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NextEra Energy (NYSE:NEE)

Q2 2011 Earnings Call

July 27, 2011 9:00 am ET

Executives

Armando Pimentel - Chief Financial Officer, Executive Vice President of Finance, Chief Financial Officer of Florida Power & Light Company and Executive Vice President of Finance - Florida Power & Light Company

James Robo - President and Chief Operating Officer

Lewis Hay - Chairman, Chief Executive Officer, Chairman of Executive Committee, Chairman of FPL Energy LLC and Chairman of Florida Power & Light Company

Rebecca Kujawa -

Analysts

Michael Lapides - Goldman Sachs Group Inc.

Greg Gordon - Morgan Stanley

Dan Eggers - Crédit Suisse AG

James Dobson - Wunderlich Securities Inc.

Unknown Analyst -

Gary Hovis - Argus Research Company

Hugh Wynne - Sanford C. Bernstein & Co., Inc.

Brian Chin - Citigroup Inc

Steven Fleishman - BofA Merrill Lynch

Operator

Good day, everyone, and welcome to the NextEra Energy Second Quarter 2011 Earnings Release Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the conference over to Ms. Rebecca Kujawa. Ms. Kujawa, please go ahead now.

Rebecca Kujawa

Thank you, Rufus. Good morning, everyone, and welcome to our Second Quarter 2011 Earnings Conference Call. Lew Hay, NextEra Energy's Chairman and Chief Executive Officer, will provide an overview of NextEra Energy's performance and recent accomplishments. Lew will be followed by Armando Pimentel, our Chief Financial Officer, who will discuss the specifics of our financial results.

Also joining us this morning are Jim Robo, President and Chief Operating Officer of NextEra Energy; Armando Olivera, President and Chief Executive Officer of Florida Power & Light Company; and Mitch Davidson, President and Chief Executive Officer of NextEra Energy Resources, LLC, which we will refer to with the subsidiaries as Energy Resources in this presentation. 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 our 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 news release and 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 and Exchange Commission, each of which can be found on the Investors section of our website, www.nexteraenergy.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 Lew Hay. Lew?

Lewis Hay

Okay. Thank you, Rebecca. Good morning, everyone. I'm pleased to report that NextEra Energy had strong performance in the second quarter. We grew adjusted earnings per share be approximately 6% over the prior year comparable quarter. Our strategy of investing in clean, renewable and efficient generation continues to drive solid results. We're executing well while continuing to enhance our generation portfolio by weighting it significantly toward regulated and long-term contracted opportunities that should enhance shareholder value.

At Florida Power & Light Company, we had a strong second quarter. Net income was up approximately 14% over the prior year comparable quarter, primarily due to increased investment in the business. Over the quarter, FPL averaged more than 10,000 additional customers than we had in the first 3 months of the year. In Florida, our biggest area of concern remains the difficult employment climate in the state, with an unemployment rate of 10.6% as of June 2011, which gears the depressed national employment market. However, even in a difficult economy, our generation portfolio development pipeline at FPL -- our generation portfolio and our development pipeline at FPL is setting the pace for the industry, providing significant operating efficiencies, sustainable environmental performance and strong customer benefits.

The uprate work at our St. Lucie and Turkey Point nuclear facilities in Florida is proceeding. We expect that these investments, which will add about 450 megawatts of clean, reliable, emission-free energy to our portfolio, will save FPL customers about $4.6 billion to $4.8 billion in fuel costs over the life of the plants. We've brought the third unit of our West County Energy Center online, on time and on budget. This unit adds approximately 1,220 megawatts to what is now the nation's largest combined-cycle natural-gas-fired power plant. This facility increases the efficiency of FPL's generation fleet, saves our customers money on fuel and reduces air emissions.

In June, we moved forward with the construction of the modernized $1.3 billion Riviera Beach Next-Generation Clean Energy Center by demolishing the boilers, the stacks and related equipment at the Riviera Beach plant. If you haven't taken a chance to look at it, there's a nice little clip on YouTube, kind of fun to watch. We expect the modernized plant to come online in 2014. In addition, the modernization of our Cape Canaveral plant is progressing well and is on track to meet its planned 2013 start date. These 2 combined cycle facilities, at an estimated cost of $2.4 billion, are expected to be among the most efficient natural gas plants in the nation, and we estimate that they will provide customers $850 million to $950 million in net savings over the life of the plants.

Now we indicated in FPL's 10-year site plan that we would need to bring new capacity online in 2016 to meet our projected load obligations. Earlier this month, we took an initial step to seek state regulatory approval to modernize the Port Everglades facility. Like West County, Cape Canaveral and Riviera Beach, we expect a modernized Port Everglades to offer considerable customer benefits through fuel and other savings that exceed the revenue requirements over the life of the project. If it were to come online in 2016 as proposed, the Port Everglades modernization would cost roughly $1.2 billion and would use about 35% less fuel per megawatt hour and provide customers with more than $400 million in estimated net savings over the life of the plants.

If this project moves forward, our investment in the Port Everglades modernization would make FPL's generation fleet even more efficient. We project a 21% efficiency improvement in our fossil system heat rate from 2001 through 2016, amounting to about $1.3 billion in annual fuel savings in 2016 compared to a 2001 baseline. These investments in Florida Electric Infrastructure also provides a significant benefit to customers in terms of efficiency and reliability. In fact, FPL customers now enjoy 99.98% service reliability.

