, I'm very skeptical that, that business has legs. And if it has legs, it's probably not our legs. But the C&I space looks interesting to us. It's something that we'll spend a little bit more time on and see if it makes sense for us to enter into it in a meaningful way.

The merchant side of the business, you saw the left part of the chart before. I said I would talk about this. This is a conscious effort. So we showed you EBITDA before, that the EBITDA on the merchant side of the business is really decreasing. This is the megawatts on the merchant side of the business. There's several things going on here. The first thing that's going on here is our attempt to contract previously merchant assets, and we've done that. The best example of that is our Marcus Hook contract from a couple of years ago. But we're also selling assets, selling merchant assets when we believe the value is greater than to somebody else, and the hold value, the rough [ph] value that we believe our shareholders are attributing to it. So we've got both of those pieces going on. We're looking at all of our assets. The second bullet up there says we've been looking intently at our Maine Fossil position, 800 megawatts, up in Maine. We're evaluating the potential sale. Haven't made any decisions at that point, but that's another case where you've got 800 megawatts of assets, that are merchant, that somebody else may ascribe a higher value to those assets than we believe they demand on our balance sheet. So we're going to continue to work on this side. So it's not just -- again, it's not just the volume -- I'm sorry, it's not just a rate issue. It's not the fact -- solely the fact that power and gas prices have been coming down and we've been able to reduce our merchant EBITDA. It's also a volume issue. We are looking at the volume and trying to decrease that volume. Again, there are clearly assets that we like on the merchant space and like a lot. Seabrook we like, we like a lot. It contributes significantly to the earnings of Energy Resources, base load, as you know, in NEPOOL, the plant runs great. It did have a little issue, a derate issue last year, but that was a little blip for us. It really has run wonderfully. And with a 20-year license extension that's still in process, it would run wonderfully through at least 2050.

So we like the asset. I wasn't around when we bought that asset, but the analysis that we did back when, 2002, I guess, that analysis was done around the $3.50 to $4 natural gas environment. And so the plant does very nicely in that environment. Obviously, it's not immune from what's happened to power prices in general, NEPOOL prices specifically. You can see that in the chart over on the right. But at even half of the adjusted EBITDA that it had in 2010, it's still a very nice profitable asset for us. We love that position.

The other position we really like, talked about it a little bit before, is our combined-cycle assets in the ERCOT region. There's been a lot of talk, and certainly a lot written by many of you out there about the recovery of power prices, and regions, and when will that happen, and a lot of guessing and so on. I'd venture to say that the recovery has already -- is already taking place in ERCOT. You see where spark spreads were just a couple of years ago and where they're heading. There are some good things happening in the ERCOT region. There are some not so good things happening in the ERCOT region. There is obviously speculation on what the market redesign, if there is a redesign, will look like, whether it's something along the lines of Professor Hogans' [ph] analysis or it's something along the lines of a capacity market in ERCOT. We are obviously very supportive of a capacity market for a lot of different reasons. But we do believe that long-term certainty is in the best interests of regulators and consumers in Texas, and we will continue to push forward for that. The position that they're in, with a very low reserve margin in 2016, means that they're going to have to find -- in my view, they are going to have to find a mechanism other than scarcity pricing in order to fix that equation. And we believe that any mechanism that they come up with will be positive, very positive for assets in Texas. So it's a good position, it's a good region, good position and we like those assets a lot.

Let's talk about our other businesses for just a couple of minutes. I think we've talked about this before. If you're going to be in the business of owning merchant assets, then you have to understand how to effectively and efficiently buy the fuel, effectively and efficiently sell the power, effectively and efficiently move that power you generate from wherever you generate it to wherever it needs to be. In other words, you have to understand how to manage the basis. And you have to understand how to reverse all of that when it makes sense for the asset, right? So those are skills that if you have a merchant generation portfolio, you need to have to run that asset effectively. You have to have those skills. We have those skills. Once you have those skills, you have to get better and better at those skills in order to optimize the assets. And once you've done that, there's other opportunities for you to deploy those skills at relatively little additional capital, little additional risk, but a significant contribution to earnings -- or EBITDA and earnings as you see in this chart. So it's not something that we focus a ton of time on, but we do have the skills. It does add meaningfully to cash flows, and we think we're pretty good at it. One question that I do want to get out of the way is the gross margin. We've talked about the gross margin of these businesses before. The gross margin of these businesses, from 2012 to 2016, is relatively flat. So when we talk about where we're getting earnings and where we're getting growth and so on, it's not from this business, but we still like it because, again, it adds meaningfully to earnings and cash flows without additional risks.

Gas infrastructure business. A number of you have asked about the gas infrastructure business and want a lot more detail on the gas infrastructure business. And some of you will be disappointed by these slides, others will be very happy with the slides. This is the -- and you've seen these slides before and we actually do mean it when we say -- when we've told you the 3 or 4 things in the past. It's not a significant piece of the business, but it is a critical thing for us to understand. So what we've said before is, we got into the business because it's critical from the Energy Resources point of view and it's critical from the Florida Power and Light point of view. That continues to be the case for us. We said that when we got into it, we wanted to make sure that we got into this business on the well production side in different areas, and we're doing that. We said we wanted to learn what was going on with the technology. We're doing that. It's very interesting what's going on with the technology. There is a reason why gas continues to flounder in the $3.50 to $4 range. And what we did find out, as we were getting a lot of intelligence in that business is, wow, the returns are pretty good and we like the way the returns and the cash flows come in to the business. It's roughly 12% to 15% of unlevered returns. But when you start looking at the economics, the fact that you get your money back in 4 to 5 years is very nice. It's very nice from our tax position, right? So when you've got significant amount of earnings and cash flows on the front end of any investment, it actually helps with the use of the tax benefit that you've generated. We continue to partner up with folks, with operators that we trust, that we do a lot of work with. And our investments are incrementally very small. There are no long-term commitments in this portfolio. If we decided in the next year, we decided in the next 6 months that we wanted to really -- that we weren't getting anymore returns, we weren't getting anything more out of the business, it's something that we could scale back. But these are small incremental capital decisions that we make that we can cut off. But so far, it's proved to be a pretty good learning tool from both sides of the business. And we've said this number before. I know Moray has talked about it several times. It's not a perfect analysis by any ways, but when you look at what we've done, right, how we have hedged our portfolio, you go back 4 years ago and you look at how we hedged our portfolio 2 years out and 3 years out -- or you go back 3 years ago and you look at how we hedged our portfolio 3 years out and 2 years out. In other words, go back and figure out how much you're hedging longer term, and it's very clear to us, we've talked about this before, that we protected roughly $1 billion in gross margin, because we are much more hedged over the last 2 years on a go-forward basis than we were 4 years ago. It's very easy for us, it's very easy for us to see. So that's been a great pickup, from a shareholder perspective, for us to be in the business.

The next slide really talks about what I've already mentioned. This is essentially the typical income and cash flow profile for a typical well. And the CapEx for a typical well, it could be anywhere from $3 million to $8 million, really depending on where you're at. But if you look at the yellow line for just a second, which is EBITDA, so in year 1, for $1 of capital investment, you should expect roughly $0.30 EBITDA; year 2, roughly $0.20 of EBITDA; and then the adjusted EBIT works the same way. So once we give you some indication of what our expectations are in the business, it should help you model within some range what the earnings from the business are. From now, from 2013 through 2016, our expectations are to invest roughly, on a net basis, $700 million of additional capital into the business. EBITDA should jump from roughly $187 million in 2012 to somewhere around $350 million to $400 million in 2016. Again, it's not only a nice business from what we're learning about the business, but it's also a nice business in terms of how that cash flow and those earnings are coming in, and our ability to use more of those tax credits in the earlier part of the period.

Great, simple slide, a look ahead. Let's talk about, really summarize everything I've talked about for Energy Resources. When you look at the green bars here, the green bars are the baseline CapEx. So that $3.6 billion, if you will, of baseline CapEx is in the green bars, that'll match the profile that you saw before. The green bars also have our maintenance capital and the gas infrastructure capital that we just mentioned. The yellow bars are the incremental capital. So the additional wind that we think we can actually get in, based on our pipeline from 2013 through 2016. All of that wind that we think we can get in are in 2013 and 2014, and the incremental solar in all of those years, but primarily in 2015 and 2016.

So if we -- not if we make that our plan, that is my plan, that's roughly $7.2 billion of growth capital through 2016. So great business, a lot to get done, but I'm thrilled actually to be here running it.

