Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Jim Von Riesemann – Director, Investor Relations.

Lewis Hay III – Chairman and Chief Executive Officer, FPL Group.

Armando Pimentel Jr. – Chief Financial Officer (designate), FPL Group.

James L. Robo – President and Chief Operating Officer, FPL Group.

Moray P. Dewhurst – Chief Financial Officer, FPL Group.

Armando Olivera – President, Florida Power & Light Company.

Mitch Davidson – President of FPL Energy

Analysts

Paul Ridzon – Keybanc Capital Markets

Steve Fleishman – Catapult Capital Management

Mark Segal – Canaccord Adams

FPL Group Inc. (FPL-OLD) Q1 2008 Earnings Call April 30, 2008 9:00 AM ET

Operator

Good day everyone and welcome to the FPL First Quarter Earnings Release Conference Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to your host, Mr. Jim Von Riesemann. Please go ahead sir.

Jim Von Riesemann

Thank you Darryl. Good morning everyone and welcome to our First Quarter 2008 Earnings Conference Call. This morning we’ll begin with opening comments by Lu Hay, FPL Group’s Chairman and Chief Executive Officer. Lu’s comments will be followed by an overview of our performance for the quarter provided by Armando Pimentel, FPL Group’s Chief Financial Officer designate. Also with us this morning are Jim Robo, President and Chief Operating Officer of FPL Group, Moray Dewhurst, FPL Group’s Chief Financial Officer, Armando Olivera, President, Florida Power & Light Company, and Mitch Davidson, President of FPL Energy. Following our prepared remarks, our senior management team will be available to take your questions. Let me remind you that our comments today will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements made here and about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. Discussion of factors that could cause actual results or events to vary is contained in the appendix herein and in our SEC filings. And now, I’d like to turn the call over to Lu Hay. Lu?

Lewis Hay III

Thanks Jim. Good morning everyone. This morning we’re pleased to report another quarter of strong earnings for the consolidated operations of FPL Group. The power having a diversified portfolio was demonstrated clearly this quarter as our financial results were driven by outstanding performance of FPL Energy, but was somewhat hindered by the economic slow-down in Florida which has driven revenue growth and earnings lower for the power and light. The first quarter story at FPL Energy is very positive. Results were driven by new project additions including new wind and the Point Beach nuclear facility, improved pricing at some of our existing assets primarily due to the rolling off of old hedges, and higher earnings from our wholesale marketing and trading operations. These were partially offset by an unplanned outage at our Seabrook plant and increased interest expense. We had high hopes for FPL Energy’s performance with first quarter and in fact we did even better than we expected. Since last year’s first quarter, we’ve added 2171 megawatts of new generation capacity to FPL Energy’s portfolio. Of that, approximately half are new wind facilities which we developed, constructed, and are now placed into service. Virtually all of the remaining plant addition is the Point Beach facility. For the full year, we are on pace to add 1100 to 1300 megawatts of new wind assets. We’re confident that 2008 will be another record adjusted earnings year for FPL Energy.

The first quarter at Florida Power and Light was weaker than expected. While retail base rate revenue increased approximately 30 million in this year’s quarter, the increase in new customers and customer usage was less than what we had expected. As far back as our third quarter earnings call last year and as recently as our investor’s conference last month, we’ve discussed the slow-down in new customers that we’re seeing in FPL service territory. It’s clear that economic conditions in Florida, especially those related to the housing market are challenging and as long as that continues, it will affect our revenue and earnings growth at FPL. There are, however, other signs to tell us that Florida economy is not all bad. For example, personal income continues to grow albeit at a slower rate than in the past years, unemployment remains low, and recently, there have been some modest signs of improvement in the housing market. We expect the remainder of this year to be challenging, but remain very bullish on the longer-term prospects for growth in Florida. We believe what we’re seeing is unusual and cyclical in nature and that we will in time revert to a growth rate more in line with our historical balance. In light of lower than anticipated revenue, we’ve taken some steps to reduce O&M and capital expenditures at FPL. These initiatives have reduced O&M expenses relative to our original plan, and we expect O&M to be lower than plan for the remainder of the year. We continue to proactively look for opportunities to reduce O&M and capital expenses while still providing high quality service to our customers. Moreover, O&M and CapEx spending levels must be balanced with the fact that we are comfortable with the long-term growth targets for this business.