Now turning to NextEra Energy Resources. Our existing wind fleet produced an additional 766,000 megawatt hours of electricity, or a 13% increase compared to the year-ago comparable quarter, driven primarily by an improved wind resource. In addition, the 909 megawatts of assets that we added during or since the second quarter of 2010 made a positive contribution to results in the second quarter. Challenges in the quarter included the extended refueling outages at the Seabrook and Point Beach nuclear facilities as well as impairments of certain assets in West Texas and in the Northeast. While the duration of Seabrook and Point Beach outages was longer than we had anticipated, both facilities are now back online and operating well. A positive outcome of the extended Point Beach outage was that we completed the uprate work on unit 2. We expect the increased output from the units to be more than our earlier estimates of 80 megawatts, and note that all incremental power resulting from the uprate investments will be sold under a long-term contract.

Since our first earning -- first quarter earnings call, we signed long-term power purchase agreements on 632 megawatts of new wind projects. Roughly 469 megawatts of that amount results from the recently signed series of contracts for projects in Ontario, Canada, which we currently expect to be online before the end of 2014. This represents a significant investment and demonstrates our commitment to growing our renewable footprint in Canada supported by long-term contracts. We're excited about the continued prospects from Canada, and with the announcement of these projects, we will be one of the largest owners of wind generation in Canada. Additionally, we have signed a 23-year contract for an average of approximately 50 megawatts of generation from our Seabrook Station nuclear facility.

It's certainly been a good quarter in terms of contracting our future revenue, and I'm proud of the teams that continue to work hard to get this done. With that, I'll turn the call over to Armando before returning for some closing comments. Armando?

Armando Pimentel

Thank you, Lew, and good morning, everyone. In the second quarter 2011's, NextEra Energy's GAAP net income was $580 million, or $1.38 per share. NextEra Energy's 2011 second quarter adjusted earnings and adjusted EPS were $500 million and $1.18, respectively. The difference between the GAAP and 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.

For the second quarter of 2011, Florida Power & Light reported net income of $301 million, or $0.72 per share. During the second quarter, FPL's contribution to earnings per share increased $0.08 relative to the prior year's comparable quarter, driven primarily by rate base growth and returns on clause-related investments, including Martin Solar and the nuclear upgrades.

As a reminder, for the term of the 2010 base rate agreement, FPL's earnings will largely be a function of its rate base and return on equity. We continue to believe that FPL will realize a retail regulatory ROE at or near 11% during each of 2011 and 2012, subject to the normal caveats we provide, including normal weather and operating conditions.

For the terms of the base rate agreement, we expect that FPL will be able to amortize surplus depreciation to offset most of the variability in its normal operations, including the fluctuations due to weather. As such, general weather variability is not expected to affect earnings. Also, keep in mind that because the return on equity is calculated each month on a trailing 12-month basis, you should expect to see continued variability in FPL's quarterly earnings.

During the quarter, we recognized $31 million in surplus depreciation and amortization, bringing the total amount recognized during the first 6 months of the year to $131 million. For the full year 2011, assuming normal weather and operating conditions, we currently expect to amortize between $180 million and $200 million, less than the full amount of the surplus depreciation for the year that is available to us under the base rate agreement. This estimate for 2011 is down from the range of $245 million to $265 million that we provided in our fourth quarter 2010 earnings call, largely as a result of the favorable weather experience in the second quarter.

Turning to our customer metrics. The economic recovery in Florida appears to continue to take hold, but the progress is slow and uneven. As a result, some of our key metrics are mixed. The table in the upper left shows the change in retail kilowatt hour sales in the quarter versus last year's comparable period. Overall, retail kilowatt hour sales increased by 2.8%, due primarily to higher weather-related usage and an increase in customers. In the second quarter, cooling degree days were well above normal and higher than the level experienced in the prior year comparable quarter. Non-weather-related or underlying usage and all other declined by 0.6%. We continue to look at the overall picture but feel it is too early to have a clear longer-term view on customer usage.

As depicted in the graph in the upper-right-hand corner, during the second quarter 2011, we had approximately 28,500 more customers than we did in the comparable period of 2010. This is the sixth quarter in a row where we have had customer increases compared to the prior year comparable period. The graph on the bottom left of the page shows inactive and low-usage customers, which we believe are indicative of the level of empty homes in our service territory. Both of these metrics have improved relative to the same time last year. In fact, the number of inactive meters has declined approximately 5% since the end of last year's second quarter. Regarding the modest sequential increase in inactive meters in June, note that prior to the recession, we experienced strong seasonal patterns that would result in higher levels of inactive meters during the summer months. Although we cannot be certain, it is possible some seasonality may be appearing again after being largely masked by other drivers during the recession.

The chart at the lower right-hand corner shows weekly unemployment claims in Florida. The chart shows that initial jobless claims are well below the levels reached during the height of the recession. Nevertheless, the downward trend is slow, it's slope is not as steep as we would like to see, and we have seen a small uptick in the data since April. A number of the economic indicators we follow have similar patterns. There have been improvements from the peak of the recession, but progress is slow and, at times, a bit bumpy.

In an effort to continue to support economic development in Florida, we've just created and staffed a new Office of Economic Development to help the governor and local economic development organizations attract businesses to the state. We believe that when businesses thrive and grow, it drives the economy and creates jobs, which benefits all of us. We continue to look for ways to partner with our communities to spur economic development here in Florida. We are the largest investor in the State of Florida, having invested on a cumulative basis approximately $33 billion in infrastructure investments. In the last 5 years alone, that investment total is approximately $12 billion.