What does that mean for earnings? Earnings last year, Energy Resources, $693 million. Focus on the third and fourth little bars there. That's the wind and the solar earnings, right? So that's new wind and solar. It's also the wind that we put in, in 2012 that will have significant earnings impacts moving forward. That continues to be the growth of Energy Resources, is new wind, new solar projects under long-term contracts. It's important to keep repeating that.

Over on the red bar, we've got the PTC roll-off net of some accretion that we have in our contracts, mostly on the wind side, actually, I think some on the solar side, too, but mostly on the wind side. And then the -- what I mentioned in gas infrastructure, all other, that's in that net $30 million to $50 million.

When you go over to that hashed green line, those are the incremental. That's -- so that's incremental, primarily incremental wind and incremental solar, that gets us up to that range that we're showing for 2016. What does that lead to? Jim showed this slide, if we're able to meet all of those plans, including that incremental capital, that continues to shift the EBITDA mix in this -- in the company, again, something that we are consciously spending time on.

So the summary slide, I won't cover any of these points because I've got more -- I got additional points for you. The things I talked in the front, right? So before I go to the transmission slide, what's important to remember? What's important to remember is we have $6 billion of capital that will be COD from now through 2016. That's going to drive roughly $900 million of EBITDA by 2015. That is significant. We are getting no benefit today of those cash flows and no benefit of those earnings. The only benefit we're getting is a negative benefit because it's a little bit of stress on our balance sheet, right, as we're adding capital, and we don't have that cash flow and earnings. That's the first thing to remember. The second thing is there's strong pipeline of new projects, both on the wind and the solar side. Demand is out there, and we're going to do the best we can to pick up as much on a long-term contracted basis as we can. The third thing to remember is, in 2016, we're 86% locked in on a gross margin basis. That is a great place to be. And the fourth thing to remember is we do like our merchant position in Texas. We do like Seabrook, probably not an expectation that those assets should be going anywhere. But there's likely -- I'm very hopeful that there's some upside in our ERCOT position.

Spend 7 minutes and 53 seconds on transmission. This is -- of all the things I -- and I'm -- I get quite excitable about some items, but I'm pretty excited about the transmission business. We put together a great team. I'm seeing a lot of progress. I'm seeing a lot of work. I'm seeing how we're bidding into RFPs. I'm sitting -- I'm seeing how we're creating joint ventures and partnerships with local folks. I'm seeing that we are making a difference on the transmission side, and I'm very hopeful that this is a business that's going to meaningfully add to earnings on a go-forward basis. But the only thing that we have -- only thing we have in our numbers right now for this business is the Lone Star Transmission assets, which should be COD here very soon, $800 million of capital. So very nice return for regulated assets in Texas. This is a springboard for us for other opportunities in Texas that we hope will come our way. We just don't hope they'll come our way, we're working very hard to make sure that they come our way. But it's a great position to be in, in Texas, and this will help us going forward.

A little map really showing where I see the opportunities today. Those, Alberta, Hawaii, New England, New York, Ontario, those aren't things that we just decided to put on there. We are actively pursuing projects in each one of these areas. Some cases, we've already responded to the proposals, and some cases, we've gotten local partners. There are other areas that we have not put on the list that are also starting to look attractive. But all of these that you see on there, we expect some movement in 2014. We actually expect some movement in these -- in a couple of these projects by the second quarter of this year, so again, hopefully, a piece of the business that we'll spend more time on. But even today, just the Lone Star Transmission on its own, is adding meaningfully to cash flows and to earnings in 2014.

Okay. That's all I have. We'll come back for Q&A later. Thank you.

Moray P. Dewhurst

Thank you, Armando. So far, we have established one thing, which is the best thing that we know how to do in terms of positively affecting share price, is to serve cakes and coffee. The break seems to be the only period that's had a positive impact through this afternoon, so we'll see if we can do a little better than that. You heard from Jim a little bit about vision, overall strategy, how we're trying to build the company, and hopefully, you took away a few messages from that. One is we are absolutely committed to finding ways to enhance value over the long haul. We are clearly committed to finding ways to grow the company, but to do so in a profitable value-enhancing fashion. So we're not about growth for growth's sake. We believe that we have identified very significant incremental opportunities in both principal businesses, over and above the things that we have been talking about today.

From Eric, you heard a little bit of an update on Florida Power & Light and a little bit about some of those incremental opportunities within that business. If there's 1 key thing that you should have taken away from that session, it is the very, very special nature of the opportunity that's in front of us associated with that 4-year rate agreement. We see that. We recognize it, and we are absolutely committed to doing the best to take advantage of it to deliver incremental long-term value, both to shareholders and to customers. The second message you should have taken away from that was a critical part of that will be a very, very strong focus on productivity, things that we can do that could make the fundamental cost structure of that business even better than it already is. And we have a lot of good ideas on that. We're not quite at the implementation stage on most of those ideas yet, but we're not far from it.

From Armando, you had a similar update on Energy Resources, and there's a couple of messages you should have taken away from that. First of all, we continue to have a very strong backlog of committed, contracted projects that we're moving along on, that will power our growth not merely through 2014, which we previously discussed with you, but logically into 2015 and 2016. And secondly, that over and above that, we have identified a good portfolio of incremental capital deployment opportunities that will largely serve to enhance our potential growth profile in '15, '16 and beyond. There is more, of course, but those are some of the key messages.

So that means that at this point, there really isn't a lot more for me to say. And that's true for 2 reasons. First of all, what I'm about to say, I've been saying for the past year anyway, but obviously, nobody was listening. We're going to try and put some numbers around it, but the fundamental conceptual points are ones that I've made over and over again to many of the people in this room. Second reason that there isn't much left for me to say is that I noticed what happened when we opened the doors. And it kind of reminded me of what it's like in my house, at home, at Christmas, when you throw open the doors and the kids rush in to the Christmas tree. So I noticed that you all rushed in, and you moved straight to that final section of the presentation. You're flipping through. So basically, you've already seen all the slides there, so you know exactly what I'm going to say. So there's not really that much left for me to say. But let's see if we can do a little bit of extra color around that.

First of all, I just want to start by reminding everybody, you've seen these elements as we've gone through the day, but these are fundamentally our growth driver opportunities. I think it's a big and impressive list. I'm not sure there are too many other companies in our industry that have both the depth and extent of opportunities that we do, but I'll leave that for you to decide.

Florida Power & Light, We have the base rate increases that are already built into the rate agreement. So over the 4-year period, just as a reminder, that's approximately $1 billion of base revenue increases. Now the customers are getting their side of that bargain through the fuel savings associated with the investments in modernizations. A large portion of the $1 billion of increase is really the shareholders' portion of that deal. That's the return on the capital that we've been deploying for the customers' benefit. But that's a core driver, and it's relatively levelly measured over the period of the 4-year rate agreement, because of the nature of when those plants come into service.

Second, we have service territory volume growth. Now I just want to remind you that in contrast to where we had been under the past settlement agreement, we're back to, I would call it, the more normal world of utility management, where service territory volume growth matters. In the short term -- excuse me, weather [ph] matters, too. That wasn't the case in the past because we had the flexibility and the requirement to amortize a large amount of surplus depreciation. So we were pretty much going to hit the 11% ROE in any case. Now we're back in the more normal world, so we care what our long-term volume growth expectations are. And we continue to believe that while Florida may not grow at the further grades [ph] of the middle of the last decade, it will grow faster than the national average. So that should be a good factor for FPL.

Eric talked to you about wholesale and service territory expansion. Those are really 2 sides of the same coin. There are other folks in this state, other potential customers for whom we can deliver, frankly, a better value proposition than the service provider they have today. And we can go after those in 1 of 2 ways, either at the retail level through actually expanding the service territory or by supplying them wholesale. We started to do some of that, I think there's more of that. That's a fairly long-term endeavor. But the fact that we've already made significant progress makes me very optimistic about more to be done then.

Next is this whole concept of productivity-enabled capital deployment within FPL. And I want to really stress that the critical issue going forward for FPL is going to be our success in creating productivity headroom. That is our [ph] productivity can flow to the shareholder in a variety of different ways. It can either be directly to the bottom line, helping us drive higher up in our allowed ROE band, it can create the headroom for incremental capital deployment that can, in the long term, do other good things for customers or potentially, it can help us as we move into contemplating where we might be in 2017. That seems a long way off right now, but we know how rapidly time goes by, especially those of us who've reached a certain age threshold. Then we have 3 others areas, which we're clearly labeling potential. There's a lot of work to be done to make sure that we convert them from potential to reality, but they could be adding meaningfully to the opportunity set for FPL. Those are the peaker uprates that Eric mentioned; the pipeline investment, which you've all been very interested in; and potential incremental solar. So that's the suite of opportunities at FPL.

