First Trust New Opportunities MLP & Energy Fund
Q3 2009 Earnings Call Transcript

Published: 27 Oct 2009

[Jim von Riesemann:]

Good morning, everyone, and welcome to our third quarter 2009 earnings conference call. Lew Hay, FPL Group's Chairman and Chief Executive Officer, will provide an overview of FPL Group's performance, recent accomplishments, long-term goals and industry observations. Lou will be followed by Armando Pimental, our Chief Financial Officer, who will discuss the specifics of our financial results. Also joining us this morning are Jim Robo, President and Chief Executive Officer of FPL Group, and Armando Olivera, President and CEO of Florida Power and Light. Following our prepared remarks our senior management team will be available to take your questions. We will be making statements during this call that are forward looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Certain key assumptions on which our financial outlook and wind generation outlook are based are highlighted in the appendix to the accompanying presentation. Actual results could differ materially from our forward-looking statements if any of these key assumptions are incorrect or because of other factors discussed in today's earnings press release, in the comments made during this conference call, in the Risk Factors section of the accompanying presentation, or in our latest reports and filings with the Securities and Exchange Commission, each of which can be found in the Investors section of our website, www.FPLGroup.com. We do not undertake any duty to update any forward-looking statements. Please note also 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. And now I would like to turn the call over to Lew Hay.

[Lewis Hay:]

Okay, Jim. Thank you very much, and good morning, everyone. I'm joining you this morning from DeSoto County, Florida. Now, this is not where I ordinarily do earnings calls, but today is not an ordinary day. In just a couple of hours we will be commissioning our DeSoto Next General Solar Energy Center, which is the largest photovoltaic solar power plant in the United States. As you may have heard, we will be joined by a special guest to commission the plant, President Barack Obama. And there's more good news. President Obama will formally announce that the U.S. Department of Energy has chosen our Energy Smart Florida smart grid [inaudible], which we announced back in April, to be among the first in the nation to receive major federal smart grid funding support. This $200 million award further demonstrates the leading role that we at FPL are taking in making our network among the smartest, cleanest and most efficient in the nation. We applaud President Obama's leadership in building a new energy economy for the 21st century. The actions announced today combined with previous support from the administration for renewable energy will drive a dramatic expansion of clean, renewable energy nationwide. The FPL Group has long been the nation's leader in wind and solar power, and the president's visit today should leave no doubt about the administration's commitment to renewable energy as the centerpiece of the nation's energy strategy. You've heard me say it before and I'll say it again

[Armando Pimental:]