Overall, we continue to be positive regarding future developments in Florida and believe we have one of the best utility franchises in the country. Although Florida's economy has not rebounded completely from the recession, we are optimistic that the positive attributes of Florida will drive greater long-term growth over a sustained period as compared to other parts of the country. As such, we continue to make significant investments in our regulated businesses in Florida, which provide both direct benefits for our customers and earnings growth for our shareholders.

Let me now turn to Energy Resources. We are pleased that since our first quarter 2011 earnings call, we secured approximately 632 megawatts in wind PPAs for new projects, of which roughly 469 megawatts are for Canadian projects we plan to put in service in 2013 and 2014. We were awarded these feed-in tariff contracts earlier this month by the Ontario Power Authority. The opportunity to develop these projects is consistent with our comments over the last several years indicating that we plan to develop more renewable energy in Canada.

During June, we closed the previously announced acquisition of White Oak, a 150-megawatt wind facility in Illinois, and at the same time, we completed the differential membership transaction, often referred to as tax equity by others, relating to the project. This is the fourth differential membership transaction we have completed in the last 15 months. These transactions are attractive as they allow us to allocate the tax attributes of our investments to third-party investors that can more efficiently utilize these benefits.

In essence, these transactions allow us to monetize the tax benefits of our investments in a timelier manner. We will continue to look for opportunities with both our existing portfolio and new investments to structure these tax-benefit-sharing arrangements.

On the solar front, our 2 primary solar projects, Genesis and Spain, continue to move forward. During the quarter, we were notified by the Department of Energy that our Genesis solar project received conditional approval to receive a loan guarantee from the government. This guarantee would lower the debt financing cost for the project. Our Spain projects are under construction and are progressing well.

Turning to our nuclear portfolio. During the quarter, refueling outages at our Seabrook Station and Point Beach nuclear plants reduced EPS by $0.09, of which approximately $0.045 was due to the extended portions of the refueling outages. The Point Beach outage work included work associated with the upgrade of unit 2. That work consisted of approximately 3 million man hours and produced more than 80 megawatts of additional power. This is the first of 6 planned upgrades at FPL and Energy Resources nuclear units during the next 2 years.

Energy Resources reported second quarter 2011 GAAP earnings of $239 million, or $0.57 per share. Adjusted earnings for the second quarter, which exclude the effect of non-qualifying hedges and net OTTI, were $159 million, or $0.37 per share.

Energy Resources' second quarter adjusted EPS decreased $0.11 from last year's comparable quarter. These results included a negative $0.08 impact from the previously discussed asset impairment charges. New wind and solar investment contributions increased $0.03 relative to last year as a result of our adding 909 megawatts of wind and solar during or after the second quarter of 2010.

Our estimate for full year 2011 CITC elections is unchanged from the first quarter at roughly 275 megawatts, including the 150 megawatts associated with the differential membership transaction we completed during the quarter. Although the full year earnings impact is roughly the same, under a differential membership transaction, the earnings impact is required to be fully recognized in the period the assets are placed into service as opposed to being allocated ratably throughout the year. In addition, this benefit is reported in operating income as opposed to income taxes. This resulted in a $0.01 increase in contributions from CITC this quarter compared to the prior year comparable quarter. We estimate that the full year impact of lower CITC elections in 2011 relative to 2010 will be approximately $0.07.

In aggregate, the existing asset portfolio contribution was roughly flat relative to the prior year comparable quarter. Existing wind assets contributed approximately $0.07 per share as compared to the year-ago period, driven primarily by an improved wind resource and lower depreciation expense. These items were partially offset by lower West Texas pricing. The wind resource was approximately 111% of normal, which is an improvement relative to the prior year comparable quarter of 96%.

In the merchant portfolio, Seabrook's contribution to earnings decreased $0.09. The refueling outage at Seabrook reduced earnings by $0.07 per share as compared to the prior year, while the remaining $0.02 decrease was largely a result of lower hedge prices, partially offset by higher gains in the decommissioning funds.

In contracted generation, Point Beach contributed a negative $0.01. The refueling outage for unit 2 contributed a negative $0.02, substantially all of which was related to the extended portion of the outage. This was partially offset by higher gains in the decommissioning funds. White contributed $0.02 relative to last year due to the improved pricing it receives under the new long-term agreement. The remaining $0.01 of positive contributions from existing assets came from a number of small items, none of which is particularly noteworthy. The customer supply in power and gas trading businesses were down $0.01 due to weakness in the full requirements business. Power and gas trading were roughly flat.

Asset sales contributed negative $0.01 from the lack of a gain realized in the prior year comparable quarter. During the quarter, we recognized impairment charges associated with certain assets, totaling $0.08 per share, $0.05 of which is due to an assessment of the fair value of our older wind assets in West Texas as a result of recent market value indications. An additional $0.02 relates to an impairment taken on a 2039-megawatt of oil-fired facilities in Maine as a result of a recently issued proposed Environmental Protection Agency regulations. Finally, $0.01 relates to the impairment of an older 50-megawatt natural gas peaking facility in Pennsylvania as well as some other impairment costs.

