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Executives

Rebecca Kujawa

Armando Pimentel – EVP, Finance and CFO

Lew Hay – Chairman and CEO

Analysts

Daniel Eggers – Credit Suisse

Paul Patterson – Glenrock Associates

Jonathan Arnold – Deutsche Bank

Paul Ridzon – KeyBanc Capital Markets

Brian Chin – Citi

Reza Hatefi – Decade Capital Management

Phyllis Gray – Dwight Asset Management

FPL Group, Inc. (FPL-OLD) Q1 2010 Earnings Call Transcript April 27, 2010 9:00 AM ET

Operator

Good day everyone and welcome to the FPL Group’s first quarter 2010 earnings release conference call. Today’s conference is being recorded. At this time for opening remarks, I would like to turn the conference over to Ms. Rebecca Kujawa. Ms. Kujawa, please go ahead.

Rebecca Kujawa

Thank you Mike. Good morning everyone, and welcome to our first quarter 2010 earnings conference call. Armando Pimentel, FPL Group’s Chief Financial Officer will provide an overview of our performance for the quarter. Also joining us this morning are Lew Hay, FPL Group’s Chairman and Chief Executive Officer; Jim Robo, President and Chief Operating Officer of FPL Group; and Armando Olivera, President and Chief Executive Officer of Florida Power & Light Company.

Following our prepared remarks, our senior management team will be available to take your questions. We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially from our forward-looking statements if any of our key assumptions are incorrect or because of other factors discussed in today’s earnings release, in the comments made during this conference call, in the risk factors section of the accompanying presentation or in our latest reports and filings with the Securities & Exchange Commission each of which can be found on the Investors section of our Website at www.FPLGroup.com.

We do not undertake any duty to update any forward-looking statements. Please also note that today’s presentation includes references to adjusted earnings, which is a non-GAAP financial measure. You should refer to the information contained in the slides accompanying this presentation for definitional information and reconciliations of the non-GAAP measure to the closest GAAP financial measure.

With that, I will turn the call over to Armando Pimentel. Armando?

Armando Pimentel

Thank you Rebecca and good morning everyone. As many of you know, next week, we are planning to host our Investor Conference which will be webcast. At that time, we plan to provide a strategy review of both of our main businesses, as well as our long-term growth prospects.

Today, we will review our results for the first quarter of 2010. FPL Group’s adjusted earnings per share results grew approximately 4% over the comparable period a year ago. Our quarterly results were driven by favorable weather and new asset additions at Florida Power & Light Company primarily offset by lower-than-normal wind resource at NextEra Energy Resources.

At FPL, we continued to make capital investments that we expect will improve our already clean emission profile and provide long-term customer benefits. On January 11, 2010, FPL’s electrical system experienced not only a new winter record peak demand, but also an all-time record peak demand of 24,346 megawatt hours. We are proud that our system performed well and FPL continued to provide safe and reliable service with minimal disruptions to its customers.

Shortly after the quarter ended, FPL commissioned the Space Coast Next Generation Solar Energy Center. It is located on NASA property at the Kennedy Space Center, and is producing an estimated 10 megawatts of clean, emissions-free power. With the completion of this facility, we have commissioned 35 megawatts of the total 110 megawatts of solar capacity that we indicated we would add at FPL. The 75-megawatt Martin Solar Thermal facility is expected to be placed in service by the end of this year.

The three facilities in total will add roughly $700 million to our rate base and be recovered through the environmental clause. Also in April, FPL announced that we signed a definitive agreement with the US Department of Energy to receive $200 million in Recovery Act Funding, which FPL will use to further our Energy Smart Florida initiative. Energy Smart Florida represents an expected overall investment of about $800 million. We are investing in Smart Grid technologies as part of our commitment to building a stronger, smarter, cleaner and more efficient electrical infrastructure.

Energy Smart Florida is designed to help keep service reliability high over the long term and get customers more information to manage their energy usage. The deployment of state-of-the-art Smart Grid technologies including smart meters which should improve the service we provide our 4.5 million customers and provide them with changeable benefits today while laying out the foundation for a host of future benefits. Although the weak wind resource negatively affected first quarter results of NextEra Energy Resources, the operational performance of our fleet was strong.