On the Energy Resources side, we the have existing renewables backlog. That's the 600 megawatts of Canadian wind, 900 megawatts of solar, 175 megawatts of U.S. wind. We announced 100 megawatts last year. We haven't formally announced, until today, the incremental 75 megawatts, but we've already got 175 megawatts for this year. So that's the backlog. Now that is offset by 2 major things: the natural roll-off of the PTCs, which hasn't changed. It's what we've been sharing with you for some time. You can kind of go back 10 years and see what we've put into service. And then Spain. And as Armando said, we are stripping out all future earnings and cash flow contributions, at least for the moment, from our Spanish solar project, while we go through the restructuring process and negotiating and thinking about exactly what we're going to do.

And in addition, we now have another very special opportunity in front of us, which is the opportunity to build a very high-quality, meaningfully profitable U.S. wind portfolio, effectively for 2013, 2014, so 500 to 1,500 megawatts with wind there. A little incremental opportunity on the solar front. I've been saying for some time, and I think we might have one more big solar project, but much of our effort was also going into a series of small-scale projects, which collectively could add up to something meaningful. And then not directly, resources is actually separate business, but the transmission expansion opportunities that Armando has talked about.

The natural impact on growth from the introduction to service of Lone Star Transmission is built into our expectations for the next few years. The incremental new development opportunities are longer-term things that we're working on that realistically will drive earnings in 2017, 2018 and beyond. But it's important to recognize what they are. So that's the suite of growth drivers.

That's fundamentally what underpins the earnings expectation. So let's start with 2016. Let's focus on where we're headed. You guys have been asking for us to get beyond 2014. Many of you have been intimating that perhaps both [ph] was going to, I'll exaggerate just a little bit here, fall of a cliff at the end of '14, well it really doesn't. So 5% to 7% off the '12 base. Now I want to stress again what Jim said, that the baseline of projects that we talked about, the backlog at Energy Resources and the baseline of activities within FPL, support the 5% end of that range. And then that incremental capital deployment on both sides of the business will get us to 7%. So that's the range we have. The 5% shouldn't, by the way, come as any surprise. If you think about the growth drivers that are built into the backlog at FPL, obviously, over the 4-year rate period, the modernizations coming in, '13, '14 and '16, it's pretty clear that their impact on growth doesn't just cease in 2014. In fact, 2 of those have their principal drive -- impact on growth beyond '14.

Similarly, on Energy Resources, the existing backlog of Canadian wind and solar, much of which doesn't even come into service until 2014, very clearly, is going to have momentum to drive growth beyond 2014. So it should have been obvious, just in thinking about the fundamentals of it, that the natural momentum of the existing backlog carries us for growth well beyond '14. So baseline gets us to 5% through 2016, and that incremental gives us the potential to get up to the 7% level. And we are very committed to being at the high end of that range if we possibly can. So that's our outlook, '16.

Now let's look at how it steps out between here and there. Let me start with '13. There are really no changes to what we talked about in our expectations for '13, still early in the year. But we feel pretty good about where we are right now, no great surprises. I do want to touch on one point here, which is expectations for FPL. Although there's still further to go in our thinking about how much the productivity opportunity is, how much we want to take of that productivity opportunity in terms of improvement in the bottom line, growth profile, how we will want to allocate the $400 million of surplus depreciation and fossil dismantlement flexibility that we have over the period. Some of those are moving pieces, and they do give us some ability to shape the profile of earnings growth through the period for FPL. Within that, however, we're now far enough along that we feel pretty comfortable that we can target an 11.25% ROE for this year. And obviously, if we're going to be targeting that, we hope to be able to sustain that over the subsequent years, so $4.70 to $5 for 2013.

We included a range for '15. We haven't looked as closely at '15 as we have at the other years, but we included it because we want to make it clear that there's not some odd discontinuity in the growth path here. So there's no massive hockey stick in '16 or anything like that.

So now let me spend a few words -- few moments on 2014. Again, just to reiterate, 2014 assumes no contribution from Spain, so that's $0.07 or $0.08 that was previously in there that we've taken out. We'll see where we come out on renegotiating, restructuring. Hopefully, we'll be able to do better than that, but that's where we are right now. I think that's an appropriate expectation.

The other thing that's sort of changed for us really is driven by the incremental growth, and that is we have made some allowance within our range for issuing incremental equity in 2014 to support the incremental capital, that we've been talking about as we've gone through the afternoon. So as Jim mentioned, many of you had pushed back on the breadth of the prior range that we had out for 2014, and so we did want to tighten it a little bit. And as we got to thinking about how we tightened it, it became increasingly clear to us that, as optimistic as we are now on that incremental capital deployment, we feel it's highly likely that we will be in the fortunate position of issuing incremental equity in 2014. I'm going talk about the impact on the balance sheet and ratings in a moment.

But since we feel confident that we are going to be in that position, because that capital will be supporting good, profitable projects that drive growth for '15, '16 and beyond, as we added up the numbers, we found it's going to be tough, I think, not saying it couldn't happen, but it's going to be a little tough for us to get much above the $5.45. So rather than just narrow the range, bottom and top, we pulled down the top end of the range. As Jim said also, we are, as a team, very, very committed to making sure that we do everything we possibly can to see that we are in the upper half of that range. But as always, we want to be straight with you about what we see at any given point in time, and that's what we see. So that's what's there.

Just as a reminder though, the reason that we, hopefully, will be in the position of issuing incremental equity in 2014 is to support the CapEx that we will be deploying in that period, which will not start to drive earnings and cash flow until after that. So if you think about it, a lot of that will be associated with the degree of success we have with the 2013, 2014 U.S. wind program, much of the CapEx for which will be deployed late this year and well on into 2014. So that's when we need the equity support to maintain our credit strength and our balance sheet. But obviously, the contribution from earnings cash flow won't start until later in '14 and fundamentally, well on into '15. And the same is even more true, although on a smaller scale, on solar because it's the longer development cycle. So that's what's going on with the mechanics of the 2014 numbers.

Now I should talk a little bit about the balance sheet and the ratings. This is essentially a chart that Jim showed you. As Jim also indicated, historically, we've been a little reluctant to talk too much explicitly about target metrics. And the reason for that is there are a lot of different metrics, there are a lot of different ways of calculating credit position, and we balance a whole series of views of metrics as we think about where we want to be. But we did feel it's very important that you recognize that we are firmly committed to the path of improvement that we should naturally be on. So what do I mean by that? We have told you repeatedly that we have been in a position where we have been stressing the balance sheet, particularly in 2012, the peak of the capital spending wave, but with the projects on which we were spending not yet contributing to cash flow and earnings.

Now we have repeatedly said that our credit metrics don't actually -- in 2012, don't actually support the rating. We were okay with that because it was a temporary dynamic phenomenon, and we could see, looking out into the future, that as the earnings and cash flow from those investments started to come in, the CapEx would come down, cash flow would improve, the metrics would naturally improve. But we are committed to making sure that we see that pattern of improvement. And so as a guide, we've used here the S&P methodology. I want to be clear. We've applied our view of the S&P methodology to our numbers, so this is not S&P's view. They're going to take their own view. But on that basis, we want to be at roughly a 48% adjusted debt-to-total cap and an FFO-to-debt of at least 25%. So Jim told you, we've been all telling you for a long, long time, that our balance sheet, we view as a competitive strength, and we really do mean that. So it's important that we maintain the progress that we are on the track that we're on.

So with that, a few words on how we're going to finance all of this, and the short answer here is there's not much difference in the financing strategy than we have had in the past. So at FPL, we fundamentally maintain a fairly consistent regulatory capital structure, about roughly on a regulatory basis 60% equity, 40% debt. What we're investing in at FPL are fundamentally long-lived assets. So we have historically tried hard, as long as the market was receptive, to finance that with a long-term capital structure.

Over the last decade, as some of you have been kind enough to point out perhaps a little too frequently, that's led us to do one 30-year post-mortgage bond issue after another. We still like to do that, but we recognize that there are -- markets have their realities, so going forward, we will continue to push for long-dated maturities, but we'll be sensitive to where market conditions actually are.

