NextEra Energy, Inc.
Q3 2011 Earnings Call Transcript

Published: 4 Nov 2011

[Operator:]

Good day, everyone, and welcome to this NextEra 2011 Third Quarter Earnings Conference Call. Today's call is being recorded. At this time for opening remarks, I would like to turn the call over to Rebecca Kujawa, Director of Investor Relations. Please go ahead, ma'am.

[Rebecca Kujawa:]

Thank you, Bill. Good morning, everyone, and welcome to our Third 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 former Chief Financial Officer and current President and Chief Executive Officer of NextEra Energy Resources LLC, which we will refer to with its subsidiaries as Energy Resources in this presentation. Armando will discuss the specifics of our financial results. Also joining us this morning are Moray Dewhurst, Vice Chairman and Chief Financial Officer of NextEra Energy; Jim Robo, President and Chief Operating Officer of NextEra Energy; and Armando Olivera, President and Chief Executive Officer of Florida Power & 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 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 in the Investor Relations 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, and good morning, everyone. I'm pleased to report that FPL had strong performance in the third quarter and while Energy Resources had a challenging quarter financially, the team executed well on creating tangible growth opportunities for the future. During the quarter, we continued to build a large backlog of future investment opportunities at both of our main businesses. Despite the decline in year-over-year financial results at Energy Resources, we continue to expect adjusted earnings per share for 2011 to be at the low end of our range of $4.35 to $4.65. At Florida Power & Light Company, earnings per share were up approximately 12% over the prior year comparable quarter due to increased investment in the business. The Florida economy continues to show mixed signs with improvement in some indicators and little change in others. Florida's unemployment rate was 10.6% as of September 2011. This is 1.1 percentage points below last year's comparable month, and represents one of the largest year-over-year decreases in state unemployment rates in the United States. Florida's housing affordability has improved significantly, particularly in FPL's core markets. The Case-Shiller index, which tracks the prices of residential real estate has fallen 50% from its 2006 peak for the Miami-Dade, Broward, and Palm Beach County markets in South Florida. This makes Florida much more attractive to baby boomers as they enter retirement, and the state's existing home sales trend continue to show positive momentum. Over the quarter, FPL averaged 24,000 more customers than we had in the year-ago comparable quarter, and our inactive meters have declined 4.4% since the year-ago period. Florida also continues to have a low tax burden, and we are encouraged by the efforts of Governor Scott's administration to make the state even more attractive to businesses. At FPL, we continue to make good progress on our large investment program. Our nuclear uprate work at St. Lucie and Turkey Point continues. Last week, the Florida Public Service Commission approved FPL's nuclear cost recovery of $196 million through the capacity clause. This amount relates primarily to the cost of nuclear uprates, which by themselves are estimated to provide fuel savings to customers of $4.6 billion to $4.8 million over the lives of the plants. The commission determined that FPL's 2009 and 2010 uprate costs were prudently incurred, and FPL's actual and projected 2011 and 2012 costs are reasonable. Cost recovery for 2009 and 2010 was one of several issues that had been left unresolved by the prior commission. All of the prior unresolved issues have now been resolved. This week, the commission approved the remainder of the clauses for 2012 including fuel conservation and environmental clauses. This approval was reached through stipulation with all parties. During the third quarter, the commission accepted FPL's request for a bid rule exemption regarding the proposed modernization of the Port Everglades facility. And we plan to file a petition for a determination of need for the facility later this month. If the new plant were to come online in 2016 as currently proposed, the Port Everglade's modernization would cost roughly $1.2 billion and is expected to provide net customer benefits of more than $400 million over the life of the plant. In aggregate, FPL's completed and planned investments from 2001 to 2016 are expected to save customers an estimated $1.3 billion in projected fuel costs in 2016 relative to a 2001 baseline. These investments are delivering significant benefits to our customers through operating efficiencies, cleaner generation and reduced fuel costs. As a result, FPL customers are