Thank you, Lew, and good morning, everyone. The third quarter of 2009 FPL Group's GAAP net income results were $533 million or $1.31 per share compared to $774 million or $1.92 per share during the third quarter of 2008. FPL Group's adjusted 2009 third quarter earnings and EPS were $562 million and $1.38, respectively, compared with $506 million or $1.25 per share in 2008. The difference between the GAAP results and the adjusted results this quarter is a negative mark in our non-qualifying hedge category and the exclusion of net other than temporary impairments or OTTI. Florida Power & Light's third quarter earnings contributions fell modestly relative to last year's comparable quarter. The ongoing economic challenges are impacting customer growth and usage and, hence, weather-normalized sales volumes. In just a few moments I will provide additional color on the Florida economy and how it is affecting some of the key metrics that we closely monitor. O&M expense rose $36 million versus last year's third quarter. The largest contributor to the increase was [inaudible] related to O&M, which has no affect on earnings. Also contributing to the increase in O&M were increases in medical costs and the timing of power plant outage-related expenses. From 2009 we continue to see increases in nuclear and fossil generation costs, higher employee benefits expense and higher customer service costs being the main drivers of full year base O&M growth. The PSC did not approve our proposal to build the EnergySecure pipeline as submitted and instead asked that we go back to the drawing board. We are very disappointed that despite a lengthy comprehensive and transparent process the commission effectively denied the clear need for this investment and required that the entire process start over in order to go forward. FPL had conducted an extensive evaluation of more than 60 proposals from seven different companies for both intrastate and interstate pipeline designs and found that the Florida EnergySecure line would provide the lowest cost option for FPL customers. We continue to evaluate our options in regard to this project, which would have created 7,500 jobs in Florida, including 3,500 construction jobs, as well as generated more than $400 million in additional tax revenue across 14 counties and increased the resiliency and security of Florida natural gas supply as well as diversifying the source of Florida's gas supply. Let's turn to a review of the factors underpinning FPL's results. Third quarter 2009 earnings at Florida Power & Light were $306 million, down from $314 million a year ago. The corresponding earnings per share contribution was $0.75 this year versus $0.78 in 2008. The Florida economy is sending mixed messages. Some of the metrics we follow appear to be moderating, as you'll see in a minute, but that doesn't mean they're getting better per se. Rather, those metrics are just not as bad as they have been. Let's now turn to the four graphs on the accompanying slide, starting with the two on the top. The upper left-hand graph shows sequential changes in our quarterly customer accounts. While there's an element of apples-oranges comparison given the seasonal nature of our Florida customer base, the point from this graph is that year-over-year comparisons are still negative. It's just not as bad as last year. For the third quarter of 2009 we had about 9,000 fewer customers than we did in last year's comparable quarter. The table in the upper right-hand corner of this slide shows a change in retail kilowatt sales versus last year's comparable quarter. Overall, retail kilowatt hour sales grew by 0.4% during the quarter due primarily to higher weather-related usage. Weather-related usage growth was 2.6%, helping the quarterly earnings comparisons by approximately $0.04 per share. The weather impacts relative to normal were about the same. For the year-to-date, the weather impact has been $0.06 per share above normal and $0.04 per share higher than last year's comparable period. Non-weather-related or underlying usage growth remains under pressure given the economic conditions. Our analysis of the customer and usage trends among our revenue classes support our view that the downturn is primarily residential and small commercial focused. The state's unemployment rate, currently at 11% at the end of September, continues to climb. At the end of June, the comparable rate was 10.6%. This unemployment figure is now the highest its been since 1975, when the state started tracking employment figures monthly. The graph in the lower left-hand corner of the page shows inactive and low-usage customers, which we believe depict the level of empty homes in our service territory. Since year end 2007 the number of inactive accounts has increased by about 72,500 to approximately 317,000. This figure is higher by approximately 4,000 since the end of the second quarter of 2009. And finally let me put some color on that chart in the lower right-hand corner which looks at existing home and condo sales for the state of Florida. The message here continues to be positive as the data show that the number of units sold on a rolling 12-month basis may be forming a bit of a bottom; however, as I just discussed, we aren't yet seeing those additional home sales have a significant impact on our inactive or low-usage customer numbers. In sum, the general economic environment remains challenging. Although we are encouraged by reports of economic activity picking up in other areas of the country, we are not yet seeing many positive signs in Florida. The tables shown here summarize the earnings driver for Florida Power & Light for the just-completed quarter. In total the quarterly comparison declined by $0.03 per share, driven primarily as a result of the continued downward pressure on the underlying sales volumes and the absence of certain favorable tax items. The rate adjustment for placing West County Unit 1 into service in August that Lew mentioned at the outset of the call was a partial offset to the tune of $0.03 per share. Let me briefly address our pending rate proceeding at Florida Power & Light. As many of you know, we are well into the regulatory proceedings governing our base rate request. Broadly speaking, our rate request is straightforward. We have asked for an appropriate level of rate relief that will allow us to continue to provide the same level of service that