The forced outage rate for our fossil fleet was best-in-class for the industry based on available data and in addition the forced outage rate for our wind fleet was one of our best ever and continues to lead the industry.

Finally during the quarter, our Point Beach nuclear facility completed the refueling outage. In addition, we continued to pursue development opportunities in Canada, and a couple of weeks ago, we were awarded approximately 148 megawatts of wind projects in Ontario, Canada, as part of the province's feed-in tariff program.

We were excited that one of the projects we were awarded was the largest projects selected and that in total we were awarded approximately 12% of the total land-based wind projects. Separately, in the last couple of weeks, we commissioned 99 megawatts of new wind in the US and we have approximately 140 megawatts either under construction or approved for construction.

During the first quarter, FPL Group adopted a new method for allocating non-utility interest expense in shared service costs between our NextEra Energy Resources and Corporate and Other reporting segments. This change resulted a more meaningful current presentation of segment’s financial results. Previously, as our segment disclosures have shown, we have allocated interest expense in NextEra Energy Resources based on a deemed capital structure of 50% debt for operating projects and a 100% debt for projects under construction.

The allocation was based on our experience in financing our growth during the early part of the last decade. In practice, we have been successful in financing NextEra Energy Resources’ growth, particularly through the use of projects that are wind projects with somewhat higher debt without adversely affecting our overall credit position. Consequently, we recently decided to review our methodology for allocating debt for segment reporting purposes.

Under the new methodology, interests allocated between NextEra Energy Resources and the Corporate and Other reporting segment based on a method that more closely aligns with actual leverage being employed at NextEra Energy Resources. The change impacts both GAAP segment disclosure and adjusted earnings results for the NextEra Energy Resources and Corporate and Other reporting segments. The main effects of this new allocation methodology will be first, NextEra Energy Resources’ income will be lower than under the prior methodology while the Corporate and Other segment will be higher.

Second, NextEra Energy Resources’ return on equity will be higher than under the prior methodology. It is important to recognize that we are not making any change in our overall financial policy with this change. We will continue to employ an overall financing strategy designed to achieve a target level of financial strength as reflected in our consolidated adjusted credit metrics. On a quarterly basis, we have always provided to you the GAAP debt equity ratios and the adjusted ratios in our earnings release, and we will continue to do so.

In addition to the change in interest allocation, certain shared service costs that were previously captured at Corporate and Other are now allocated directly to NextEra Energy Resources. We have summarized the impact of the change in the allocation of interest and shared services cost on this slide. Again to be clear, there is no impact of the consolidated financial statements of FPL Group or its credit metrics. There is also no change to the Florida Power and Light financial statements or credit metrics.

Additionally, you will note that the reallocation of these expenses does not significantly change any of the metrics that we have previously reported to you, including earnings growth at NextEra Energy Resources.

Now, let’s look at the results for the first quarter. In the first quarter of 2010, FPL Group’s GAAP net income results were $556 million or $1.36 per share compared to $364 million or $0.90 per share during the 2009 first quarter. FPL Group’s adjusted 2010 first quarter net income and EPS were $386 million and $0.94 respectively compared with $364 million or $0.90 per share in 2009.

The difference between the GAAP results and the adjusted results is the exclusion of the mark in our non-qualifying hedge category and the exclusion of net other than temporary impairments on certain investments, or OTTI. As we discussed during the fourth quarter 2009 earnings call, sometimes weather has offsetting effects across our portfolio, due to the diversity of our company’s operations in terms of geography, fuel and other factors. All of that may not always be the case. In the first quarter, we again realized some offsetting impacts from weather at our two main businesses. This slide shows the impact of weather during the first quarter, both against the prior year as well as against normal.

Weather had a positive impact on Florida Power and Light results while having an overall negative impact on NextEra Energy Resources, resulting in a net negative $0.05 impact to adjusted earnings per share at FPL Group. The wind resource in the quarter was the worst it has been in 31 years of history. So far in April, the wind resource has improved, but does remain below normal. As we discussed in detail during the third and fourth quarter 2009 conference calls, the wind resource is primarily affected by local weather patterns. However, we also noted that we believe there is some correlation between the El Nino weather pattern and a poor wind resource in the Texas and Mid-West regions where many of our wind investments are located.