Even with some temporary slowing in growth, we still have significant opportunity to invest in new assets at Florida Power & Light. We will continue to make investments which will improve our efficiency, lower our customer’s fuel bills, and improve our already clean environmental profile. We believe that these first quarter results are a good start to meeting our 2008 earnings target for FPL Group. We continue to believe that given normal weather and no further material declines to the Florida economy, our previously announced adjusted earnings per share expectations for 2008 of $3.83 to $3.93 remains a reasonable estimation of our full year results. Although it is still early in the year and much can change, it seems likely that Florida Power & Light will be challenged to meet its plan while FPL Energy is well positioned to exceed our expectations. Now, while we’re on the topic of 2008 earnings, I’d like you to just keep in mind that there are two items that will impact year-over-year comparisons especially for the second and third quarters of 2008. In this year’s second quarter, we had refueling outage at Seabrook, and also while the nature of our contract at Point Beach results in a disproportion amount of its earnings falling in the third quarter of the year. For 2009, we continue to see adjusted earnings per share of $4.15 to $4.35 cents as a reasonable range. Now, I’d like to turn the call over to Armando Pimentel who will provide more details behind the first quarter results.

Armando Pimentel Jr.

Thank you Lu. In the first quarter of 2008, FPL Group’s GAAP results were $249 million or 62 cents per share compared to $150 million or 38 cents per share during the 2007 first quarter. FPL Group’s adjusted 2008 first quarter net income and earnings per share were $305 million or 76 cents respectively compared with $277 million or 70 cents per share in 2007. The difference between the reported GAAP results and the adjusted results is a negative mark in our non-qualifying hedge category and the exclusion of other than temporary impairments or OTTI which I will discuss in greater detail later in the call. Both of these adjustments affect FPL Energy. Please refer to the appendix of the presentation for a complete reconciliation of GAAP results to adjusted earnings. FPL Group’s management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting the results of the Board of Directors, and as an input in determining whether certain performance targets are met for performance based compensation under the company’s Employee Incentive Compensation Plan. FPL Group also uses earnings expressed in this fashion in communicating its earnings outlook to analysts and investors. FPL Group Management believes that adjusted earnings provide a more meaningful representation of FPL Group’s fundamental earnings power.

For the first quarter, Florida Power & Light reported net income of $108 million compared with $126 million in last year’s first quarter. The corresponding contribution to EPS was 27 cents this year compared to 32 cents last year. Customer growth continued albeit at a slower pace than in recent years. For the first quarter of 2008, the average number of customer accounts increased by 40,000 or 0.9% since last year’s first quarter. As you know, this is about half our long-term average customer growth rate at near 2%. Despite a terrible housing market, Florida’s economy continues to grow albeit at a slower rate than recent history. We added approximately 11,000 customers during the first quarter of this year. Our ability to forecast future short-term growth is hampered due to the economic uncertainty facing the entire US economy. For the rest of the year, based on the data available to us, we expect new customers to grow at a relatively modest pace consistent with actual results for the first quarter. The year-to-date housing starts we are experiencing are consistent with this level of growth. In addition, the electricity usage rate per customer as compared to the first quarter of last year was down 0.6%. In most quarters, we are reasonably able to distinguish how much of the usage comparison is due to weather. However, for this year’s first quarter in which temperatures did not depart significantly from average values for much of the time, different specifications of the relationship between weather and volume produced different results ranging from weather having a slight positive impact on the quarter-to-quarter comparison to having a slight negative impact. Our best judgment is that the net effect of weather was a slight negative, and that our underlying usage per customer was somewhere between flat and a half point or so negative. There are a number of factors that seem to be contributing to this weakness in usage including customer conservation measures, general economic conditions, and the specific impact of the housing slow-down. It is hard to separate and quantify these effects. Calculations suggest that the increase we’ve experienced in a number of customers with a very low monthly usage which generally means premises that are unoccupied could account for a drag on average usage growth of as much as 0.3%, but this is a rough estimate only. Information from customer research using focus groups while not statistically valid suggest that deliberate conservation measures are real, but are more related to the overall economic circumstances and to long-term behavioral changes.