our customers have come to expect of us, allow us to plan accordingly for the future by continuing to invest at fair returns and efficient generation, and allow us a capital structure that keeps our cost of debt low, provides ample liquidity to fund new investments, hedges our fuel costs, and supports hurricane restorations if needed. In the past, sound regulation has provided the foundation for effective execution of our strategy, resulting in significant benefits to our customers through superior reliability and efficiency, low capital costs, and a strong financial position ultimately leading to low bills. Over the years, that has worked extremely well for our customers through five key areas, namely, $3 billion in fuel savings since 2002 through infrastructure investments, system reliability that is 47% better than the national average, stellar customer service as evidenced by five consecutive years as a recipient of the prestigious ServiceOne award, declining SOx, NOx, and CO2 emissions rates, top performance and operating efficiency, and we have avoided the need to build 12 power plants. Our customers have the lowest typical residential bill in the state and below the national average. In fact, compared to the typical average monthly bill in Florida, our customers save in excess of $305 per year on their electricity bills, all this while operating one of the cleanest utilities in the nation from an emissions profile. Later this morning the Florida Public Service Commission will begin considering a request to delay the rate proceeding further until one new commission appointee can be seated in January 2010. We do not know how the commission will rule. A delay would likely push a final commission decision out to March of 2010. Absent any change in the scheduling, the staff recommendation and the revenue requirements and allowed return is scheduled for December 7th, with a commission decision currently slated for a special agenda meeting on December 21st. Let me now turn to NextEra Energy Resources, where adjusted earnings per share improved by 21% year-over-year. The growth in NextEra Energy Resources' earnings contribution was driven by new investments in wind and better performance at our retail operations as well as our wholesale marketing and trading business. This was partially offset by the financial performance of our Texas gas assets. Our 2009 wind development program continues to make progress. We have all of the planned 985 megawatts of new projects either under construction or in operation. During the third quarter we announced an agreement to acquire 185 megawatts of recently wind projects from Babcock & Brown for approximately $352 million. We expect to close this transaction by the end of the year following the receipt of ally regulatory approvals. For 2010 we have hedged nearly 93% of the expected equivalent gross margin for NextEra Energy Resources and our existing assets. The equivalent figure for 2011 is approximately 92%. For the third quarter of 2009 NextEra Energy Resources GAAP earnings were $233 million or $0.57 per share compared with $483 million or $1.20 per share in the prior period results. Adjusted earnings for the same periods, which exclude the effect of non-qualifying hedges and net OTTI were $262 million compared to $215 million. The equivalent adjusted earnings per share contributions were $0.64 and $0.53, respectively. NextEra Energy Resources third quarter adjusted EPS increased $0.11 from last year's comparable quarter. New investments contributed $0.10 per share incrementally driven by approximately 1,180 megawatts of new wind relative to last year's third quarter. Approximately $0.06 per share of this $0.10 improvement can be attributed to our decision to utilize convertible investment tax credits this year on 685 megawatts of wind build. The existing portfolio was flat relative to a year ago, with several puts and takes across our existing wind, merchant and contracted portfolios. Contributions from the existing wind portfolio declined $0.02 relative to last year. The lower comparative contributions were driven by higher curtailments and to a lesser degree the expiration of some production tax credits. This was partially offset by better comparative contributions from wind resource, although it should be noted that the wind resource for both this year's and last year's quarters were well below expectations. Our existing merchant fleet produced mixed results. Contributions from the NEPOOL portfolio improved $0.01 per share incrementally, but financial performance from our Texas gas-fired facilities fell $0.02 per share relative to a year ago. Virtually all of this is the result of market conditions. Meanwhile, our retail business in Texas, which is included as part of our existing business on this slide, added about $0.04 per share incrementally given favorable margins. The remaining contributions from the existing merchant fleet amounted to negative $0.02 per share, but there is nothing notable in any one category worth calling out. Operationally, the generation fleet, including the wind plants, continues to perform very well, and in fact it's having one of the best years in terms of forced outage rates, nuclear performance and safety ratings. Wholesale marketing and trading activities increased by $0.03 per share as certain market conditions were beneficial to this business. As we've indicated before, quarterly results from this segment will often be higher or lower than we expect based on a number of factors, including market volatility and opportunities. On a full year basis for 2009, our non-asset-based business segment will be slightly higher than in past years given the strong performance at Jackson, our retail operations, and our wholesale marketing and trading activities. We earned $0.01 per share from the sale to a utility of a wind project that we developed and constructed on their behalf and for which we will continue to provide ongoing operating services. All other factors netted to a loss of $0.03 per share. Of this, $0.01 is attributable to higher interest expenses and $0.01 to corporate G&A associated with the growth in the asset base. Although we were pleased with the $0.11 year-over-year improvement in NextEra Energy Resources' quarterly earnings per share contributions, the financial performance did not meet our internal expectations. Two factors primarily drive this