All other factors contributed negative $0.04 per share, associated with share dilution and higher interest expense due to higher borrowings from the growth of the business. In the appendix of this presentation, we have included the updated hedging disclosure information that we typically provide in our quarterly earnings report. For 2011, equivalent gross margin estimates have been updated to reflect actual performance during the second quarter, including the impact of the extended outages at Seabrook and Point Beach and the impairment charges. We have also reduced our expectations for the power and gas trading businesses. The prevailing lower price and volatility conditions across the power and gas markets have reduced the opportunities we see for these businesses in the near term. In light of this view, we have also reduced our expectations for these businesses in 2012. All other changes in 2012 were minor. As a reminder, the 2012 slide does not yet include contributions from assets we expect to put in service in 2012.

Now we would like to turn your attention to our wind and solar development pipelines. As we have discussed over the last 9 months or so, obtaining long-term contracts on our wind pipeline opportunities has been a priority for us. Our intense focus on contracting assets along with an improving economy, which benefits energy load, and generally better economics is what we believe is driving the improved results we are seeing. In fact, Energy Resources has had plenty of success in 2010 and 2011 by signing 1,823 megawatts of long-term PPAs for new wind projects.

We have signed more long-term PPAs for new wind projects thus far in the first 7 months of 2011 than we did in all of 2010. As we stand today, we now have 1,116 megawatts of long-term contracts for U.S. and Canadian wind projects that we have already put in service in 2011 or plan to put in service in 2011 and 2012. In addition, this month, we were awarded roughly 469 megawatts of contracts with the Ontario Power Authority for assets to be put in service in 2013 and 2014. Together, these projects represent an estimated $1.5 billion to $1.7 billion of planned capital expenditures in wind generation in 2011 and 2012 and $1.2 billion to $1.4 billion expected to be spent in 2013 and 2014.

We are pleased to get an early start on the 2013 and 2014 pipeline, particularly with projects not dependent on U.S. incentive policies. Although we continue to believe U.S. renewable policies will support wind development beyond 2012, we are pleased with our continued expansion in Canada. In addition to our strong wind development pipeline, we also have our large solar thermal projects, Genesis and Spain, as well as some solar PV projects, in which we expect to spend approximately $2.3 billion to $2.7 billion between 2011 and 2014.

To summarize 2011 second quarter results on an adjusted basis, FPL contributed $0.72, Energy Resources contributed $0.37 and Corporate and Other was a $0.09 contribution, for a total $1.18 per share for the current quarter. Corporate and Other increased $0.10 versus the prior year's comparable quarter, primarily due to previously mentioned state tax law changes, partially offset by other tax adjustments.

Before turning the call back over to Lew, I want to reiterate our view that our adjusted EPS for 2011 will likely fall in a range of $4.35 to $4.65. We continue to believe that our adjusted EPS will grow at an average of 5% to 7% per year through 2014 relative to a 2011 base, subject to all the usual caveats we provide. Finally, we continue to explore the option of selling the gas-fired generation assets that we mentioned last quarter. The process is moving forward, and we plan to update you further on or before the third quarter call.

With that, let me turn the call back over to Lew for some closing remarks.

Lewis Hay

Okay. Thank you, Armando. I want to close with some perspective on why we believe NextEra Energy remains well positioned for growth.

In total, we have a strong backlog of approximately $12 billion of committed growth projects, including the major capital projects under construction at FPL, the contracted wind and solar investments at Energy Resources and the regulated transmission investments at Lone Star Transmission. Of course, our development pipeline includes many other potential projects that we continue to work on. We expect that by 2014, approximately 80% of our adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, will come from regulated or long-term contracted businesses.

At FPL, we're executing well in the midst of one of our largest-ever development cycles, which we believe will drive significant savings for our customers. The $5.8 billion in major capital projects under construction includes modernizations of Cape Canaveral and Riviera Beach, uprates at our St. Lucie and Turkey Point nuclear plants and our Energy Smart Florida smart grid project. In addition, as previously discussed, our proposal to modernize the Port Everglades facility would add incremental investment of approximately $1.2 billion through 2016. We expect all of these projects to improve the long-term affordability and reliability of our service to FPL customers.

At Energy Resources, we plan to invest more than $5 billion between 2011 and 2014 in renewable projects, for which we already have long-term contracts. Our wind development pipeline remains robust, and we remain confident in our ability to grow our wind fleet by 1,400 to 2,000 megawatts between 2011 and 2012. As we also discussed today, we have already started to build a pipeline of contracted projects we plan to put into service in 2013 and 2014. In addition to wind, we continue to believe solar is an attractive growth opportunity. We have 415 megawatts of long-term contracts in hand today for projects we plan to put into service between 2011 and 2014. Construction work at our large solar thermal projects, Genesis and Spain Solar, is proceeding well.

Finally, Lone Star Transmission represents approximately $800 million of capital expenditures that will be rate-regulated in Texas. We expect construction work on Loan Star's credit line to begin later this year and for the line to be energized in 2013. All told, we have a development backlog that we feel confident in executing and that will provide significant benefits to customers and shareholders alike. As one of the cleanest energy producers in the country, I believe NextEra Energy is well-positioned for the future in the face of increased federal regulatory activity. We've held ourselves to a higher standards, and in doing so, we are serving our customers well, doing our part for the environment and driving shareholder value.

With that, I'll turn the call over to the conference moderator for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] And for our first question, we go to Daniel Eggers with Crédit Suisse.

Dan Eggers - Crédit Suisse AG

Lew, there's been a lot of M&A activity out in the market again, and you guys have been referenced in at least one transaction. Can you just talk or remind us a little bit about how you guys think about M&A and the strategic direction for NextEra, which seemed to go a little different direction on that deal that was talked about?