Capital holdings, the financing strategy is a little more complicated but it starts with a very simple principle. One of the reasons that we have the balance sheet is so that we can optimize the economics of our new projects through the construction phase. So typically, we will build everything on balance sheet using our credit to support that period where we're spending but have no cash flow coming in, because we can get a better ultimate result. We can then optimize the project for the natural economics of construction. We can work with our vendors to get the most out of the deals that we have with them. That may not sound like a lot to you but when you're in the position of having to adjust your construction approach and schedule to fit what your financing will give you, that really has a significant impact on the long-term value of these projects. So that's important for us. So we build stuff on balance sheet, and then by the way, once we are up and running, we now have a project where a lot of the risk has been taken off the table. So when we go to the financing markets, in the form of project debt and/or tax equity, we can get a better deal at that point in time.

So the next element of the strategy is, where we can, to support incremental renewals growth with a mixture of project debt and tax equities, the differential membership structures, and the exact balance depends upon our view of our long-term tax situation at any given point in time. We move back and forth. But it's important to recognize that we've done a fair number of these deals now, to the point that, in coming years, over 50% of the PTCs that we generate are allocated to others under those tax equity deals. So we continue to maintain that balance, but we will push to do project debt and tax equity. And one of the reasons that we do that is we feel it forces us to submit to the market test, so that, that, in the long run, makes sure that we develop and build better quality projects.

Then the residual is a mixture of instruments that are fundamentally designed to support a target set of metrics looking out over several years. One key piece of that, that we've been very successful with over a number of years is these things we call hybrids, these deeply subordinated junior debentures with a deferral provision, which have a quasi-equity characteristic to them, and we think there is a logical role for a slice of that in the capital structure. We've been very successful with that.

I think we've probably got about much as we need of that in the capital structure, at least for the moment, so going out a few years there maybe some more opportunities. And then the residual is really a mixture of how much incremental equity we need beyond what is provided by retained earnings to support those credit metrics, with Capital Holdings debentures typically at a relatively short date of maturity, just to balance the whole thing out. So that's the way we've approached it.

So as a consequence, that 0 to $1.5 billion of incremental equity is being driven by the incremental capital deployment opportunities that the 2 guys talked to you about, and how much we do, will be a function of the amount of incremental capital deployment and the target metrics that we would seek to achieve. So that's where we're going with that.

Now underpinning all of that, we talked a little bit about earnings, underpinning all of that is the cash flow profile. And the cash flow profile is fundamentally strong and improving. Just a quick note on the chart here, this is '13, '14 and '16. There's a gap in there. There's no '15 number, just so everybody's aware.

Operating cash flow, strong and will be growing strongly, as all these new projects start to contribute and as the growth at FPL rolls in through the period of the rate agreement. Capital expenditures. The ranges here correspond to the ranges between the baseline CapEx profiles, that Eric and Armando shared with you on the 2 core businesses, and the baseline plus all the incremental. So somewhere between, in aggregate, including maintenance CapEx, somewhere between $15 billion and $23 billion over this period.

We can't say exactly where we're going to be in that range at this point. We're going to be working hard to see that we are towards the upper end of that range, as long as those are supporting high-quality investments, high-quality projects. But we'll see where we are.

Other investing activities, there's a small amount in here for CITC in the first couple of years, but other than that, it's a small number. So that gives us a range of free cash flow before dividends.

Now I'm going to focus for a moment on the 2014 range. So the number there, which some of you will remember, which is $1.5 billion, that corresponds essentially to the baseline view, just building out the backlog of projects at Energy Resources and the natural progression that we could see a year ago in the growth of the FPL business, assuming we had a satisfactory outcome to the rate case. That $1.5 billion hadn't changed, it's what we've been talking about before. So if we did no incremental capital deployment beyond what we had previously been talking about, we will be basically where we told you we were going to be in 2014, absent the issue in Spain.

We hope we are not going to be there. We hope we're going to be much lower than that. And we hope that we're going to be in a position of, as I said, issuing incremental equity in 2014, because that will mean that we have been successful in finding high-quality projects to support our capital deployment expectations.

As we look out to 2016, even assuming that we're at the high end of that incremental capital deployment, we have now such a large cash generating machine that it's going to be difficult to see us adding sufficient, at this stage, and again I hope I'm wrong in the future, but it's difficult to see us, at this stage, adding enough -- beyond what we've already outlined, to cause us to be free cash flow negative in the 2016 period. But again, the range here corresponds to the difference between that baseline, which is just based on the backlog at Energy Resources and the natural growth at FPL, and on the low end, the high end of our incremental capital deployment. So that's the actual profile.

Now in the dynamics of cash flow, free cash flow, the most critical thing, actually for both our businesses, is really the capital spending in the short term. Because at both businesses, we are fundamentally investing in things that have huge capital commitments upfront and then go for a long, long period of time, changing the CapEx profile, changes the free cash flow profile tremendously. And so I'm trying to illustrate that by focusing on 2014, which we've done here. They're still totally hypothetical. Let me be clear, we are not planning to look like this in 2014, but I want to show you the underlying dynamics of what's going on here.

So I took it out to 2014, because the things that we've already committed to and are moving along, getting into the ground, again, that drive us out to 2014 anyway. But I said to myself, "What would happen if we kind of dialed back the clock in 2014?" So beyond that, we had no real growth CapEx. So we structured it so that, that operating cash flow level in 2014 could be sustained for a long, long period of time. We could debate whether that's 10 years or 20 years, this is illustrative, all right?

So then the next thing is, well, what level of ongoing CapEx would be required to sustain that level of operating cash flow? So we pulled all the growth CapEx out and we leave in sufficient maintenance CapEx, that roughly, in real terms, we should be able to sustain that. So we reduced the growth CapEx, that brings us down to $2 billion, $2.5 billion of ongoing maintenance CapEx. And by the way, of that, maybe $400 million, $500 million is at Energy Resources, the rest is at FPL. So a couple of billion at FPL is still in excess of depreciation. So it still means FPL rate base is growing over the long time, but that's consistent with the notion of maintaining the operating cash flow constant in real terms. We removed the little factor on CITC. That suggests, that in a steady-state basis in 2014, we have a machine that's capable of generating somewhere around $3.5 billion of cash flow year in, year out and sustaining that for a long period of time. I'm just expressing that as a percentage of market cap, just to give it some scale. That's 11% to 12% of market cap.

So I'm not going to take any credit for the analysis because it was actually suggested by 1 or 2 people in this audience, but I think it's an interesting way of looking at this thing. So it's very important to recognize that the short-term pattern, this is true also for the earnings, the pattern of our earnings and cash flow is very much affected by how much we dial up or back the CapEx. And in effect, one way of thinking about what we've done for 2014, is we've said we're willing to sacrifice a little bit of the top end of '14 in order to ensure that we have the resources to commit to sustaining good, long-term growth much beyond '14. You may like that, you may not like that, but it is important you understand what we've done.

All right, let me change gears. I'm still working on cash flow here but I want to talk about a few, I'll call them, issues. I don't want to really call them risks but some of you might see them as risks. One of the pushbacks that we have received from time to time, not uniformly, but some people have been concerned about it, is so-called quality of earnings. And in particular, the way it usually comes across is that we have all these things called PTCs or CITC or -- excuse me, ITC, but noncash contributions to earnings. And that somehow that means the real [ph] earnings are, in some sense, inferior to others.

Well, I can't argue that if we have a piece of earnings that's noncash, that it's noncash, right? It is what it is. The reality, however, is every company has some degree of mismatch between its earnings and -- earnings profile and its cash flow profile. Some things go one way, some things go another way.

So how do you get a look at the overall quality of earnings? Well, a simple way to do that is to take a multiyear view of the relationship between cash flow and earnings as it has actually occurred. You want to take a multiyear view because in any 1 year, there can be huge timing issues for any company that can cause the relationship to swing significantly.

So we did it here for -- and this is a chart that many of you have seen before, 4-year average, 2009. We updated it to 2012. On the left, we include the impact of deferred taxes, so that's the change in deferred taxes being a part of cash flow. On the right, we excluded it. Again, deferred taxes can be somewhat volatile for different companies from year to year. In either case, the blue bar shows where we are today, and I think you would have to say that we're pretty much in the middle of the pack. So we may not have the strongest quality of earnings, but it certainly isn't the weakest.