There continued to be strong evidence of the El Nino weather pattern during the first quarter. The US Climate Prediction Center currently predicts that the El Nino weather pattern will weaken during the second quarter. We spend a significant amount of time and resources evaluating historic, current and forecasted wind results, and we continue to be comfortable with demand on which we estimate wind resource for both investments and forecasting purposes. We will have additional detail on our work in this area at next week’s Investor Conference.

For the first quarter, Florida Power and Light reported net income of $191 million compared with $127 million in last year’s first quarter. The corresponding contributions to EPS were $0.47 this year compared to $0.31 last year. Florida Power and Light’s first quarter results were higher primarily due to weather and an increase in base revenues for the replacement and service of West County Energy Center units 1 & 2. As graphs on the accompanied slide illustrates, we are starting to see some signs of improvement in our customer metrics.

The table in the upper-left shows the change in retail kilowatt hour sales versus last year’s comparable period. Overall, retail kilowatt hour sales grew by 6.6%, an improvement due primarily to higher weather-related usage. Usage growth due to weather helped the quarterly earnings comparisons by approximately $0.08 per share. Non-weather related or underlying usage growth remains under pressure due to a decline in economic conditions on a year-over-year basis.

Despite some positive signs in certain customer metrics, the general economic environment in Florida still remains challenging as evidenced by Florida’s unemployment rate, which rose to 12.3% in March of this year. The graph in the upper-right hand corner indicates sequential increases in customer accounts. As we have said before, during the downturn, the change in our customer accounts did not follow normal seasonal patterns, which historically had generally met higher increases in customer accounts during the fourth and first quarters of the year, and lower increases during the second and third quarters of the year.

Although we expect seasonality had something to do with the sequential improvement in the first quarter, we believe it is still a positive sign since it is the highest quarterly increase in customers on a sequential basis since 2007. As of March 31, 2010, we had approximately 14,000 more customers than we did at the end of March 2009. The graph on the bottom left of the page shows inactive and low usage customers, which we believe depicts a level of empty homes in our service territory. Since year-end 2007, the number of inactive accounts has increased by 53,000 to about 298,000. However, both the number of inactive and the number of low-usage customers have been declining since the fourth quarter of 2009.

The chart on the bottom right depicts the level of new housing starts for single-family homes in FPL’s service territory. Housing starts are fairly good leading indicator of additions to our customer base, roughly a year out. As we have discussed, much of Florida’s economic wealth has been directly tied to the housing industry. After a prolonged period of decline, we may be starting to see a bit of a bottoming here, but it is clearly too early to say that housing starts in our service territory are improving.

The table shown here summarize the earnings drivers for Florida Power and Light for the just-completed quarter. In total, earnings increased by $0.16 per share, driven primarily by weather and the increase in base revenues related to West County Energy Center’s units 1 & 2 as well as an increase in clause revenues from our solar investments in nuclear upgrades. These results were partially offset by slightly higher O&M costs and lower AFUDC, which are due primarily to the commissioning of West County Energy Center units 1 & 2.

Earlier this month, Florida Power and Light filed a motion with the Florida Public Service Commission for reconsideration and clarification of its final order in our rate proceedings. The motion requests corrections to specific computational errors on certain issues. In addition, the motion requests clarification of an inconsistency in the computation of the test year depreciation expense used in setting FPL’s base rates. Regardless of whether the commission ultimately concludes that revenue requirement should be higher or lower, FPL’s motion requested its commission resolve this through an adjustment to depreciation, which would keep rates and revenues the same as approved in January and implemented in March.

Approval of this approach will ensure that FPL’s reconsideration and clarification requests are addressed with no change in rates charged to customers and no change in revenues to FPL. At this point, the commission and its staff have not indicated when our motion for reconsideration will be addressed.