What all this suggests to us is that we can expect continued weakness in usage growth comparisons for some quarters to come, but that what we’re seeing is the impact of two broad effects; the working through of the excess housing build of the past few years and a cyclical downturn in the economic situation. We are confident that both of these will reverse in time, and we continue to expect long-term modest growth in average usage per customer once we are through the current cycle.

Let’s turn to an earnings driver slide that we’ve used before and with which you are probably familiar. The effect on revenue related to new customer growth added approximately one penny to earnings compared to the prior year. Our first quarter 2008 earnings benefited slightly from the addition of Turkey Point Unit No. 5 that came into service in May of 2007. This plant came into rate base as a result of the generation based rate adjustment mechanism that is part of the 2005 rate agreement. On an after-tax basis, that base rate adjustment increased earnings by approximately 4 cents per share although the net impact of Turkey Point Unit No. 5 in this quarter compared to the prior year was only half a penny. O&M increases negatively impacted earnings by approximately 6 cents per share this quarter compared to the prior year. The increase was across the board in our business units, but the primary items were related to the additional nuclear O&M associated with investing to ensure long-term reliable operations of our units, and the timing of maintenance and overhaul activities and reliability work and distribution and power generation. As Lu already mentioned, O&M capital for the quarter was less than plan and we expect our full year results in this area to be lower than we had previously planned. With reduced growth, we have fine tuned our spending plans for the year; however, incremental short-term O&M savings will not be enough to fully offset the revenue short-fall. All other factors were a drag of 4 cents per share, mainly related to depreciation and the loss of AFUDC as a result of the addition of Turkey Point 5.

Although FPL’s earnings did not meet our initial expectations for the quarter, we were very pleased with the company’s performance on a number of critically important matters. Our construction of West County Energy Center Units 1 and 2 is on schedule, and we continue to expect those units which are each approximately 1220 megawatts of capacity to be completed in 2009 and 2010 respectively. As you may recall, the combined approved costs for these two units is approximately $1.3 billion. Under the GBRA mechanism, a power plant approved pursuant of Florida Power Plant Siting Act that achieves commercial operation during the term of 2005 rate agreement will by way of a simplified administrative procedure provide us a base rate increase when the new capacity comes into service. Currently we expect West County Unit 1 to meet this requirement in 2009. Before those costs are recovered in our base rates, we’d recover AFUDC and the construction cost. Earlier this month, we also petitioned the Florida Public Service Commission for approval to build another combined cycle natural gas plant, West County Unit 3, at the same site where we’re building units 1 and 2. Unit 3 will be identical to units 1 and 2, and if approved, would be operational by 2011. All three units provide customers with net savings since their impact on base rate is more than offset by greater fuel efficiency.

We also continue to move forward with our plans to complete about 400 megawatts of nuclear operates at our St. Lucie and Turkey Point nuclear plants. Our approved budget for this expansion is $1.8 billion and we expect this to be completed in 2012. A very promising step forward for new nuclear construction in the State of Florida in March our Florida regulators approved our need petition to build two nuclear power units at Florida Power & Light, Turkey Point Generating Complex, and Miami-Dade County. It is our understanding that this was the first approval of a new nuclear facility by a state commission in more than 30 years. As we have discussed with you before, FPL is pursuing the option of constructing two advanced design nuclear plants at the Turkey Point site that would add between 2200 and 3040 megawatts. While no final commitment has yet been made, if built, the units are expected to go into service in the years 2018 and 2020 and would have a combined estimated cost of $12 to $24 billion. FPL continues to believe that if the associated risks can be adequately managed, new nuclear capacity can provide large economic and environmental benefits to our customers. Let me remind you that under Florida’s nuclear cost recovery rule adopted by Public Service Commission in 2007, we are allowed cash recovery of all carrying cost during construction, and subject to annual prudency reviews of the costs as they are incurred, a base rate increase when the new capacity comes into service by way of a simplified administrative procedure. This same procedure applies to our 400 megawatts in nuclear upgrades as I mentioned earlier.