Lewis Hay

Not exactly sure what deal you're talking about, but even if I did know, I wouldn't comment specifically on it. From an M&A standpoint, our primary focus really has been on asset acquisitions that augment our portfolio and augment our strategy. I know there's been a lot of other types of activity going on in the industry today. But we're very comfortable with our overall position in the industry, and we do see opportunities, priced right, of course, that could potentially supplement the growth that -- our organic growth. Having said that, I think you all know us pretty well by now. We've been pretty much the same team that's been doing this for 10 years or more, and we try to be very disciplined in everything we do. And while we may look at a bunch of things that we think make sense, we often find that others place higher value on things that we look at than what we place on it. So we continue to look, but very selective in what we do.

Dan Eggers - Crédit Suisse AG

Okay. And I guess just on renewable policy -- renewable tax policy in the U.S., with obviously a very dynamic situation around the budget, what language or what comments have you guys been hearing as far as potential changes in policy? And if they were to start stripping out things, is there any risk of retroactive or nonperformance on 2011, 2012, 2013 tax policy commitments as you guys see talk today?

Lewis Hay

Yes. We've heard nothing about anything that would be retroactive about existing projects that have already earned their ability to have PTCs and things of that sort. And we've heard nothing, and frankly, the way the laws are written, it would be I think almost -- I guess with the government, you can never say totally impossible. But it's pretty ironclad that the ones that we've earned, we get. And I will remind you that quite a few of the projects we've been -- the more recent projects we've been doing the CITC instead of PTCs. But having said that, we have all the reason in the world to be confident that we're going to continue to earn the PTCs from our existing fleet.

Dan Eggers - Crédit Suisse AG

Maybe I didn't say that as well as I should have. With the projects you guys have secured in backlog on the wind side, presumably a chunk of them are based on the idea of mitigating the PTC or an ITC. As you guys understand it, if laws were to be changed as part of this budget compromise, would the tax benefit underlying some of those contracts be at risk of going away, forcing you to reevaluate the backlog commitments?

Lewis Hay

I don't believe so. All these projects fit within the current wall, the current statutes, and meet not only that but meet all the Safe Harbor requirements.

Operator

And for our next question, we go to Steve Fleishman of Bank of America.

Steven Fleishman - BofA Merrill Lynch

Lew or Armando, could you -- on this natural gas sale, I know you highlighted today a lot of the large capital commitments of new projects. Is that somewhat aligned kind of with the goal of saying that would be the target of where the proceeds for this potential sale would go to, to financing the -- these backlog projects?

Armando Pimentel

Not exactly, Steve. I mean before we had this, the gas asset sale, before we were exploring the sale of those gas assets, clearly we had a longer-term plan as to where we were going to get the both the debt and the equity to be able to fulfill these commitments. I think what I've said specifically on the gas asset sales, and, again, we're still exploring the opportunity, I don't know whether it will come to fruition or not, but assuming that it does, what I've said about any proceeds that we received from those projects is, if we have new opportunities, new opportunities that we have not yet discussed, clearly, that would be one avenue where we could use the proceeds to invest in that new commitment. If there are no new opportunities that come up other than those that we have in the forecast and we've discussed with you, then we would use those to try to determine whether we would want to rebalance our capital structure. Our comments on our capital structure before, I think, have been relatively clear, back starting in May of 2010, which is we want a strong balance sheet, we're comfortable with our current credit metrics. If we were to receive proceeds from an asset sale, then we would probably look to rebalance our structure to be consistent with our current structure and not look to necessarily improve or deteriorate from where we currently are.

Steven Fleishman - BofA Merrill Lynch

Okay. And then, I guess, secondly, on the first quarter call, you highlighted increased optimism on RFPs in getting, potentially, new projects. Was that really directed mainly to the projects that we saw successful here in the second quarter? Or is that broad comment still relevant to other things that you're looking at?

Armando Pimentel

It’s still relevant. We continue to be -- I think Lew mentioned or maybe I mentioned, I apologize, I forget. But we've got 1,115 or 1,116 of signed power purchase agreement on wind for projects that we expect to build in 2011 and 2012. But we also indicated today that we continue to feel comfortable with our '11 and '12 pipeline -- or '11 and '12 goal of 1,400 to 2,000. So since 1,100 is short of the 1,400, we should assume that there are still a number of opportunities out there that we feel quite comfortable with. And many that I hope -- I'm not promising anything, we're not promising anything. But some that, certainly, I would hope to announce in the third quarter call.

Operator

And for our next question, we go to Greg Gordon with the ISI Group.

Greg Gordon - Morgan Stanley

What are -- what were the economic drivers or other drivers that led to such a big chunk of PPAs being brought across the goal line in the second quarter? Has something changed in the dynamic, either the economic dynamic or the negotiating dynamic, with your counterparties in the wind business? And are your target IRRs holding up?