Let me now turn to NextEra Energy Resources. Since the first quarter of 2009, we have added 1,360 megawatts of new wind and continued to be the nation’s leading producer of wind power. We are proud of this achievement considering the difficult market conditions for power purchase agreements. We will have more to say about this in a couple of minutes. During the first quarter of 2009, we received $314 million of the approximate $470 million we expect to receive in cash from the convertible investment tax credits related to our 2009 wind development efforts. Recall that we already received $100 million in 2009. Regarding our 2010 convertible IT fee elections, we concluded during the first quarter that it was probable that we would elect to take convertible IT fees on 600 megawatts of specific new wind projects we expect to be completed during 2010.

As a reminder, production tax credits reported in earnings as we produced power during the first 10 years of commercial operations. The earnings recognition of convertible investment tax credits is a bit more complicated. Roughly 25% of the earnings from convertible IT fees is related to a deferred tax benefit as recorded upfront in the year of project displacement service. The remaining 75% is recorded over the life of the project through reduced depreciation expense. GAAP accounting requires us to estimate this upfront deferred tax benefit and record the benefit throughout the year levelize our effective income tax rate. As conditions warrant during the year, we may elect to take more CIT fees in 2010 than the current 600 megawatts we have estimated and recorded.

On the financing front, we are pleased that we were able to issue approximately $560 million of project financed debt and roughly 458 megawatts of wind energy projects since the beginning of the year. These transactions were well received by the investment community and our sign that the project finance market continues to improve and generally remains accessible to NextEra Energy Resources projects.

There were no significant changes to our hedge gross margin during the quarter, and we continue to be well hedged in 2010 and 2011 against the impact of natural gas price movements. We will provide the gross margin hedging detail and additional information on our NextEra Energy Resources’ assets next week at the Investor Conference.

NextEra Energy Resources reported first quarter 2010 GAAP earnings of $367 million or $0.89 per share, compared with $228 million, or $0.56 per share in the prior-period results. Adjusted earnings for the same period which exclude the effect of non-qualifying hedges and net OTTI were $196 million compared to $228 million. The equivalent per share contributions were $0.47 and $0.56 respectively. These amounts have been adjusted to reflect a retrospective application of a change in methodology for allocating interest and shared cost to affiliates.

NextEra Energy Resources’ first quarter adjusted EPS declined $0.09 from last year’s comparable quarter. New wind investments contributed $0.03 per share. Because our estimate for CITC elections in 2010 is similar to what it was at this time last year, there is little variance in our adjusted earnings this quarter due to our CITC elections. The existing assets portfolio declined $0.08 relative to the prior year. Our existing wind assets declined $0.12, $0.09 of which can be attributed to the poor wind resource we already discussed. In the first quarter of 2009, we had realized a state investment tax credit on some of our wind projects that contributed $0.04 to last year’s results without a corresponding benefit this year.

Our NEPOOL merchant assets were up $0.03, owing primarily to higher-priced hedges at the Seabrook nuclear facility, but that was largely offset by the results of our Texas merchant gas assets. Wholesale marketing and trading activities increased by $0.03 per share. Substantially all of this increase can be attributed to the sale of a power supply contract that we had entered into in 2009. As a result of this sale, we realized nearly all of the value of the contract in the first quarter instead of ratably during the course of 2010.

Although the first quarter results were higher than we had previously expected due to the sale, full-year 2010 results are largely unaffected. We entered into the restructuring agreement as we felt that it allowed us to maximize the value of the opportunity for shareholders while reducing future load volatility risks. Asset sales contributed $0.02, $0.03 of which is due to the sale of our 40% limited partnership interest in a 27-megawatt waste to energy facility located in Pennsylvania. This was partially offset by the $0.01 gain in last year’s first quarter from the sale of wind development rights. Also during the first quarter of 2009, we made an investment in our Canadian wind operations that allowed us to reduce previously deferred income taxes. The absence of this benefit in 2010 reduced earnings by $0.04. All other factors were a negative $0.05. The other category includes interest expense, corporate G&A, shared dilution and rounding differences. No one item is particularly notable.