So whatever there is going on with PTCs, and recall that in future years, half the PTCs are going to be allocated to others, it must be offset by some things going on with other people. So our quality of earnings, I have consistently argued, is plenty good, and by the way, it's getting stronger. We showed here where we expect to be in 2014. And there are 2 key reasons for that. One, through the rate settlement agreement, we just converted a significant portion of noncash ROE to real cash. So the way I think of it, that $350 million base rate increase from January 1 is fundamentally converting noncash earnings to cash. So that's a huge impact on the quality of earnings from FPL. We felt confident that, that was going to come to pass, but it's certainly nice to be in a position to be able to say it has come to pass.

The other key issue is on the PTCs. Not only have we, through our tax equity deals, allocated a higher proportion of future PTCs to our partners, but also the simple arithmetic of the situation says the PTC income, as a total of our corporate income, is getting smaller. So as a consequence, that relationship is getting stronger. So if any of you were concerned about that, I'm sure nobody was concerned about that, it's -- I think there's a good case to be made that it shouldn't cause you concern. So that's one issue.

Second issue, you've seen this chart before, just want to emphasize it. The mix of the portfolio is changing. We are increasing the proportion of our earnings and cash flow coming from regulated businesses, and we are increasing the proportion coming from regulated and long-term contracted. So we fundamentally like the shifting risk profile of the business.

Next point, Armando mentioned it, we continue to be very heavily hedged. Now in talking about hedging, I want to make clear, this doesn't mean that we have no exposure to fluctuations in commodity prices. The way I think of this is this is our protection against first-order moves in commodity prices. So a large sustained increase in gas or round-the-clock power will not have an immediate impact on our earnings and cash flow profile.

We do still retain exposure to the dynamics of the business, basis, shift differentials, short-term timing differentials can be important, and that's one of the reasons why market knowledge for us is so, so critical and one of the reasons why we like the gas infrastructure business, because it helps us with those shorter-term things. But in terms of exposure to overall commodity prices, we're very well protected through this period.

And then finally, another issue that has been floating around that we have actually not received a lot of questions about, but I just want to make sure that everybody's clear on it, is the status of our pension fund. So in contrast to some folks, probably less in this industry than other industries, but in any case, certainly relative to others in the industry, we're in very good shape. So our funded status is well above 100%. It's -- for many years, we have been one of, if not the most well-funded pension plans of any of the Fortune 500 companies. So again, another issue that should not cause you concern.

So a little of concern and I'm going to repeat it. There's also been a shift to what does that mean in terms of the way in which the value is going to be delivered to shareholders. We have, for a long time, had dividends growing roughly in line with earnings per share. And since we have one of the best earnings per share growth profiles in the business, that meant that we have one of the best dividend growth stories.

Last year, in recognition of the shifting mix in the portfolio to more -- towards more regulated and long-term contracted assets, the board indicated that it was comfortable targeting a policy of 55% payout ratio on the expected 2014 position. So that's what I've shown here. You just take the range for 2014, apply that 55%, do a little bit of rounding, you get to the $2.80 to $3 range. There's a question mark on it because I'm absolutely required to point out that every individual decision on the dividend is, of course, the responsibility and the prerogative of the board. But that is the logical implications of the policy that the board announced and reiterated this February.

Now a question that I know is going to be on the tip of some folk's tongue is what happens beyond that? Should we expect that to continue? Well, at least at the moment, that's the stated policy, so I think that's a reasonable expectation thereafter. But I do think there's a caveat to be put on that, and that is we need to see where we are in 2014 in terms of our expectations of capital deployment beyond 2014.

So recall the chart on cash flow for 2016. If we are looking at a profile that looks like that off into the 2017, 2018 period, that could indicate one thing in terms of returning cash to shareholders. If at that point, we have been successful in uncovering additional growth opportunities, then that could mean another thing. So there's clearly some uncertainty about that. Fortunately, I don't think we have to worry too much about that at the moment. We have plenty of good things to keep us very occupied for the next couple of years, but we will certainly be expecting to talk to you more about that as we go on.

So just before we go to Q&A, our value proposition, strong backlog, many incremental investment opportunities, I think, it's one of the best growth stories of any company in the industry. As Jim mentioned, if you look back over the past several years, we have had the best actual delivered EPS performance of any of the large cap companies. If you look back over the last 10 years, the actual average diluted EPS of the index is less than 1%. Now I suspect, during that period, most of those companies were not setting expectations of merely 1% EPS growth. So that suggests to me that perhaps not everybody has met their expectations or come as close as we certainly have.

A great risk profile, growing cash flow profile, well-hedged, lots of things to like, and yet we continue to trade at a discount. This is on a 2-year forward P/E basis. So it's not current year, we recognize the differences in even promised growth rates. It had been about 15%. We closed the gap significantly. I think, a lot of this had to do with investors getting much more comfortable with the regulatory environment in Florida, as well as our ability to execute on the growth platform at Energy Resources. But in the recent months, we built them back up and as we put the slide together, it was a 4% discount, and I'm pleased to -- I'm not pleased to announce, but I shall announce at least, that based on your reaction to today so far, it's now a better discount. So we are selling at a deeper discount than we were at 1:00, so we have some work to do before we fix that. But that's where we are. You can buy it at a discount to -- and that's just the average, that's not the highest in the industry. So we think that there is a great value proposition here.

And let me just finally close, before we go to Q&A, by reminding you of one of the charts that Jim showed you. On a 1-year period, a 3-year period, a 5-year period and a 10-year period, we have outperformed our industry consistently, where a lot of things went up and down in that 10-year period, and yet somehow or other, we managed to adapt to those. So I can recall at just about every time during that period, some of the skeptics saying, "Yes, I see what you've done up until now, but looking forward, I don't think you're going to be able to sustain that or repeat that." I rest my case.

All right, we are now going to do a group question-and-answer session. So what happened to Armando? There's Armando. Thank you.

Question-and-Answer Session

Moray P. Dewhurst

We're going to sit down and pretend that this is like a TV interview. We will be passing microphones around. We'll be carefully noting the names of those who ask questions.

Unknown Attendee

Just one of 2 quick clarifications. I assume you guys are using the forward curve in your guidance, correct me if I'm wrong. And then just, you're mentioning on the first order, you guys are hedged very effectively, but then there's this sort of second order. I was just wondering if you could clarify what would happen if prices were to change by $1 in NTF or whatever factor you want to use, or just what that would be the impact in the years you've gone over?

Moray P. Dewhurst

Right. Yes, what I'm trying to convey is that a uniform shift in the curve of $1 per annum BTU has very little impact on us. Each quarter, when we publish the hedging slides, we show what that impact is. It's a few pennies per share. That doesn't mean that the shape of the curve twists somewhat differently or the basis positions move around. All of that stuff is just part of the regular ongoing management of the business. So it's not a huge exposure in aggregate, but it is certainly a determinant of where we end up in any given quarter or any given year, as we discuss in the quarterly calls.

Unknown Attendee

Okay. And then the gas infrastructure...

Armando Pimentel

We are using current holds.

Unknown Attendee

Okay. And then with respect to the gas infrastructure business, was it correct that you guys are saying that you're going to spend $700 million through 2016? Can you just clarify a little bit, is that through 2016?

Armando Pimentel

It is. It is through 2016 and that's on a net base -- net capital.

There's capital that comes back from that business. If you remember that slide that I've showed that has a 4- to 5-year payback, so the incremental net capital going into that business through 2016 is roughly $700 million.

Unknown Attendee

Okay. So sort of the excess DD&A is sort of how we should think about?

Armando Pimentel

As a net.

Unknown Attendee

Okay. And then in terms of just finally -- and then if you hedge that in, so you're looking at 12% to 15% off of that IRR from that net investment? Is that the way to think of it?

Armando Pimentel

Yes -- I mean, I don't -- it's no secret. Based on the amount of investment that we have in that business at this point, we're getting back roughly $100 million, $120 million of capital on an annual basis. So that helps you -- if it helps you gross it up. I mean -- but we look at it on a net basis. On a net basis, it's $700 million of additional capital going into that business through 2016.

Unknown Attendee

Okay. And then just finally...

Moray P. Dewhurst

If I can add one thing. One of the reasons that we'd showed you the sort of decline curve, the EBITDA curves, was a number of you have asked, "How do I get a handle on the relationship between the capital that you guys are committing and the subsequent impact on cash flow and earnings?" So everyone of these plays is slightly different. You have a different cost per well, but those are reasonable guides to an average. So you can use those to get a sense of, if a given level of CapEx goes in, here is roughly what should happen to the subsequent year incremental EBITDA, cash flow earnings.