[Lewis Hay:]

Okay. Thanks, Armando. Despite our recent challenges, I continue to be optimistic that we can successfully and profitability grow our business, especially NextEra Energy Resources. While the economic conditions remain somewhat challenging, we're proud of many of our achievements. We lead the nation in wind energy development, we are making a lot of progress in solar development, we are starting to see some traction in transmission development, and our backlog of transmission projects is growing. Our retail and forward requirements businesses are doing well, and our assets are well positioned for a carbon-constrained world. Within Florida, we continue to be cautiously optimistic that we will achieve a fair outcome in the rate proceeding as we have in the past. As our economy emerges from this terrible recession, Florida should once again start growing, and FPL stands ready to support and be part of that growth. With that, I'll turn the call over to the conference moderator for questions. Thank you.

[Operator:]

Thank you. (Operator Instructions) Your first question comes from Daniel Eggers - Credit Suisse.

[Daniel Eggers:]

I was wondering if you could talk a little bit, with some of the headwinds economically in Florida with some of the slowing in the pipeline for wind and timing on solar and just kind of the inevitable need to contract at a lower rate given lower commodity prices in the generation fleet, how is that affecting kind of the long-term 10% EPS growth targets and is there a point where that needs to be revisited?

[Armando Pimental:]

Okay, Dan, you mentioned a couple of things in there, but I'm going to interpret your question as really related to the last thing you mentioned, which was the 10% adjusted earnings increase year-over-year. We're not updating that 10% adjusted earnings per share increase year-over-year at this time. Our plan is to provide you and the rest of the investment community with a longer-term view of our earnings at the investor conference in May. Based on the number of the items that you mentioned - the uncertainties in the Florida economic environment and some of the other challenges that we mentioned on the call and we've talked about before - we believe it's appropriate to be conservative in the disclosure of that long-term guidance at this point. Having said that, we understand how important long-term guidance is to investors, and we're not at the point where we are just not going to provide that long-term guidance in the future. Depending on what happens in the first quarter with all of the things that you just mentioned, our plan is to provide new guidance at the investor conference as opposed to fourth quarter earnings or first quarter earnings.

[Daniel Eggers:]

And I guess just from a wind development, solar development perspective, RFP activity sounds good in solar. What is the receptivity to people signing long-term PPAs both for wind and solar today? It seems like that's been a bottleneck for most of this year. Is that showing signs of changing at this point?

[Armando Pimental:]

Actually, I want to choose my words carefully, but it's better than what it was last time I spoke about it on the wind side. Clearly, the number of folks that were interested in signing on longer-term PPAs, I'd say, was a smaller batch earlier this year than it is now. We've signed quite a number of long-term PPAs this year. Some of those PPAs actually contracted wind that we had constructed last year but at the end of the year we did not have long-term PPAs. So I would say it's a little better. I wouldn't say that certainly it's where it was in 2007 or earlier in 2008, but the number of RFPs for wind, we're comfortable with. We've got either long-term PPAs or good visibility into signing all of our approximately 1,000 megawatts of construction in 2009 except for maybe 150 megawatts or so. So about that much might be open at year end, but even on those I'd say that we have a warmer and fuzzier feeling today than we did three to four months ago. I'm sorry, I meant to also say something on solar, Dan. You also asked about solar. You know, we're quite excited about the agreement that we've signed with PG&E. We're quite excited about the project and the prospects that we've got with solar development. There is just a significant amount of RFP activity that we're seeing this year that we weren't seeing just a year ago. You know, we've been talking about solar development for quite a long period of time, and we at this company, as you might expect, we try not to toot our horn too much before we actually have something in the ground. And even now we debated whether it was the right time to provide some details on our development portfolio and our pipeline, but we agreed that it was. We agreed that we're doing some good things here, that activity's picking up, and that now would be the right time at least to provide some details on our pipeline. But we feel pretty good about our prospects. Now, having said that, solar's still expensive. It's going to continue to require some significant public policy support in order to make that a viable energy alternative in the future.