I would like to provide a brief update on our wind development plans for 2010. Since the fall of 2008, our new construction plans have been concentrating on developing wind plans where we believe there was a high likelihood that we would sell the plant’s power under long-term power purchase agreements. Most recently, during the fourth quarter earnings conference call, I stated that the goal of adding 1,000 megawatts of new wind in 2010 with power purchase agreements was not a slam dunk. The combination of lower power prices, the economic downturn and continued uncertainty regarding federal climate legislation or a renewable portfolio standard is clearly adding to the industry’s development challenges.

In the last couple of weeks, we have reevaluated our development pipeline for 2010, and at this point, believe that our wind build additions will be between 600 megawatts and 850 megawatts in 2010. This obviously does not include any wind assets that we could add through purchase transactions. Although we continue to look at a number of asset purchase transactions, there is obviously no assurance that we will be able to transact at prices that we would consider reasonable. Longer term, we continue to be optimistic about developing and owning wind and solar energy plants and we do not believe that the current development climate is indicative of longer-term trends.

We will discuss more details of our longer-term development goals at our upcoming Investor Conference. To summarize 2010 first quarter, on an adjusted basis, FPL contributed $0.47, NextEra Energy Resources also contributed $0.47. That is a total of $0.94 compared to $0.90 in the 2009 first quarter or about a 4% increase year-over-year. For 2010, we continue to believe that adjusted EPS expectations within a range of $4.25 and $4.65 are reasonable. Currently, we are planning on providing longer-term earnings expectations at our investor meeting next week.

With that, I will turn the call over to the conference moderator for any questions.

Question-and-Answer Session

Operator

(Operator instructions) We will take our first question from Daniel Eggers with Credit Suisse.

Daniel Eggers – Credit Suisse

Hi good morning.

Armando Pimentel

Good morning.

Daniel Eggers – Credit Suisse

Armando, can you just remind us how much solar is embedded in NextEra’s CapEx plan and earnings contribution for this year?

Armando Pimentel

Yes, I could remind you although I have never actually given that number, Dan. And we will have an update, Dan, on solar next week. What we said though last time we talked about it, which I believe was the third quarter of 2009 is that our solar development pipeline for 2010 and 2011 was a range of between 50 megawatts and 100 megawatts. And then we also gave a 2012 and 2013 pipeline, I don’t have the numbers in front of me right now, but I think the bottom end of that number was around 200 megawatts and maybe upwards of about 500 megawatts.

Daniel Eggers – Credit Suisse

Okay. And then on the pipeline for this year, the 600 megawatts you guys are confident on the convertible ITCs, do you have PPAs for this project at this point in time?

Armando Pimentel

We don’t, Dan. As I have discussed before, most of the wind projects that we begin construction and it’s not just the ones over the last couple of years, but if you go back to our history, we do not have power purchase agreement when we actually begin construction. We evaluate the market, we start with somewhere between 10, 15 or 20 projects in the market. We slot those in depending on where we believe it’s the most likely that we can get longer-term customers we slot those projects in, and then we work towards getting a long-term power agreement. Many of our projects after they complete construction do not have power purchase agreement, but our team has done an excellent job of being able to evaluate the market and get us comfortable that short period of time after construction, we will have a power purchase agreement, and that clearly has been our history during 2008 and 2009, which are two of the worst in the industry.

Daniel Eggers – Credit Suisse

Okay. I am sure we are going to talk about this a lot more next week. Just one other question, can you just share –

Lew Hay

Hi Dan, just to add, we have roughly half of that 600 megawatts already under contract or with a contract that will be signed in the next 90 days or so. And so, I think the real question is, the real point as Armando said that we have historically not always, not always had contracts on the projects that we started, oftentimes we do and oftentimes we don’t, and I think if you go back and you look at the projects that we did last year that we were in about the same position in terms of the percent that had contracts signed as a percent of the total megawatts we ended up building at this point last year as we are this year. It’s just a lower number this year given some of the market challenges that Armando laid out.

Daniel Eggers – Credit Suisse

Okay. And then I guess one more, I don’t want to hog the call, but on the regulatory environment right now with the legislature and commissioners, can you just walk us through the timeline for potential decision either on these commissioners or on another set of commissioners and how we should play out this year?