Armando Pimentel

A couple of things. One, I think it's right to focus on the second quarter signings, but this is really something that started, I'd say, later or at least the second half of 2010. We came into this year, in January this year, with 553 megawatts of contracts in hand for 2011 and 2012 wind. That was a very large number for us to have in hand for construction when you kind of look back at our history. In the quarter, we signed another 563 megawatts of wind, so a little higher than what we came into the year with. I've got -- 469 of that was a big chunk in Canada, where we were awarded 6 projects at one time. We've been spending time in Canada for now for the last 3 years or so. And we've gotten some success there. So I wouldn't -- we're certainly harping on it, we're very proud of it, we're happy about it, we've been working hard on it. But some of those contracts could have been done in the first quarter as opposed to the second quarter. Some of the ones in the second quarter could have been signed in the third quarter as opposed to the second quarter. I think the bigger focus here is the trend. Really since the second half of 2010, we have been successful in signing long-term agreements up to the point now where we've got over 1,100 megawatts just for '11 and '12 in hand. So I think it's a variety of factors, and I've mentioned them before. Let me just spend a couple of minutes on increased load, where you've got increased economic activity in the U.S. that's leading to increased load, that's a huge positive. The fact that the tax incentives in the U.S., at least at this point and at the end of 2012, I think is also moving people to get something done a little sooner. The economics have improved a little bit. I talked about the cost have come down, the CapEx has come down for these projects. That's helping with the economics. All that, I think, when you put it together, in addition to the focus that we put on it at a senior management level, has helped. Your last point on margins, as we continue to look at the margins that we're getting, across -- on an average basis, I think both Lew and I have said there are some contracts that we signed that don't meet this criteria. But on an average basis, we are still getting low double-digit after-tax unlevered returns. That's what we've said for a number of years we've been getting, and on average we're still there.

Greg Gordon - Morgan Stanley

Great. A couple other questions. I may have missed it, but can you explain what the $0.08 of impairments exactly were related to in the quarter?

Armando Pimentel

What the -- I'm sorry, Greg, what the...

Greg Gordon - Morgan Stanley

The $0.08 of impairment charges?

Armando Pimentel

Right. You can think about them in really in 3 buckets. The first bucket is 3 wind projects that we have in West Texas. Those wind projects have older turbine technology. As you and others will recall, we changed our depreciable life for what we described as newer wind turbine technology in the first quarter. These were not changed. This is older turbine technology. We actually received -- in April of this year, we received an unsolicited offer to buy a couple of those sites. We weren't looking to sell them, but when someone made an offer, we decided to enter into some negotiations with them. Based on the outcome of those negotiations, we, looking at the accounting rules, believed that we had to look at them for impairment. We did. And 3 of those projects in West Texas were impaired. That's about $0.05. Our fossil plant up in New England that we have, oil-fired plant. Because of the proposed Toxics Rule from the EPA, we took a look at that plant. We took our best shot at what we believed the final outcome of that rule would be. We wrote that down. That was a couple of another $0.02. And then the other $0.01 is really a variety of matters, including a small 50-megawatt peaker that we have up in the Northeast.

Greg Gordon - Morgan Stanley

Great. Final question. When we look at your 2012 EBITDA range projections for the different subsegments of the NextEra Energy business, it's the -- you've lowered your aspirations for power and gas trading a fair bit and just modestly for customer supply. What dynamics in the market have caused you to make those adjustments?

Armando Pimentel

This isn't -- I'm certainly not comparing us to other folks that are in this business. I mean, we just -- we talk about, or folks like to talk about our power and gas trading business quite a bit. It's still not a significant part of our business. But if you look at what others have said, I mean, it’s not any different than what we're seeing. There's low volatility, there's low prices in this business. And because of that, we just don't believe there's as many opportunities. We're not pursuing as many opportunities, and therefore -- which, by the way, is okay with us. I mean, we're going to pursue those opportunities that are there that revolve around our assets. But based on what we saw late in 2010, what we've seen so far in 2011 on that side of the business, it just makes sense to reduce our expectations for 2012.

Operator

And for our next question, we go to Brian Chin with Citigroup.

Brian Chin - Citigroup Inc

Can you talk about what has historically been the earnings contribution for energy efficiency programs?

Armando Pimentel

Contribution to earnings?

Brian Chin - Citigroup Inc

Right. For energy efficiency programs for Florida Power & Light, if any.

Armando Pimentel

I would say, tiny, very tiny. It’s so tiny that I don't -- it's not something I follow.

Brian Chin - Citigroup Inc

Okay, fair enough. So that means that the PSCs Tuesday's decision in terms of energy efficiency programs, should we assume that, that also has a fairly immaterial effect on the earnings outlook as well?

Armando Pimentel

Okay. Well, now I understand where you're going, now. So yesterday's -- I think it was yesterday, maybe it was -- yesterday was Tuesday. Yesterday's result at the Public Service Commission, we certainly support where they're going. One of the things that we've certainly been concerned about is the upward pressure in some of our customers' bills as a result of some of the decisions that were reached by prior commission. So slowing down, taking a look at it further, but in the meantime, not having to adopt the newer efficiency goals we think is the right way to move forward for us and for the commission. In terms of what that means for the future use of energy, which I think, Brian, is maybe where you're going. We don't know. It's not something that we sit back here and try to calculate. Our primary concern was that any increase in the customers' bills made sense from the customers' standpoint. And we didn't think that such an aggressive program as that, that had been previously proposed was appropriate.

Operator

For our next question, we go to Jay Dobson with Wunderlich Securities.

James Dobson - Wunderlich Securities Inc.

Armando, I was hoping you could revisit the question I think Steve asked, the very end of your answer and try the rebalance capital structure again. I did not at all understand what you said.