[Daniel Eggers:]

Why do you guys assume that ITC contribution in 2010 is coming down? Is it the nature of the projects or some other issue or two?

[Armando Pimental:]

No, it's really the projects. We have, as you might expect, when we line up our projects for 2010 or 2011, if we say we're going to build approximately 1,000 megawatts you should assume that we have a lot more than 1,000 megawatts sitting in our portfolio that's ready to build in 2010. We continue to get wind data on those projects. We continue to understand where permits may be moving faster than others; where it might be a better economic situation to do that. As I mentioned in the first quarter call, we're just not going to blindly do one or the other. I mean, we're going to look at the economics of each of the sites and decide on an economic basis the right thing to do. So as projects moved around, we decided that for 2010 it would be a better move to take less convertible ITC.

[Operator:]

Your next question comes from Leslie Rich - Columbia Management.

[Leslie Rich:]

As you think about capital spending at the utility level, how might those forecasts change if the regulatory outcome is not as optimistic as what you'd asked for? Clearly, the gas pipeline project won't go forward unless you get approval to spend for that. What level of spending could be dialed back if the rate case outcome is not in line with what you believe to be a good return on invested capital option?

[Armando Pimental:]

Leslie, it's a good question. I hate to speculate on what the outcome might be, and I certainly don't want to do that. But I do think it's important for all of us to realize - we certainly do realize here - that an outcome from the rate case that's not constructive certainly could have ramifications on our future investments, significant ramifications on the number of jobs that could be created in Florida as a result of those investments, and the amount of tax revenue that goes along with those construction jobs and investments. At this point, West County Energy Center No. 3 is under construction and expected to be built in 2011. Our Riviera and Canaveral plants have been approved by the PSC. Our Canaveral plant actually at this point doesn't need siting approval, and we expect the same decision on our Riviera plant. So those are clearly on the board. Our nuclear upgrades continue at both Turkey Point and St. Lucie. But I don't want to sit back and say that no matter what the outcome that we will continue on the same path that we're on today. I think there could be some significant changes to what we have if we don't get a constructive outcome.

[Operator:]

Your next question comes from Greg Gordon - Morgan Stanley.

[Greg Gordon:]

Pardon me if I didn't hear the details earlier, but you did say that you were [break in audio] less convertible ITC in '10 than you're taking in '09. Did you quantify that number?

[Armando Pimental:]

Greg, I'm going to answer the question I think you asked. You're breaking up a little bit. I think you asked are we taking less convertible ITC in 2010 than 2009?

[Greg Gordon:]

Yes. And could you quantify that number?

[Armando Pimental:]

Oh, okay. Right now the convertible ITC that we have in earnings through the end of the third quarter for 2009 is 685 megawatts. What we have in 2010 in our earnings expectations is 800 megawatts. What I will say is that it is more likely than not that that 685 megawatts that we have for 2009 could increase up to around the 800 megawatt level. We didn't do that as of the third quarter because we're continuing to look at the projects. Obviously, there's no juice, if you will, if you're not sure about a project to do it before the project is COD. But it's more likely than not at this point that we will end 2009 with about 800 megawatts of convertible CITC taken, which is about the same that we have 2010.