Lew Hay

Dan, there is not much that I am going to be able to say. The legislature is going to hopefully wrap up at the end of week. So, we are all going to know. As I tell my kids, the date is coming whether you want it or not. So, clearly there is a lot of things, lot of really important things that the legislatures are having to deal with this year, including some of the PSC appointments, including the budget, including what’s going on with the renewable energy or potential renewable energy, legislation here in the state. But we will have enough date on all of those items next week and really to speculate on what could happen and how it could happen before Friday at midnight of this week is not helpful. So, next week, we plan on providing a full legislative update and also an update as to what’s going on with our public service commission.

Daniel Eggers – Credit Suisse

Great. Thank you guys.

Operator

And we will take our next question from Paul Patterson with Glenrock Associates.

Paul Patterson – Glenrock Associates

Good morning guys.

Armando Pimentel

Good morning.

Paul Patterson – Glenrock Associates

You discussed the 2011 hedging, has it really changed all that much from the Q4, I didn’t see the slides?

Lew Hay

No, we didn’t. Paul, we didn’t provide the slides this time only because we wanted to do a slim down version of what we generally do, because we are working on, also on the presentations that we will give to you and others next week. So, I did say in my remarks that there is no real significant changes in our existing assets hedging from last quarter to this quarter. So, we will provide it next week with some additional information that you and others have requested in the past on our assets.

Paul Patterson – Glenrock Associates

Okay. And then the long-term growth rate on the wind side, it sounds like you guys still pretty much expect that, is this going to be lower this year because of the market conditions and what that we see you guys are pretty much probably going to – you guys pretty much have a similar outlook that you have previously, or how things changed with the commodity cycle and other things?

Armando Pimentel

I actually I didn’t update that today, and I wasn’t planning on it. If you recall, the last update that we gave and it wasn’t necessarily long term, but it was midterm. During the fourth quarter, earnings call, I said that adding 1,000 megawatts this year and over the next couple of years was not a slam dunk. That’s the last update that we have given. We are planning to give longer term wind development and solar development guidance next week. I did say today that we remain optimistic about long-term development of wind and solar energy plants and that what we are currently seeing in the market we believe is not indicative of longer-term trends. Really the reduction today for 2010, we take the first couple of months of the year to review our projects, so we can slot them in for construction, and as we are doing that this year, with no, what I will call, PTC or CITC cliff at the end of the year, we have an extra, pick a number, 250 megawatts of projects that we could build this year or where that maybe we could build those same projects next year and feel more comfortable about waiting a little bit. We will do that. I mean, there is nothing that is pushing us to get every single project done by 12/31 of this year.

Paul Patterson – Glenrock Associates

Okay. Great guys. I won’t ask you, I will try to control myself from asking about what’s going to happen next week, but on the motion to reconsideration, my recollection was that there were some accounting changes, I think on depreciation, what have you, that might benefit net income. Could you just review that a little bit and how that figures into 2010 guidance?

Armando Pimentel

Yes, actually the motion for reconsideration that we filed as we have proposed would have no changes in the revenue requirements that the commission approved in January and would also not affect our earnings and net income at Florida Power and Light Company. Now, the commission may choose to certainly to do something else, including increasing our revenue requirements for some of the errors that we talked about, but our proposal was to leave the rates the same and for the earnings of Florida Power and Light Company to remain as we had previously calculated them.

Paul Patterson – Glenrock Associates

Okay. So, if they don’t accept the motion, the tactical changes, it doesn’t have an impact on earnings one way or the other?

Armando Pimentel

Yes, I can’t speculate, Paul, on exactly what all of the alternatives are and I am not sure that it’s helpful to speculate on all the alternatives. What I can say is that we feel comfortable that what we have proposed to the commission, which again are errors that go in our favor and then an inconsistency with the amount of depreciation expense that might have to be recorded. But what we have proposed would actually be net no difference to the rates that customers are paying and no difference to the net income or the earnings that we would have.

Paul Patterson – Glenrock Associates

Okay. Great. Thanks so much.

Operator

And our next question comes from Jonathan Arnold with Deutsche Bank.