Unknown Attendee

Okay. [indiscernible] last question is finally the capacity factor on the wind at 50%, just could you elaborate a little bit about what that is and can you see any potential increase in existing -- or just what's driving that kind of an increase in [indiscernible].

Armando Pimentel

Very easy. Higher towers, longer blades.

Moray P. Dewhurst

It's better equipment, more efficient machines.

Armando Pimentel

The technology and the equipment has gotten a little bit better, obviously, so it's able to optimize the wind a little bit better, but the main piece is higher towers, longer blades.

Unknown Attendee

[indiscernible]

Armando Pimentel

Yes. Your question on should you expect for it to go forward? I certainly expect efficiency improvements to continue out into the future. The point of are we going to be able to take that technology, which I think is where you were getting to, take that technology to some of our older plants, there is the opportunity in certain places to be able to do that. But it's got to be a fairly old plant, right, because you don't want to be taking capital that's already there that you're earning a decent return on and putting new capital into that same location. So we've got some opportunities to do that, but it's nothing that -- we have 0 built in into our plans regarding taking older projects and putting new technology on them.

Moray P. Dewhurst

As to the question of whether the trend, the steepness of the trend will continue, it's kind of academic. Right now, what we're talking about here is the 2013, '14 program, and that's going to be using the technology that's out here today. So there may be something a bit better comes along for '17, '18 and '19, but right now, what we're focusing on is building the best portfolio we can with what we have to work with to date.

Julie Holmes

Okay, we'll take our next question from Brian.

Brian Chin - Citigroup Inc, Research Division

Brian Chin with Citigroup. Just following up on Paul's question about the gas wells and infrastructure potential. I know that you've talked a little bit about a different set of points on how we should think about the cash flow and the earnings. But can you be a little bit more specific on how would you finance your investments in those gas wells? And also, if you have a declining set of EBITDA and EBIT data points from each asset, does this imply then, at some point, if you don't continue to invest in those gas infrastructure opportunities, then there is a decline pattern afterwards, so you -- maybe 2016 assumptions aren't a steady state level to think about with regards to a gas opportunities?

Moray P. Dewhurst

Well, on the second part of the question, almost by definition, yes, that's true of anything. If you don't sustain the level of CapEx eventually, the earnings and cash flow profile roll off. It's certainly true, it's one of the things we like about the business, but in this case it rolls off pretty quickly. So that gives you the opportunity, as long as the business remains attractive, which, i don't know, it looks like it's going to be for a good long time given the opportunity set for gas, it gives you the opportunity to meter your involvement in that as you go along. So it's a constant set of renewal opportunities. And recall what Armando was saying, a crucial aspect of this business for us is the information content. You don't get that just by sitting on existing things that are producing. You've got to be in the game playing the new stuff. That's where you see what's going to be driving the dynamics of the gas business. So that's certainly true. On the financing point, for all of, what I'd call, the peripheral businesses, and I apologize to all and sundry because I'm the one who started using that term and it's probably a pejorative term, certainly pejorative to any employees in those businesses, but for all of those things, that simply goes into the overall financing plan for Capital Holdings. So it's just built in there, but it's not distinctly identified. Having said that, there is certainly the possibility, if the business gets to a certain size, that you could do reserve-based lending. That's certainly a possibility, but right now, it's just -- it's a small piece, so it just gets rolled into the overall cash flow expectations and what I described earlier of looking for a target set of metrics, mixing in the right set of instruments to support those metrics and away we go.

Brian Chin - Citigroup Inc, Research Division

I have 2 questions, Moray. I guess, first of all just on the delevering part of the plan for 2014. Is that enough to do it with the equity in '14? Or you think you can go to a more steady state investment cycle for '15, '16, or do you see the need to continue issuing equity and further improvement on your metrics from there?

Moray P. Dewhurst

I guess the core answer is, that's what we think is necessary for this period based on the parameters that we've laid out. So let me put it more explicitly. If we are successful in hitting the high end of the incremental capital deployment opportunities at both businesses, so that's the $23 billion in aggregate, and if they come in with roughly the time profile that we are anticipating, then the $1.5 billion is the kind of the high end of where we need to be, not just for '14, but thereafter, go back to the cash flow profile picture. Subsequently, once these things start picking up and generating cash flow, then they contribute a great deal. So the problem, and it's inherent in this business if you are a significant builder and constructor -- development constructor as we are, is how do you deal with that period upfront, when the assets are not in the ground, but you want to do this stuff on balance sheet, for the reasons I talked about earlier, you've got to finance that. So the short answer to your question is that's the piece that you need in '14. After that, the natural cash flow takes over, unless in the subsequent period, we find a whole lot more things to do on the capital front. And that's a subject for another day. We go -- the focus is on what we just talked about here today.

Brian Chin - Citigroup Inc, Research Division

And I guess, Eric, just one question for you. With the rate freeze or the deal you have in place right now, you laid out the growth prospects, whether it be storm hardening or the peaker repowering or the renewable projects. Can you just walk through a little bit how you get recovery on those investments over the time period, if you were to go forward with them? And do they need commission approval or legislative action to help facilitate time of recovery?

Eric E. Silagy

Yes, there's different paths for different projects. So we'll take the pipeline as an example. I mean, we will go before the commission, and after we get the RFPs back, the responses to the RFP, that will be probably in the latter part of the summer or so. And then that will be a third [ph] pipe and it will be recovered through fuel clause. So it's actually clause recovery. Peakers, that is something that, again, because of the environmental aspects of it and our conversations with DEP, that is also subsequently going through clause, the environmental clause, much like as we were required to add a scrubber, as an example, to one of our plants. Because those are -- that's a decision that will be driven by environmental regulations, that will also be through clause recovery. If we went through solar, then we'd be going through the commission -- to the commission, I should say, and seeking permission with the expectation to get cost recovery during our next rate case. Of course, part of that depends on when you actually go and deploy that capital, and when those go into operation. So some of those projects will be coming in towards the back half of this 4-year period, subsequent -- or I should say, kind of concurrent with when we'd expect to go in for a rate case in '17. So they're a little bit different for each one.

James L. Robo

And, Dan, I think there's been a little bit of confusion around how -- we feel like we'll be able to invest that incremental $4 billion to $5 billion in FPL without having to seek -- without putting pressure on the base rate portion of the bill. And one of the things that we look at very closely is what our forecast of the customer bill impact is in 2017. And right now, when we look at it, it -- our goal is to keep it flat, in real terms, relative to 2013. And much of the headroom that we're going to have in order to generate those incremental projects, to invest that incremental capital, is going to be driven by productivity. And so when we have productivity in the business, that will generate headroom such that we can continue to invest capital on a bill-neutral basis to the customer, in good projects for the customer. So it's a win-win for customers and it's a win-win for shareholders.

Unknown Attendee

Moray, just a clarification. Did you mean to say you're going to hold the absolute level of hybrids flat or the proportion of hybrids?

Moray P. Dewhurst

The proportion of the structure. We're pretty comfortable with where we are right now. Again, as the portfolio grows, looking out 1 year or 2, there may be room for a slice in there, and we may have some opportunities to take out some of the older ones and replace them. But somewhere around that 10% of the mix.

Unknown Attendee

And, Eric, you said that $1 gain on O&M productivity has a multiplier effect of 7. Can you -- I didn't follow that. Can you just [indiscernible]

Eric E. Silagy

Yes, it has a -- it does have a multiplier effect based on the amount of revenue funds we need in order to fund those projects.

James L. Robo

So think about it as for every $1 of O&M productivity you generate, you can invest an incremental $7 of capital and have that be bill-neutral to the customer.

Eric E. Silagy

That's a rough average. It depends on the specific nature of the CapEx, of course, the maturity profile of that CapEx, et cetera. But it's just the rule of thumb.

Unknown Attendee

And looking at the cash flow on the baseline CapEx, it looks like you'll be meaningfully cash positive after dividends. What does your guidance or your indicative guidance assume as far as use of those funds?

Moray P. Dewhurst

The same thing that -- where we were before on the '14 baseline with the $1.5 billion. Any -- just for modeling purposes, any excess after paying the dividend, we apply to kind of shrinking the capital structure in proportion, while maintaining that set of target metrics.

Unknown Attendee

And then lastly, any [indiscernible] tied to Washington, when are you expecting clarity around PTC, the rules of the game as they go into '13 and '14?

James L. Robo

Yes, I think the -- they're working on it. We've obviously been staying in close touch with the folks who are working on those rules. I think the -- when you go back and you look at the legislative intent, it is pretty clear that the start of construction meant something very consistent with the start of construction language that was used around the 1603 cash grants. But those rules aren't final yet. I think I would expect them to be out sometime before the end of the second quarter.