And finally, later this morning, we will be announcing additional steps to modernize our Florida generation fleet, improve our system efficiency, and further reduce air emissions. Separately, while financing terms and credit remain tight for the overall economy during the first quarter, we successfully issued $600 million of first mortgage bonds on attractive terms. FPL’s financial position and liquidity are some of the strongest in the industry as evidenced by our continued excellent credit ratings. We feel confident that the long-term prospects for FPL continue to be positive and believe that the revenue slow-down that we are currently experiencing will first moderate and then reverse itself as the economic conditions improve. Let me now turn to FPL Energy.

FPL Energy’s 2008 first quarter reported GAAP results were $164 million or 41 cents per share compared with $45 million or 11 cents per share in the prior period results. Adjusted earnings for the first quarter of 2008 were $220 million or 55 cents per share compared to $172 million or 43 cents per share in the prior year’s quarter. The difference between GAAP earnings and adjusted earnings is related to the negative mark recorded in the quarter for non-qualifying hedges and OTTI losses. As a reminder, the types of transactions that we classify as non-qualifying are those that must be mark-to-market under GAAP, but that provide an economic hedge to a position that is not mark-to-market, thus creating an unavoidable mismatch in current period GAAP results. We continue to believe it is more useful to think of FPL Energy results excluding the impact of the non-qualifying hedge category whether that impact is positive or negative. Comparisons of period-to-period GAAP results can be quite misleading when there is significant volatility in the non-qualifying hedge category. During the current quarter, our GAAP results are lower than our adjusted earnings results primarily because of the fair value of non-qualifying hedges of $52 million. This actually reflects good news for FPL Energy since the value of our unhedged asset positions rose significantly with the general rise in forward power and natural gas prices while the loss on the hedges was offset by increases in the value of the underlying assets. Neither of these effects is shown in the company’s results.

Adjusted earnings also include an adjustment to GAAP earnings for the effect of other than temporary impairment losses on our investments in nuclear decommissioning funds at FPL Energy. This is a new item and I want to spend just a minute on it since the principal is important even though the amount this quarter is not material. GAAP requires that unrealized loss is associated with investments for which a reporting company does not have the ability and intent to hold the investment until an unrealized loss is recovered to be recorded through its income statement. If the reporting entity does feel comfortable that they have the ability and intent to recover the unrealized loss, then the unrealized loss is recorded in equity. Unrealized gains, unless the company has adopted FAS159, are always recorded in equity. The rub is that it is very difficult to meet the ability and intent language if the investments are managed by an outside party or trustee as are ours. As such, under the rules, any unrealized loss automatically ends up in the income statement. In the past, OTTI losses have not been very significant to us, and although we have previously been troubled by the mismatch that it creates, because of its relative size, we had not stopped to call it out separately. As our investments in this area grow however, it has become important for us to address the mismatch between unrealized gains and losses. In the first quarter of this year, OTTI losses were $4 million after tax, or a penny per earnings per share, the amount of OTTI in last year’s first quarter was approximately $1 million.

The next chart shows you the individual drivers of adjusted earnings from last year to this year. Lu has already mentioned that we’ve added 2171 megawatts of new investments to our portfolio since last year’s first quarter. On an adjusted earnings basis, these new investments resulted in an increase of after-tax earnings of 8 cents per share when compared to the prior year’s corresponding quarter. Our existing assets also performed well during the current quarter contributing to a 3 cent per share improvement from the prior year’s quarter. Our existing wind assets had a good wind resource quarter compared to the same period a year ago. In addition, in markets other than NEPOOL earnings increased as a result of favorable pricing, asset optimization, and capacity markets when compared to the prior year. And overall there was positive contribution from our contracted non-wind assets primarily as a result of a lack of a refueling outage at Duane Arnold this quarter when compared to the prior year’s corresponding quarter. Our story in NEPOOL was a little more complex. Although favorable pricing and generation for a number of our assets increased earnings by approximately 8 cents per share after tax, the unplanned 14-day outage of our Seabrook plant and lower asset optimization earnings at our Maine fossil plant decreased earnings by approximately the same amount. The Seabrook outage was related to a failure in the switchyard and not by the plant itself. So on a net basis, the region’s operations did not add to our earnings growth when compared to the prior year.