Jonathan Arnold – Deutsche Bank

Good morning guys.

Armando Pimentel

Good morning Jonathan.

Jonathan Arnold – Deutsche Bank

Can I ask a question in terms of both the 2010 wind build and also how you see the business evolving, is there any shift in terms of your geographic focus given some of the comments you made about your plans to kind of have near-term issues in the market etcetera?

Lew Hay

Yes, Jonathan, let me address that. I think there has been a lot of discussion around the geographic diversity of our wind development over the last several years, and for the last 10 years, we have developed projects where we felt like you had it by good market and good risk-adjusted returns, and that is our approach this year, and going forward, there is no difference in what it’s been for the last decade, I think you will see some – we are going to lay out next week more detail on the geographic diversity of what we are developing for 2010 and 2011. All you have to do is go back and look at the projects that we built in ’09 and look at the number of states we developed in ’09, and the fact that we are just awarded megawatts in Canada to know that we are building projects where the market is, and I think you will see more on that next week. But I am very comfortable with the geographic diversity of our portfolio.

We have a really – we go where it makes sense to build winds for both our customers and risk-adjusted returns, and I think I will leave it at that, because we are going to talk more about it next week, but I think that you will see more next week.

Jonathan Arnold – Deutsche Bank

Okay. And then if I may on the, you talked about sort of timing of getting PPAs, could you just remind, I don’t know should we disclose this before, but the way you got to in terms of PPAs on the 2009 projects?

Armando Pimentel

Jonathan, we actually haven’t disclosed before, and I certainly don’t want to, you know, that’s a positive, very positive point that we wanted to talk about next week. So, let me just say that I think that the investors would be comfortable knowing that a significant majority of the projects that we have put in place in 2008 and 2009, starting with the financial crisis, which really was our third quarter conference call of 2008, the significant majority of those projects are under power purchase agreement at this time. We will have the numbers for you next week. I knew that was an important question that might come up today. I have the numbers, but let me just wait till next week.

Jonathan Arnold – Deutsche Bank

All right. Thank you.

Operator

(Operator instructions) We will take our next question from Paul Ridzon with Paul KeyBanc.

Paul Ridzon – KeyBanc Capital Markets

Good morning. On slide 12, where you talk about taking the benefits of the ITCs for 600 megawatts, what was the financial impact of that in the quarter?

Armando Pimentel

Roughly $14 million, which is roughly the same as what it was in the first quarter of 2009. That’s why in my remarks today, I said that our election of taking convertible ITC this quarter for about 600 megawatts really had no significant effect on a comparable basis.

Paul Ridzon – KeyBanc Capital Markets

And you indicated that your expectations for growth at NextEra [ph] had not changed because of the accounting change. Does that imply that the overall growth for the company is unchanged?

Armando Pimentel

Yes, that’s right. And just to clear it up, there is no accounting change up to this period at NextEra Energy Resources. We had provided disclosure based on a deemed capital structure for NextEra Energy Resources, which was 100% debt for projects under development, 50% debt for projects that were completed. And that’s the segment disclosure for GAAP purposes that we had provided. And as I said today, really our success in the project finance market over the last decade or so have shown that we can successfully leverage NextEra Energy Resources more than, on a net basis, more than the numbers that I gave you, at the same time, not affecting our consolidated credit metrics, which is something that is very, very important to us and how we look at the business as a whole. So, during the quarter, actually we started looking at it late last year. We decided that it would make more sense to the shift the methodology a little bit from that 50, 50 and a 100 to what we talked about before to our current methodology.

And again, we give you the details in the quarterly earnings statement, I can’t remember which page it is. Right now, that means it’s roughly a 70% leverage capital structure for NextEra Energy Resources.

Paul Ridzon – KeyBanc Capital Markets

But the fact that your earnings are going down, but ROE, it’s going up, is all just about capital structure?

Armando Pimentel

That’s correct.

Paul Ridzon – KeyBanc Capital Markets

But there is unfortunately less equity for this lower earnings?

Armando Pimentel

That’s right. And again we do that. NextEra Energy Resources doesn’t provide separate financial statements, but we do provide segment financial statements in our SEC filings, and that’s where you will see the change there, and you will see the change in a go-forward basis in our investor presentations.