Unknown Attendee

Yes. Just, curious. We've seen across the rest of the energy complex, over the last 12 to 18 months, a lot of corporate activity, meaning restructuring, spinoffs, companies that exited certain businesses or exercised shrink-to-grow type strategies across -- whether it's refining or integrated oils or E&Ps, et cetera, most parts of the energy complex outside of our sector. Just curious, you're much more diverse than your peer group, and as Moray, you touched on, you have traded at a little bit of a discount. Are you concerned that there's kind of a sum of the parts discount embedded, kind of naturally or unnaturally, within NextEra? And have you evaluated potential either spinoffs or shrink-to-grow or other alternative structures?

James L. Robo

Yes, I will -- let me answer the last question, which we have spent a significant amount of time back, if you remember, when the renewable spinoff was the flavor of the day, we spent a lot of time looking at that and ultimately came to the conclusion that it would be bad for shareholders to do it. And that has to do with the fact that we have a very integrated approach to how we run our businesses. From an operation standpoint, we operate across both businesses. From a financing and a financial standpoint, we operate -- we have an integrated financial strategy. We obviously have a -- from a tax standpoint, we have an integrated tax position. And we came to the conclusion that the amount of value creation that you would get -- potential value creation you would get from spinning off a very -- a small piece of business that we have, was far outweighed by the negative impacts that you'd have from adding a lot of complexity to your business, more governance, negotiating service contracts between the 2 entities, et cetera, et cetera. I wanted our team focused on how do we continue to grow shareholder value as opposed to negotiating service contracts between 2 entities. And we just don't -- right now, we don't see that there's a lot of leverage in doing something like that. Obviously, we like our asset portfolio. We love our position at Florida Power & Light. We love our transmission portfolio. We love the vast majority of the assets in Armando's businesses. As we've said, we've reevaluated a few of those assets over time, and we've made decisions to sell some of those assets outright, where people put a higher value on them, frankly, than our own internal hold value was. So

[Audio Gap]

Moray P. Dewhurst

[Audio Gap]

...wanted to play the which [ph] positions purely and mixing that in with the regulators didn't make sense. But what you have right now is very largely as you've seen here, a

[Audio Gap]

Unknown Attendee

[Audio Gap]

...the buckets for this $4 billion to $5 billion incremental CapEx at the utility level. Could you break it down, as you have over here, with like the solar, the pipeline, the upgrades and the storm hardening? Is there some numbers that the...

Moray P. Dewhurst

Short answer is not yet. We're going to be still a little bit limited on that, particularly when it comes to things like the pipeline, for competitive reasons. So bear with us a little bit on that. But the pipeline situation will become much more apparent as we go through the spring. So by the middle of the year, we should know where we are on that. On some of the other things, quite frankly, there is just a range. We are in the midst of internally working the opportunity set. So one of the challenges here is we understood that, as soon as we had the rate agreement in place, you would be asking these kinds of questions. But frankly, we've only asked since then to start thinking about them. So we are really not far enough along to be very specific about them. So we're comfortable with the overall range at this stage, but which -- how much it's going to be and which bucket, is a little less clear.

James L. Robo

And we also don't go want to go ahead of some filings that we're going to be making. And so, for example, there'll be a storm hardening filing on May 1, where I think there'll be more clarity around our plans on storm hardening. So I think we feel very comfortable with the total number that we gave you, and that some of the buckets will become more clear over the next year.

Unknown Attendee

Okay. And if I can just follow-up on what I heard, I just want to -- if I'm right, when you -- at your year end call, you had mentioned, for guidance purposes for '13, to assume at the regulatory level, an ROE more at the midpoint, which was 10.5%. And if I'm right, what you're saying today is that you feel comfortable at earning more like 11.25% [indiscernible] so should I be able to then kind of go over...

Moray P. Dewhurst

Let me correct you. What we've said, and that we were careful what we didn't say actually in the earnings call, because we frankly didn't know where we were going to be. And let me just make sure it's really kind of crystal clear here. Under the old agreement, we had $800 million of [indiscernible] to depreciate. We had to burn that off, and so it was relatively straightforward to hit the earnings cap. In this rate agreement, we have $400 million to be applied over the entire period. But if you go back to our original rate case filings, we knew we were going to need a large chunk of that in '13 to maintain anywhere near a reasonable amount. So we've got a variable, which is how is that going to get deployed over the course of the 4 years. We have another variable, which is how much and how fast are we going to achieve the productivity goals that Jim has challenged us all with, how they're going to lay out. And then we've got another uncertainty or another factor we have to consider, which is the natural growth profile of the thing. So when we were at the end of the year looking at all those things together, we frankly were not very certain in our own minds what we should be targeting for an ROE for FPL in '13. And so we were deliberately nonspecific about '13. So whatever your memory may have been, I think if we check the transcript, we will find that we were nonspecific. What's happened since then is we've made sufficient progress. We don't have all the details tied down, but in thinking about that multiyear approach, how does the earnings, the cost structure likely lay out over the 4 years, we feel comfortable that we can legitimately target 11.25% for this year and put us on a profile that won't leave us short in 2016. Is that clear?

Unknown Attendee

Fair enough.

Unknown Executive

Andy?

Andrew Bischof - Morningstar Inc., Research Division

Just a couple of questions. Jim, you had mentioned, I think, in your beginning comments that '14, you guys should be able to be at the mid to high point of the earnings range. And that, just to understand, that would include issuing $1.5 billion of equity or close to that or equity type products?

James L. Robo

Yes, so here's what I said. I said that we're going to be working very hard as a team, that we're committed to earning in the top half of that range that we've laid out in '14 as a team. Top half of that range is from -- our goal is to earn somewhere in the top half of that range. That's $5.25 to $5.45, is what I would call the top half of the '14 range. And embedded in that is our expectations around the amount of equity that we need to issue in order to support the incremental growth that we have embedded in the plan.

Andrew Bischof - Morningstar Inc., Research Division

Which would be the top end...

Moray P. Dewhurst

Which could be up to $1.5 billion.

James L. Robo

Which could be up to $1.5 billion.

Moray P. Dewhurst

Another way of thinking about it is obviously, there's a range of factors that will affect where we would be in '14, for '14, and then there's another range which is where we will be on the total incremental CapEx, which in turn would drive where we would be in the 0 to $1.5 billion of incremental equity. Okay? Is that clear? If it were the case that we were at the low end of what we have thought we were capable of doing, because things just don't work out well intra-'14, but we still feel really, really good about the high end of the CapEx, then we might have the $1.5 billion, but struggle to get into the upper half of the range. Does that make sense? So there's still sort of like 2 dimensions to the matrix that we get there. We're taking the whole thing into account, our best view of where we think we're going to be on that incremental CapEx, our best view of where we think we're going to be on '14, in for '14, and saying, we think we have a very good shot of being on the upper half of the range, and we are all, as a team, absolutely committed to get there. It's not a guarantee, but we feel good about our ability to get there.

Andrew Bischof - Morningstar Inc., Research Division

Okay, just a couple of other questions. On -- I think you mentioned, maybe it was Armando, but I might be wrong, that there may be some assets to sell in New England and Maine? Is that -- could you just maybe talk about that? And any other potential asset sales within your portfolio? I guess I had some impression that possibly there were some E&P monetization that could possibly happen as well beyond -- I understand that you're making new investments as well. Or maybe just talk about that, and I just have 2 other quick questions.

Armando Pimentel

Okay. The Maine assets, it's roughly 800 megawatts of primarily old oil-fired assets up in Maine. They're assets that have done relatively well since we bought them in 1999, but is not necessarily a portfolio that we believe fits in longer term with the merchant portfolio. And although we haven't made any decisions as to whether we're going to sell those assets or not, I can tell you it's sitting on a list of 1 asset, right? So the list of potential assets that we're looking at to sell, that's the only one on it at this point. Sometime in the next couple of weeks, I would expect really by the end of the first quarter, we'll make the decision one way or another to move on that asset or to keep it. In terms of what that asset means for cash flow and earnings for us, were we to sell it, it's not significant. It's a blip. You won't notice the blip, so it's nothing that anybody's going to have to model. That's neither on an ongoing basis nor on a sale, and the proceeds that we receive on a sale. On the E&P business, we continually look at the properties that we've acquired and the results, either right next to or around the properties that we've acquired, and we make decisions to either acquire a little bit more in a certain place or to sell some of the acreage that we've acquired. And I think the recycling of capital in that business -- not I think, the recycling of capital in that business is a decision that you should expect that we're making on a quarterly basis. So it shouldn't be a surprise if all of a sudden we are going to sell a piece of that business, recycle some capital from that region and maybe deploy it somewhere else. Or recycle some capital from the business, maybe keep it back at the company for a while. I mean, it's a continuing business. It's very interesting. And one of the things that I like actually most about it, besides the things that we've talked about, what we're learning from it, is they're small incremental capital decisions. These are $20 million, $30 million incremental capital decisions to make. And on the other side, there are $20 million, $30 million, $40 million, $50 million decisions where we can sell a piece of the business, recycle the capital and put it somewhere else.