[Greg Gordon:]

Okay, so your new forecast assumes that up to 800 megawatts in '09 and about the same amount in '10?

[Armando Pimental:]

Yes. Again, I'm having trouble hearing you; you're breaking up. But I think the question was the 2009 earnings expectation that we gave assumed 800 megawatts. If that is your question, the answer is yes.

[Greg Gordon:]

I'm sorry, Armando. Can you hear me now?

[Armando Pimental:]

You're still breaking up. I don't know why, Greg. Was that the question?

[Greg Gordon:]

[Inaudible]

[Armando Pimental:]

Okay.

[Greg Gordon:]

Sorry about the connection. My second question is

[Armando Pimental:]

Okay, I got that question. You're still breaking up, but I got that one. It's the same thing we did last year. The first time that we provided the 2010 gross margin guidance we did not provide a number dealing with the amount of new projects that we believed we would construct in 2010. The first time that we gave investors that number was actually the fourth quarter, so the end of January call. We're considering doing the same thing this year. As I mentioned in the second quarter call and now on the third quarter call, there's a little bit more uncertainty, so we just thought we'd follow the pattern that we did last year and not initially provide that in the 2011 gross margin table.

[Greg Gordon:]

Okay, but clearly earnings will be up in 2011 assuming you build some of those projects.

[Armando Pimental:]

Yes. I mean, look, I don't want to keep anybody in the dark. If we build what's in our plan for 2011 and you include the wind and some of the solar that's in our plan and the convertible ITC that we believe that we'd be entitled to, you're looking at a gross margin somewhere between $275 and $350 million, but that's a wide range. And now that I said it everybody wrote it down so I might as well have just given it, but I didn't do it because I want to wait a quarter and be more comfortable with our plans for 2011.

[Operator:]

Your next question comes from Steve Fleishman – Merrill Lynch.

[Steve Fleishman:]

One of the reasons you mentioned for the 2010 guidance reduction was uncertainty about the economic conditions in Florida. Is that a statement that it may be hard to achieve essentially the sales forecast that's embedded in your rate filing no matter what the outcome of the rate filing is or is that statement more a reflection of just the uncertainty over the actual rate outcome.

[Armando Pimental:]

It's the former, Steve. Just a little bit of detail. In the third quarter the University of Florida, which is what the commission uses and what we use to estimate population in Florida, came out with a new population forecast which was lower than the previous population forecast. If you do nothing other than plug that information into the rate case forecast that we've provided, that'd be a reduction of approximately $0.02 in 2010. I also mentioned in my prepared remarks that the lower usage that we're seeing in Florida was primarily residential as well as small commercial. We've started seeing some reductions in small commercial usage that we hadn't seen at the end of the second quarter. So if you kind of take that out, if you plug that into the forecast, that's also a potential reduction of $0.02 to $0.04.

[Steve Fleishman:]

One other separate question on your comment in the quarter on wind curtailments were higher. Could you explain exactly what that is and why those are going up? That's where your plants are available to run but they're actually not able to [sell in]?

[Armando Pimental:]

That's right, Steve. And the issue continued to be in Texas. Obviously, that issue's going to be helped by the new transmission line that we just built, but that's a situation where at times the wind's really blowing well although, as I indicated, the third quarter was kind of tough on wind resource. But when the wind's blowing well you've got some issues with too much power trying to move from west to north in Texas, and you've got some constraint.

[Operator:]

Your next question comes from Kit Konolige - Soleil Securities.

[Kit Konolige:]

I was wondering if you could give us a little color on the economics of the new transmission line in Texas?

[Armando Pimental:]

Kit, since I have the ability to interpret your question, I am going to answer it this way. The way we looked at the economics of that transmission line was obviously there's some construction cost associated with the transmission line, but that cost, the goodness, if you will, is the price difference between what you can get in West Texas and what you can get in South Texas. There's also goodness associated with the other assets associated in West Texas, right? Steve Fleishman just asked about constraint. If you have less constraint in Texas that means the other assets that you have in Texas are going to do better than they would have otherwise done because you've taken up to a maximum of 950 megawatts out of that. So we had to take a look at our entire portfolio - what's the betterment of the assets that we have in the west, what's the betterment of the assets that we're actually now moving from the west to the south, and the construction cost of the line and the long-term value of having that line, which is absolutely critical to the Texas plans. And when we put all that together we're quite satisfied with the economic results of what we've done.