Paul Ridzon – KeyBanc Capital Markets

The same growth on a lower earnings point isn’t implicitly saying [ph] lower overall earnings growth or is it just –

Armando Pimentel

No, actually, if you look at that – I knew that would be a question, so we provided that slide. And I am trying to remember what slide it is, it’s slide number 5, and you could see that the earnings growth both under the old method and under the new method is virtually the same.

Paul Ridzon – KeyBanc Capital Markets

Okay, thank you very much.

Armando Pimentel

Okay.

Operator

And we will take our next question from Brian Chin with Citi.

Brian Chin – Citi

Hi, just a quick one, and I apologize if I missed it somewhere in the disclosures, is the shares outstanding assumption in the constant guidance also remaining constant?

Armando Pimentel

Brian, can you just repeat the question?

Brian Chin – Citi

Has the shares outstanding assumption in your guidance changed or has that remained the same as well?

Armando Pimentel

Has the shares outstanding guidance in our assumption from the fourth quarter of ’09 to the first quarter of 2010 has not changed. Does that answer your question?

Brian Chin – Citi

That’s it.

Armando Pimentel

Okay.

Operator

And we will take our next question from Reza Hatefi with Decade Capital.

Reza Hatefi – Decade Capital Management

Thank you very much. You mentioned providing some sort of forward financial projections, are you going to give 2011 earnings guidance during the analyst day?

Armando Pimentel

We are going to give what earnings guidance, I am sorry?

Reza Hatefi – Decade Capital Management

2011 earnings guidance?

Armando Pimentel

We are going to provide longer-term earnings guidance. We may or may not provide 2010 guidance – I am sorry, 2011 guidance at this point.

Reza Hatefi – Decade Capital Management

And when you say longer term, is that a refreshed earnings CAGR or is that something outside you?

Armando Pimentel

Yes.

Reza Hatefi – Decade Capital Management

Earnings CAGR, okay.

Armando Pimentel

Yes.

Reza Hatefi – Decade Capital Management

And just lastly, could you tell us what the earnings contribution was in the previous quarter from trading and marketing?

Armando Pimentel

On a comparable basis, it was a $0.03 increase, which was roughly $12 million to $13 million.

Reza Hatefi – Decade Capital Management

And how about just the total number for the quarter, the contribution on the quarter?

Armando Pimentel

Reza, I am sorry. We do not provide that separately.

Reza Hatefi – Decade Capital Management

Okay, thank you very much.

Operator

And we will take our final question from Phyllis Gray with Dwight Asset Management.

Phyllis Gray – Dwight Asset Management

Good morning.

Lew Hay

Good morning.

Phyllis Gray – Dwight Asset Management

Would you please go over the decrease in cash from operations quarter-over-quarter?

Lew Hay

Yes, the most significant piece of that decrease actually has to do with Florida Power and Light’s fuel clause. So, during 2009, we recovered more under the fuel clause than our actual expenses. That clause gets trued up every year, and so therefore during 2010, we are giving back some of that cash that we recovered in 2009. I don’t remember the exact number, it’s 300 and some odd million dollars though. And that’s the significant decrease in cash flows, and then it will be, again it will be updated at the end of this year on a go-forward basis. And it’s a one-time decrease.

Phyllis Gray – Dwight Asset Management

So, is your expected refund all recorded in the first quarter?

Lew Hay

It was this year, because the Florida Public Service Commission asked us to give back, instead of giving the fuel clause money over all of 2010, it asked us to give that back in January of this year.

Phyllis Gray – Dwight Asset Management

Thank you.

Operator

And that does conclude today’s question-and-answer session. I would now like to turn the conference back to Rebecca Kujawa for additional and closing comments.

Rebecca Kujawa

Thank you Mike and thank you all for joining us today. We look forward to speaking with you next week at our Investor Conference. As a reminder, the event will be webcast. Thank you.

Operator

And that does conclude today’s conference. We thank you for your participation.

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Source: FPL Group, Inc. Q1 2010 Earnings Call Transcript
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