Andrew Bischof - Morningstar Inc., Research Division

And just, Moray, on 2016. So after -- I think it was Ashar. Someone mentioned that after paying the dividend, you're showing a substantial amount of free cash flow available to you. So that was part of that estimate that you -- I don't know if you'll pay down debt or you'll...

Moray P. Dewhurst

Yes. Conceptually, what we've done...

Andrew Bischof - Morningstar Inc., Research Division

[indiscernible] at that range, that cash goes -- is put to work.

Moray P. Dewhurst

Exactly. So just everybody is clear, from a modeling perspective, 2016, net of the expected amount range for dividend, to the extent that there's an excess, we take that and conceptually we buy back the right mixture of debt and equity to sustain the credit metrics where we want them to be.

Andrew Bischof - Morningstar Inc., Research Division

And one last question. I guess when I was down in Washington at the beginning of the year, there was a talk, again, politicians talk about the possibility of some renewable type of MLP structure and whether that works for you or not. But anything that you're hearing on that and whether that makes sense?

James L. Robo

So there's been some discussion about making renewables qualified for MLPs. There is a very large challenge to having new renewables be put into an MLP because of the passive loss rules that were changed in 1986. I think it's unlikely that either House Ways and Means or Senate Finance will change the passive loss rules to make new renewables, which have a lot of tax attributes and have inherent losses in them, be eligible. But I think there is an opportunity to make renewables qualify for MLPs on a go forward basis. And so when -- once you have an asset where the PTCs have expired, or it's a CITC asset where we've already taken the cash grant and you have the 5 years of maker's depreciation already taken, and so in year 6 or year 10, with existing assets being able to be put into an MLP and having renewables qualify for that, I think there is some -- a possibility of that, and I think obviously, we would be beneficiaries of that to the extent that I don't think there's anyone else who has a bigger portfolio of those kind of assets than we do. But as a holy grail, to fix the issue around how do you finance renewables -- how you finance new renewables, I think there's some real issues with an MLP.

Unknown Attendee

Could you quantify the amount of earnings you have from tax credits over the next few years?

Armando Pimentel

On a quarterly basis, we provide in the appendix to the materials, to the earnings materials, we actually did tell you what the PTCs that are expiring the following year. And at this point, we've provided gross margin information for 2013 and 2014. So if you go to those slides, it will give you the expiration of those tax credits in 2014 and 2015. I don't know, Moray, that we've provided information beyond 2015.

Moray P. Dewhurst

[indiscernible] could you clarify your question? Just...

Unknown Attendee

Yes. What's the aggregate amount of EPS out of total EPS that comes from tax...

Moray P. Dewhurst

That comes from -- that should be very clear each quarter on an actual basis. You may recall that, for a few quarters now, we've been including in the earnings pack, a view of the total portfolio up-to-date, right? So we haven't done it on a forward basis, but you can get there pretty easily by looking at the megawatts we have, making a simple assumption about the capacity factor and then knowing something about the retention. That's why we've been trying to show the percent of PTCs retained. So looking forward, in excess of 50% have been moved up. Now how that changes in future also depends upon the future allocation of future PTCs, and that depends on how we finance things, whether we do project finance or tax equity. But at the moment, we're around 50% and it's increasing because of the momentum of existing tax equity deals. Does that address your question?

Unknown Attendee

And will it be possible from the information then to determine what percentage of the tax credits that you're recognizing in earnings will then expire over subsequent years? Is that...

Moray P. Dewhurst

Well, yes, you -- no is the short answer, because you forget about -- it's 20 years from the time this thing went in. So you go back to the first ones, 2001, 2002, they're -- 2022, 2023 is when they actually expire.

Armando Pimentel

The very first ones, right? The 2003 ones in 2023. I mean, it's the 20-year go forward basis is really long period of time to carry the credits for us.

Moray P. Dewhurst

The issue for us is not the ultimate utilization so much as the how do we get the value out of them sooner.

Unknown Attendee

I just have one question. You showed the operating cash flow estimates here growing at a much greater rate than your net income guidance. What is the cause of that? Is it just depreciation and amortization, or is there other things going on there?

Moray P. Dewhurst

It's fundamentally the difference between the timing profile of earnings and cash flow. I don't know I can say much more than that. I mean, that's pretty natural in this business. Again, we get these -- think of what we're fundamentally investing in, these long-lived, you sink all the capital in upfront. You get this straight line depreciation. The cash flow starts coming in, for most of the typical contracted projects, it starts coming in pretty quickly, whereas the earnings profile's a little bit more, because of the depreciation schedule, a little bit more back -- relatively speaking, a little bit more back-end loaded.

James L. Robo

And there's a big piece of that, that's driven by the surplus depreciation and amortization, right? So we had $500 million roughly of -- in 2012, of surplus amortization. We will have $400 million over the next 4 years. And as Moray said, remember, in our rate filing for '13, we had embedded in that an assumption that we would use $190 million in '13. And so if you look at that profile alone, there is a significant amount of cash flow generation coming from that.

Moray P. Dewhurst

It's one of the reasons why I like my little cash flow to earnings chart as a check, because the dynamics of this business can cause you in any 1 year, or even 2 years, to get them out of alignment purely because of timing issues as to when CapEx goes in or when things happen on a regulatory front. So when you look at that relationship over a multiyear period of time, that gives me some comfort that there's nothing fundamentally off.

Unknown Attendee

Just a question on the pipeline CapEx numbers. I think you mentioned a total of $2.5 billion to $3 billion as the possible total. Does that include the amount that you might spend on the upstream portion? Or is the upstream incremental to the $2.5 billion to $3 billion?

Eric E. Silagy

Yes, I want to be very clear on that because I don't know where the number is going to come in. That's a guesstimate based on what I've heard from folks that have expressed an interest. We have probably close to a dozen pipeline companies that are -- that have asked for information and kind of responded to the RFP, in so far as at least gathering information and attending meetings. But we haven't seen any bids yet. Those are due in April. So that would be the numbers that we've heard been or developed for the entire project. So from Western Alabama all the way down to what we would say, Martin, that could be a good number range. But again, I won't know that until we actually see it. So from a customer perspective, I hope it comes in less because I can build it for less. But we're going to see what the proposals are, what the routings are, what the size of the pipes are and the cost of the hub. There's a variety of variables involved.

James L. Robo

Yes. And just to be -- just to reiterate, Mike, it is -- the number that Eric gave of $2.5 billion to $3 billion, that is 100% of the project. That is not the amount of capital that we expect to deploy on that project.

Julie Holmes

All right, it's about 5:00. Do you want to take...

Moray P. Dewhurst

Are there any more questions? We'd be happy to continue to answer questions. Well, except perhaps...

Unknown Attendee

Moray, is the equity you need in '14, is that really being needed because of the unregulated business, that the utilities are pretty strong because of GBRA and all that? Is it really the CapEx, that the unregulated which is doing it or is it both sides?

James L. Robo

Both sides.

Moray P. Dewhurst

Both sides. Yes, to some extent, it depends how you think about how the dividend gets paid, right? There's something arbitrary in there. But if you assume that the dividend is just an overall draw on the totality, then both sides. I mean we're committing a lot of capital. Let's be very clear that, both in our baseline scenario and at the top end of the CapEx range, 60% or more of that CapEx is going into FPL, right? So it's a wonderful business and it's got a good earnings and cash flow profile, but you plow that much in it, it needs support.

Okay. I think then, at this point, we will call a halt to the general questions and we thank you all for attending, and Julie, do you have any final remarks? Oh, we'll take the applause.

Julie Holmes

Thank you. If you could please take the time to fill out the survey. Otherwise, if you don't have time now, you're going to get an e-mail from our survey provider, so we would appreciate your feedback. Thanks.

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