Armando Pimentel

Okay. Back in 2010, in May, we talked about our strong balance sheet, our strong capital position. We indicated a capital structure, an adjusted capital structure that was somewhere around 50% debt and 50% equity, again, on an adjusted basis, was reasonable for us and was a policy that we would follow longer term. So if you -- and I've repeated those comments several times since May of 2010. If you follow-up on that, right, and you get proceeds -- and this is hypothetical -- you get proceeds from an asset disposition, and there are not new opportunities that you already don't have in your forecast, then you would use those proceeds to rebalance your capital structure back to an adjusted 50-50 basis, which we have said over time works for us.

James Dobson - Wunderlich Securities Inc.

Perfect, that is very clear. I just want to make sure I got that right. Could you then go on to the $0.10 benefit versus a year ago in the corporate and other, talk a little bit about these tax benefits and what exactly is going on there? And how much of that is sort of a go-forward basis?

Armando Pimentel

Well, the only -- you're talking about the current quarter?

James Dobson - Wunderlich Securities Inc.

Yes, the $0.10. So you got $0.09 for corporate and other benefit this year versus the loss of $0.01 a year ago.

Armando Pimentel

Yes, there's not really much more to add to that. There were several states that changed their tax laws during the second quarter. I mean that's when these legislators are in session all across the country. We're in 26 or 27 states at this point on the Energy Resources side of the business. And as those states change the way they calculate state income taxes or they change their tax rates, for GAAP purposes, you got to go to your deferred income taxes that you have on the books, and you have to reprice of them. And that's exactly what we did. I mean there's nothing, really, else to say about that.

James Dobson - Wunderlich Securities Inc.

Okay, great. And then last on the CITCs, the $0.07 that essentially will be the difference in the second half relative to a year ago. Would you take a stab at trying to split that third quarter to fourth quarter? The obvious preponderance historically has been signing up these contracts sort of towards year end. So my gut tells me a lot of that will be in the fourth quarter, but was wondering if you couldn't give us at least some idea how that $0.07 might split.

Armando Pimentel

The $0.07 actually is the annual difference between 2011 and 2010, right. So that's -- I would say that most -- you know what, I was going to say fourth quarter. It's probably ratably with one exception, and the exception will just get into a difficult explanation. But it's ratably, and the reason it's ratably is because under the accounting rules, the full benefit that you're expecting for the year, you actually have to allocate on a quarterly basis, right? You allocate to each quarter based on what you expect to have of the end of the year, and the allocation is actually based on the amount of pretax earnings that you have in each quarter. So if you would have had the same expectation at the beginning of the year for 2010 and 2011, right, you would have said 600 megawatts of CITC for '10 and '11, then the only difference on the quarterly allocation basis would be the difference in pretax income for each quarter. So last year, I think we started the year with 600 megawatts of expected CITC. This year we started, I think, with 275 megawatts of CITC. The difference of that is $0.07. Assuming no change in pretax earnings allocation between the quarter, let's just take that as an assumption, the $0.07 would be ratably allocated throughout the year. The one exception is we talked about White Oak, 150 megawatts, in the second quarter, because that was a project financed under differential membership interest or tax equity. The full benefit of that one actually happened in the second quarter.

Operator

We'll go next to Michael Lapides with Goldman Sachs.

Michael Lapides - Goldman Sachs Group Inc.

When you're thinking about next year's Florida rate case and kind of what the requests will likely be, how much does -- what's happening with the depreciation reserve impact what your rate case request could potentially be? Meaning, how much do you think you could potentially have to carry over into 2013 or beyond or as a potential kind of negotiating piece as part of the rate case process?

Armando Pimentel

I hate to speculate or be premature on 2013 and the rate case, something that at least at this point we have not committed to. I think the only piece that would be fair to say is that in the settlement agreement, right after the rate case, that agreement indicated the amount that would be left over, presumably you would use the full amount through 2012. That was the expectation of the agreement, that the amount that will be left over, which was roughly $120 million or so, would be amortized in 2013. So I think it's fair to say that. But I think it's some speculation as to what we would say would happen to anything that would be unused based on the expectations that we, the staff and the intervenors had going into the 2010 settlement agreement.

Michael Lapides - Goldman Sachs Group Inc.

Okay. But it's safe to assume that if you don't use of the full amount over the next 6 quarters through the end of 2012 -- I mean, through the end of 2012, that something in the rate-making structure will have to be done in terms of dealing with the leftover depreciation reserve amount?

Armando Pimentel

I think it's fair to say that, right. Obviously, you've gone through the end of 2012. In your example, you haven't used all of the amortization. And so the expectation that you would use that roughly $120 million that was left at the end of 2012 in 2013, I think there would have to be a discussion as to whether that $120 million still remained the reasonable number and the appropriate number to use in 2013.

Gary Hovis - Argus Research Company

Got it. Last, coming to Texas a little bit. Can you talk a little bit about what the progress you're seeing not just in your CREZ transmission project, but CREZ overall in terms of meeting the original deadlines and what that could mean for some of your wind plants there?

Armando Pimentel

We're actually seeing -- we just had a discussion about this the other day. We're doing well. We're on plan to certainly have that line up in 2013. And based on the information that we have, it also appears that the other participants are doing well. Again, based on the information we have, which is obviously a big positive not just for our wind fleet, but also a big positive for the customers of -- the customers in Texas, all customers in Texas. So I don't -- I can't quantify it, but I would say that if it stays, if our line and the other lines stay on plan, that I would see very little downside to our wind assets in Texas, and, clearly, there would be more upside.

Operator

We'll go next to -- I apologize, Verduga Murphy [ph] with CDP capital.