Our wholesale energy marketing and trading organization had a strong quarter. As we’ve indicated before we expect this part of our business to grow roughly in line with the overall income for FPL Energy. At times the pricing and volatility in the market and our asset and position mix will create more opportunities for us, and the first quarter was favorable on that front. Compared to last year’s first quarter, this business contributed approximately 3 cents per share on an after-tax basis. The other category includes increased interest expense primarily as a result of increased debt capacity and increased G&A associated with higher costs relating to our continued investments in development and infrastructure to drive future growth at FPL Energy. The net result was a drag of 2 cents per share compared to last year’s first quarter. I want to mention a couple of additional items consistent with what we’ve done in the past. We’ve included additional materials in the appendix including gross margin hedging charts. Our gross margin for 2008 is significantly hedged. For example, the gross margin as defined of our total existing assets is approximately 95% hedged. For 2009, our equivalent hedged gross margin exposure is approximately 88% hedged. As you know, forward gas prices have risen significantly since last year this time. During the first quarter of 2008, the 10-year NYMEX forward gas strip increased 9% and an additional 7% during the first several weeks of the second quarter of 2008. While we’re significantly hedged in 2009, these forward price increases reflect significant long-term added value in our asset base.

Going forward for the rest of 2008, we continue to build our development backlog for all of our investment opportunities, particularly for wind and solar technology. We’re on track to add 7000 to 9000 megawatts of wind from 2008 to 2012 including 1100 to 1300 as Lu already mentioned in 2008. We continue to be optimistic about adding solar generation with a goal of adding 200 to 400 megawatts of solar generation by 2012. On the solar development front, in the first quarter we filed an application for certification with the Californian Energy Commission to construct, own, and operate a 250 megawatt solar plant in the Mojave Desert to be called the Beacon Solar Energy Project. Though we are successful in obtaining all the required permits, we expect the plant to be operational by 2012. We’ve also recently entered into an agreement to purchase 85 megawatts of operating wind plants in Canada. We’ve previously indicated that we would seek attractive acquisition opportunities that meet our long-term goals. We believe this acquisition meets that criteria and also is a nice entry point into a favorable market not tied to production tax credits.

On the regulatory front, although renewable tax credits in one form or another have been discussed at the Federal level, there is still no agreement on their extension beyond the end of this year. Renewable energy continues to receive strong congressional support; so we continue to expect that the government will find a way to extend the credits for next year and beyond.

To summarize the 2008 first quarter on an adjusted basis, FPL contributed 27 cents, FPL Energy contributed 55 cents, and corporate and other was a negative 6 cent contribution. And it’s a total of 76 cents compared to 70 cents in the 2007 first quarter or about 9% year over year.

Okay. Let me turn it back to Lu.

Lewis Hay III

Okay. Thanks Armando. Although there will always be execution risk in ascertaining our financial performance targets, we believe that we’re in a good position to meet our 2008 expectations. However, if the economy in Florida takes a significant turn for the worse with result being a further reduction in new customer additions or usage growth rate at FPL, it will challenge our ability to meet our financial targets. We’re taking what we believe are the appropriate measures to respond to the short-term weaknesses that we’re experiencing in Florida while still ensuring that we provide excellent service to our customers. Our actions will enable us to be well prepared for the turnaround that will come in due course. Longer-term, our two primary businesses are well positioned to grow earnings. At FPL we continue to believe that owning a premier utility with a constructive regulatory environment and whose location is attractive to long-term demographic trends is a position that most would envy. At FPL Energy, owning a diverse, clean, competitive generation portfolio, and having the leading renewables development team provides us with significant attractive growth prospects going forward. As such we feel very optimistic about our future. Although the Florida and US economies are struggling a bit right now, we’re very optimistic about our long-term prospects. And now, we’ll be happy to answer your questions.