[Kit Konolige:]

Obviously, that would seem to imply that that holds even though the market pricing in Texas is under pressure these days?

[Armando Pimental:]

Yes. On the whole, the market pricing in Texas, I would agree. That's one of the things that I pointed out and one of the issues that we had with our Texas gas assets. I'm sorry; I just lost my train of thought for a second, Kit. Looking at this specific transmission, though, we've got to look at the differences between the west and the south, and we've got to take a look at the benefit of moving that power to our other assets. Although there is pressure on prices in Texas, when you put all that together, our Texas wind assets today overall - not just the ones that were moving power to the south - are in a much better position than they were in the second quarter. Your point also touches on the fact that - just so everybody's aware - our Texas wind assets, those wind assets are essentially hedged in the short term and folks should recognize that.

[Armando Olivera:]

Hello, can you guys hear me? This is Armando Olivera.

[Armando Pimental:]

Yes.

[Armando Olivera:]

I'd like to go back to Steve Fleishman's question for just a second. When we talk about the outlook for Florida and what we see on the horizon for next year, Armando's absolutely right. Our confidence level on what's going to happen in the economy next year, we're not sure what's going to happen with customer growth or usage in really both the residential and the commercial segment. But I think it's also fair to say that there's a lot of uncertainty around the rate case and what the rate case outcome will look like, and that certainly factors into our thinking about next year.

[Operator:]

Your next question comes from Paul Patterson - Glenrock Associates.

[Paul Patterson:]

Just to sort of follow up on that to sort of understand it, so basically part of the outlook in Florida is associated with the economy, but also you guys maybe are thinking that there might be a little bit more risk, I guess, associated with the rate case than you guys previous felt before? Is that what I should gather from that comment?

[Armando Pimental:]

Look, we don't want to make any specific remarks on the proceeding that's currently in place. And there's a vote later on this morning or this afternoon regarding whether the commission's going to finish up this year or whether it's going to push a decision off on our proceeding and Progress's proceeding until the first quarter of next year. So I don't want to speculate on the rate case. Armando's comments were just an acknowledgment that, look, there's tough economic uncertainties going on in Florida, and part of that is the fact that a rate case always has uncertainties. And we acknowledge that this rate case has some uncertainties in it, and he and I just want to make you aware of that.

[Paul Patterson:]

I don't want to press you on that. What I'm trying to get a sense of is that when we're looking at the decline in earnings guidance, particularly for 2010, going to next year it looks to me like when I'm looking at Slide 25 and I'm looking at the hedged amounts, there seems to be a decrease in the expected margins that were hedged quarter-over-quarter, particularly in Texas, for instance, as sort of a clear example on the higher end of the range. What is it about the hedging that caused that amount to be lower in 2010 than we saw for the previous quarter?

[Armando Pimental:]