Unknown Analyst -

A couple of things. One, in terms of the gas-fired generation assets that you're potentially looking to monetize, unless I missed it, I apologize, can you remind us what the book value is of the group of assets that you are marketing or have potentially have available?

Armando Pimentel

We have not. You didn't miss it, because we haven't said what that is at this point.

Unknown Analyst -

Because I would certainly help in terms of some of the reallocation questions and some of the other questions about how you get to your balance capital structure. So you can't help us even in terms of a broad range so that we have something to work with?

Armando Pimentel

Yes. That actually, if I understand your question correctly, we haven't said for a number of reasons. One of the reasons is exactly what you're trying to get to. And I really, at this point, don't want people to kind of speculate as to what the proceeds are and then kind of back into some numbers. But the more important question isn't necessarily what the basis is. The more important question is what is the debt on those assets, right? Because if you sell the assets, you're going to have to potentially use some of the proceeds to pay the debt on those assets. But we haven't said that either. We haven't talked about the carrying costs, we haven't talked about the debt. We'll have more to -- everybody just needs to be a little patient. We'll have more to say, hopefully, before the third quarter earnings call.

Unknown Analyst -

Okay, that's fair. And also, can you talk about your investment in PetroQuest and how much of that is to date, kind of what the strategy is and what future capital commitments you have going forward there and just what -- kind of how that fits into things?

Armando Pimentel

I don't have the numbers with me. So let me just kind of reference what we have said before, and PetroQuest, obviously, is part of this. We indicated in May of 2010 that we would expect about $400 million to $600 million of capital into this business. And this business really is the PetroQuest business, which is the shale drilling business. We're not at the $600 million, we're not at the $400 million at this point, so we continue to deploy capital towards our PetroQuest joint venture and other joint ventures. If I don't know what the number is, though, that means it’s not something that I follow every day. So it's important, I don't want to say it's not an important part of the business. But we're spending this year an estimated $6 billion to $6.5 billion of CapEx at combined NextEra Energy. We might spend $100 million to $150 million of that in gas infrastructure. So good business, important part of the business, just not very significant.

Unknown Analyst -

And when we think about that capital, how should we think about that being capitalized? Should we just assume the 50-50 kind of targeted goal? Or is it going to be different?

Armando Pimentel

You should assume -- if you're talking about the gas infrastructure part of the business, is that what you're talking about?

Unknown Analyst -

Yes, the segment.

Armando Pimentel

Okay. Well, you should assume that it's capitalized no different than any other part of our business, so adjusted 50-50. You should not assume that we make investment decisions on a 50-50 basis. At the end of it, we're making investment decisions based on the risks associated with that business. The risks, obviously, of that business are different than the risks that we would see for Energy Resources or other parts of the business, right? And so therefore, the weighted average cost of capital that we believe we would have to get from that business is different. But if you're talking about how it's capitalized from a corporate level, it's -- our entire balance sheet is capitalized on the Energy Resources level to a 50-50 business on an adjusted basis. And by adjusted basis, I mean they're -- we talked about this before. They are -- equity is not the only thing that gives you equity credit. There are equity-linked instruments that give you equity credit. We've used those before. We get credit from the agencies because they have a high amount of credit -- of equity content. So don't assume it's just debt and pure equity.

Unknown Analyst -

Okay, and one last question on this topic. The $400 million to $600 million that you talked about in the business. Over what time period was that contemplated? And under what circumstances or situations would you contemplate potentially increasing that in some fashion?

Armando Pimentel

It was through 2014. And if it is increased, and we have no plans to increase it at this point, it wouldn't be a very significant increase.

Operator

And for our final question, we go to Hugh Wynne with Sanford Bernstein.

Hugh Wynne - Sanford C. Bernstein & Co., Inc.

I just wanted to get your medium-term outlook for the growth of renewable generation in the U.S. and the opportunities it creates for you. On the one hand, if we look at the mandatory renewable generation targets set by the 30-odd states that have in the next 5-year period of fairly rapid growth. But my concern is that, that growth is concentrated in a handful of states that have the most ambitious targets and that meeting those targets may translate into rate increases that could translate into a bit of political backlash against the cost of renewable generation, particularly as the federal tax incentives roll off in 2014. So I was wondering what your medium-term outlook for the growth of U.S. renewable generation is, the opportunities it creates for you, and what are the risks to that outlook?

James Robo

Wynne, this is Jim Robo. I think, first of all, you have to realize we think about the renewable business in North America is holistically, right? And we talked about that today. And solar, for example, has incentive visibility through the end of 2016. We have a whole Canadian pipeline that right now runs through the end of 2014. We have a lot of visibility into both of those, and we have a wind pipeline that runs through the end of 2012. And right now, there's some uncertainty as to what happens post-2012 from a federal incentive side -- standpoint on wind. We feel like in the long term that wind is an important piece of the energy mix in the U.S. and that there's going to be continued support for that. But there's some uncertainty around the short-term impacts, particularly in 2013, if we're watching closely. But in the long term, we're very optimistic about the wind business in the U.S. as well for one of the reasons you talked about, which is the state renewable portfolio standards. So I think we can talk to our own backlog and our own portfolio and, say, we just talked about it today over several billion dollars of wind and solar that we have signed today that we're going to be building between now and the end of 2014. And I can tell you we're not sending the teams home tonight and saying you're done for the balance for the next 3 years. They're going to be working on new things as well to get done between now and the end of 2014. So we feel very good about our own prospects.

Operator

And ladies and gentlemen, this does conclude today's conference. Thank you for your participation.

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