Question-And-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the ‘star’ key followed by the digit ‘1’ on your touchtone phone. If you are using a speaker phone, please make sure your mute function is off to allow your signal to reach our equipment. Also, we ask that you please turn down your headset when you want to give feedback off into the conference. Thank you. Once again, if you have any questions, please press *1. We’ll take our first question with Paul Ridzon with Keybanc. Please go ahead.

Paul Ridzon – Keybanc Capital Markets

Good morning. Can you hear me?

Armando Pimentel Jr.

Yes. We can hear you just fine Paul.

Paul Ridzon – Keybanc Capital Markets

Can you guys update us on segment guidance for the year as it sounds as though pieces might be moving around a bit, and then, in the quarter, what was the absolute earnings from trading activity, and then lastly, if you could discuss the relative economics of wind in Canada without the PTC.

Armando Pimentel Jr.

Alright. Let me – there are three questions there; one was segment guidance, second one was wholesale trading and marketing, and the third was our Canadian acquisition. On your first point – we’re not updating our segment guidance. We feel comfortable with the overall range of $3.83 to $3.93 that we’ve given. Our prepared remarks did indicate that our expectation is that FPL, because of customer growth and usage, would struggle a bit this year, but we are very positive on our 2008 results looking forward for FPL Energy. Your second question dealt with wholesale trading and marketing, and Paul, you might have a followup question, but I think we indicated in our prepared remarks that that segment of the business contributed 3 cents in addition to what it contributed last year.

Paul Ridzon – Keybanc Capital Markets

What did it contribute absolutely?

Armando Pimentel Jr.

It was about $40 million to $45 million after tax. And your third question, I am going to turn over to Jim Robo on Canadian wind.

James L. Robo

Paul, the simple answer on Canada is that we feel like it’s an attractive market – it is not a tax-driven market, which is one of the things that we find attractive about it. So, we feel like the relative economics of that market versus the US is roughly comparable, and we’re continuing to develop. This is kind of a first step for us. We’ve been looking at developing projects there for about 18 months, and we’re going to continue to work it, and it’s going to be part of the growth portfolio going forward.

Paul Ridzon – Keybanc Capital Markets

Without tax credits, it’s a better market; so it’s roughly equivalent of US with tax credits?

James L. Robo

The way to think about it, Paul, is that it’s not a tax-driven market – the way it works is that you get a power purchase agreement – it differs province by province actually, but you get a – in the projects that we purchased this year – they have power purchase agreements with good entities in the provinces at prices that are supportive of the overall economics of doing a wind project – it’s roughly similar to what you would get when you combine the PTC with whatever revenue you get from a customer here in the US. So, effectively, the top-line revenue in Canada is roughly very comparable to the top-line revenue of energy revenue plus the PTC in the US.

Paul Ridzon – Keybanc Capital Markets

Thank you.

Operator

Thank you and we’ll take our next question with Steve Fleishman with Catapult Capital. Please go ahead.

Steve Fleishman – Catapult Capital Management

Hi. Can you hear me out there?

Armando Pimentel Jr.

Yeah. Go ahead Steve.

Steve Fleishman – Catapult Capital Management

Okay. Great. A couple of questions – first, in the quarter your wind matrix explored dramatically above normal – I think it’s a 114%, but you didn’t really highlight that as a factor in the quarter. Could you just explain?

Armando Pimentel Jr.

Yeah. I think – a couple points there – I did say or at least I meant to say that we had a good wind resource quarter. Hopefully I did not eliminate that from my prepared remarks at the last minute, but I did mean to say that if I didn’t. The second point is – the way I’d look at the wind information that we provide you is more on a trend basis – so the trend is going up. As the trend is going up, the wind resource is better than we had expected. I don’t necessarily think that you should just take that wind analysis matrix and do that calculation of 114%. We are in the process of going through – as we always do – and trying to determine whether that’s the best analysis and whether we can make changes to that matrix going forward, but I think it’s better to look at it on a trend basis as opposed to just say, “Hey it’s 14% over a hundred, that must mean that earnings improved by 14% more than what we expected.”