Actually, a couple of things, right? Let me just talk about 2010 for a minute, and then I'll talk about maybe Texas for a little bit more. If you look at the top end of our range before, which was about $5.05, the top end of our range now is about $4.85. I mean, this is how I think about it. This is how I think about that $0.20 reduction. You've got $0.06, $0.07, $0.08 in there relating to our Texas gas assets, and if you look at the chart that you were just referring to you'll notice that we reduced our gross margin on those gas assets by $40 or $45 million, so when you do that after tax and you divide it by the number of shares that we have outstanding that gets to be about $0.07 or $0.08. Lower convertible ITC, those 200 megawatts lower than what we were estimating in the second quarter, that's about $0.04 to $0.05. The new population forecast that I mentioned before in Florida, that's about $0.02. Lower commercial usage, that trend - commercial and other usage - if that trend were to continue that's somewhere between $0.02 and $0.04. We've also seen some pressure, not only we, other companies as well, from the state budgetary issues that states are facing, and they're using tactics to try to raise additional revenue by changing some of the ways that they're looking at taxing corporations. That cost us about $0.02 to $0.03 this year. That might continue next year, so that's about another $0.02 to $0.03. You get somewhere around $0.20, a little over $0.20 from $5.05 to $4.85. That's how I get there. Now your question also talked about Texas gas assets specifically. There's a number of things for us to take a look at there. When we reviewed our 2010 guidance for the third quarter we took a hard look at ancillary revenue that we expected to receive in Texas. Clearly, it's down this year from what we had expected to receive - just the second quarter. That's one of the reasons that we're changing 2009 guidance. We've been able to enjoy some fuel basis issues out at those gas plants. That's starting to dry up. We're not sure that's going to come back. We've reduced 2010 for most of those fuel basis gains that we had seen in the past. I mentioned in my prepared remarks that we do mark the forwards, but we do include some estimate in there regarding what we expect the market to do next year. And a great example of that is if we see day ahead pricing clearing at a premium to forward pricing for the following year we often build that into future periods because our assumption would be that it would repeat itself and we would see higher spot prices than forward prices, and we reduced that quite a bit in 2010. That doesn't mean that we don't have a little bit of that left in there. So that's the Texas story. More specifically, if I take a look at our Texas numbers for July, they were okay. They weren't great, but some of the weather, historically hot weather in the summer, drives up spreads for the entire summer, we didn't see that in the late summer in Texas. So all of that put together was one of the factors that reduced 2009, and that's how it affected 2010. Just one last comment

[Paul Patterson:]

Okay. And then just the $0.40 difference on the bottom end of the thing, I mean, not that you have to go to that much detail, but why is there such a bigger delta on the lower end of the range than on the top end of the range?

[Armando Pimental:]

Primarily variability in the things that I've already mentioned, including other uncertainties that we have, including those that Armando pointed to.

[Operator:]

Your last question comes from Edward Heyn - Catapult.

[Edward Heyn:]

I just had a quick question on when we look at the 2011 gross margin. I know that you're excluding the wind build incrementally in that, but it seems like the margin excluding that is actually slightly down relative to the 2010, and I was wondering if you could maybe just point to, when we're thinking about the 2011, although you're waiting until May to give us some more detail, what kind of drivers should we think about for growth both on the regulatory side and on the NextEra side?

[Armando Pimental:]

Ted, I think, you know, as I look at the detail I have in front of me, it doesn't include the 2011 assets, but we've also got a Seabrook outage in 2011 that we don't have in 2010. You don't have the side-by-side - I do - but if you look at 2010 merchant NEPOOL weather and 2011 merchant NEPOOL weather, there's about $55 million or so related to the Seabrook outage and a little bit lower prices in NEPOOL. That's the biggest drop, if you will, besides the new assets. Let me just kind of look here and see if there's any other big, significant changes. That's really the biggest one that I've got.

[Edward Heyn:]

So when we're thinking about '11 we have these gross margins, you're going to have the impact of Seabrook, there's going to be the gross margin from the wind that you kind of laid out at least in your comments. And then on the regulated side should we expect growth from '10 to '11 or is that all dependent on what sort of clauses and treatment you get in the rate case or is there an expectation that that segment of the business is going to be growing as well from '10 to '11?

[Armando Pimental:]

Ted, I tried to address that earlier. We're not going to be providing any segment guidance or more detail on Florida Power & Light, as I indicated in my prepared remarks, until the rate case is settled.

[Jim von Riesemann:]

Great, everyone. Thank you for joining us today on this conference call. We look forward to catching up with you later.

[Operator:]

And, ladies and gentlemen, that does conclude today's conference. We thank you for your participation.