Steve Fleishman – Catapult Capital Management

Okay. You’ve given a rule of thumb in the past – a couple of pennies per percent per year – are you saying that’s not a good rule of thumb to be using?

Moray P. Dewhurst

Hey Steve. This is Moray. I think we mentioned before that the wind index itself is not by any means linear with the ultimate production at the relevant sites. This happens to be a quarter where it’s a little bit off where the index is up by more than the actual production is up. Last year we had a couple of quarter where the index was down by more than the production turned out to be down. So those rules of thumb which we had given you in the past – they work in some cases, but not in all cases, and that’s why we are working on trying to update the methodology to see if we can get a little more precise to give you some better guidelines in future, but there is a lot of sources of variability between the wind index which is based on these reference towers some miles away from the actual site, and then what we actually realize net at the site, and that’s what we’re trying to bridge.

Steve Fleishman – Catapult Capital Management

Okay. And then one other question at the utility – is there any consideration given the economy to delay some of your new power plant – or when does it get to a point where you might need to consider that?

Armando Pimentel Jr.

I am going to turn that question over to Armando Olivera.

Armando Olivera

We talked a little bit about this at the investor conference and we obviously keep looking at these numbers, but we’re very confident that the West County 3 filing will produce customer savings, and so if the need doesn’t materialize quite at the same levels that we forecasted, we still will produce significant customer savings – over $400 million of customer savings – so we think that that’s a very very strong argument. Coupled with that, they provide an environmental benefit for our customers. So, if you look at the need certification process in Florida, it’s not just exclusively driven by need. You can meet any one of three criteria, and we’re pretty confident that we can meet all three, but at the very least two out of the three.

Lewis Hay III

Let me just remind you that paradoxical as it may seem, with gas prices increasing, the economic attractiveness of those gas plants increases. So the net savings to the customer is actually higher.

Steve Fleishman – Catapult Capital Management

Right. And you mentioned some announcement on – I guess it was – I thought environmental related today – could you repeat what you said there?

Armando Pimentel Jr.

Armando, why don’t you go ahead with that one?

Armando Olivera

Sure. Later on this morning we’re going to be making an announcement about really converting two existing older plants that are primarily fueled by oil and converting them to gas fired plants; again, for really the same drivers that West County 3 makes sense. These are two plants that are facing significant costs associated with environmental pollution control equipment, close to about $450 million over the next 10 years. So we looked at those costs, we looked at the price of natural gas and fossil fuel, and we can modernize them, put in more efficient combined gas turbines, and it still comes out to be a huge positive for the customer. So, we’ll be announcing that we’re going to go forward and seek approval to convert these two plants.

Steve Fleishman – Catapult Capital Management

Okay. Thank you very much.

Operator

We’ll take our next question with Mark Segal with Canaccord Adams. Please go ahead.

Mark Segal – Canaccord Adams

Yeah. Hi. Good morning. Just one quick question. With respect to your advanced metering activity to date, have you guys settled on a particular technology or vendor that you’re comfortable with to move forward in the process and then building on that. Are you able to give us a sense of the timing of future project milestones and what they may entail?

Armando Pimentel Jr.

Go ahead Armando.

Armando Olivera

Yeah. This is Armando Olivera. I think we better distinct between the two Armandos. We are still in the pilot phase. The current pilot phase has about 50,000 customers. The next phase will ramp it up to 100,000 customers, and we’re still not in a position that we would choose a technology. We’re trying several different technologies right now, several different vendors, manufacturers, and we’re not prepared to make any announcement.

Mark Segal – Canaccord Adams

Okay. Thank you.

Operator

There are no further questions at this time. I would like to turn it back over to the management for any additional or closing remarks.

Lewis Hay III

Seeing that there are no further questions, thanks for joining us this morning, and that concludes our call.

Operator

Once again, ladies and gentlemen, this will conclude today’s conference. We thank you for your participation. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: FPL Group Inc. Q1 2008 Earnings Call Transcript
This Transcript
All Transcripts