receiving cleaner, more reliable energy for a typical bill that is the lowest in Florida and more than 20% below the national average. Looking forward, we expect that these investments will allow us to keep our typical residential customer bill among the lowest in the state. On the Energy Resources side of the business, we made great strides in growing our backlog of contracted renewable energy projects by entering into contracts for approximately 1,100 megawatts of new renewable energy capacity since our second quarter earnings call. In fact, since the beginning of the year, we have signed approximately 2,100 megawatts of contracts per new wind and solar projects. Now the numbers I just gave you are slightly higher than what are shown on the slides as last night, we entered into a new 100-megawatt wind contract, which is not included in the numbers you're seeing on the slides. This year is the most successful contracting the year in Energy Resources' history. On the solar development front, we were pleased to announce that we have purchased a 50% ownership interest in the 550-megawatt Desert Sunlight photovoltaic solar project. We believe the addition of Desert Sunlight, which is expected to be one of the world's largest solar PV facilities considerably strengthens our backlog of solar projects. We expect this project will begin operation in 2013 and be at full capacity in 2015. Long-term power purchase agreements or PPAs for the project have already been approved by the California Public Utilities Commission. I also want to take this opportunity to announce that we are pursuing the necessary approvals and permits to develop the McCoy solar facility, a 250-megawatt solar PV project located in the Mojave Desert near the Genesis and Desert Sunlight projects. This project, which is expected to reach full commercial operations by 2016 has a long-term contract with Southern California Edison, currently pending approval by the California Public Utilities Commission. This project further enhances the visibility of our longer-term backlog, and we look forward to providing you additional updates on McCoy in the future. McCoy and Desert Sunlight join our solar portfolio alongside our Genesis and Spain solar thermal projects and several other smaller PV projects, increasing our backlog of already contracted solar opportunities to 940 megawatts expected to come into service sometime between 2011 and 2016. We expect these projects will begin contributing meaningfully to cash flow and earnings in 2013. On the wind development front, we had another active quarter and now have long-term PPAs for over 1,400 megawatts of new wind projects to be commissioned in 2011 and 2012, including the contract we signed last night. By 2012, Energy Resources expects to have approximately 10,000 megawatts of operating wind projects that provide on their own attractive upside opportunities. Looking beyond 2012, our current backlog of already contracted wind projects for 2013 and 2014 is 593 megawatts, which includes 469 megawatts of Canadian projects that we talked about last quarter, as well as an additional Canadian project of 124 megawatts that we had previously included in our 2012 backlog but now expect to come online in 2013. As you know, last month we announced new management roles for Armando Pimentel and Moray Dewhurst. Since Armando was Chief Financial Officer during the third quarter, he will be presenting the company's quarterly financial results today. With that, I will turn the call over to Armando before returning for some closing comments. Armando?

[Armando Pimentel:]

Thank you, Lew, and good morning, everyone. In the third quarter of 2011, NextEra Energy's GAAP net income was $407 million or $0.97 per share. NextEra Energy's 2011 third quarter adjusted earnings and adjusted EPS were $551 million and $1.31 per share, respectively. The difference between the GAAP and adjusted results is the exclusion of the mark in our non-qualifying hedge category, the exclusion of net other than temporary impairments on certain investments or OTTI, and exclusion of the impact of the pending sale of Energy Resources' ownership interest in a portfolio for natural gas-fired generation assets. The pending sale of these assets resulted in a onetime after-tax charge of approximately $0.23 per share, of which approximately $0.22 was at Energy Resources and $0.01 was at corporate and other due to the consolidated tax impact. These results are still subject to various closing adjustments. Late last month, we announced the sale of our ownership interest in RIEC, a 550-megawatt gas-fired generation asset. The transaction is expected to result in a onetime after-tax charge of less than $0.01 per share subject to final closing adjustments, which the company expects to exclude from fourth quarter and fiscal 2011 adjusted earnings. For the third quarter of 2011, Florida Power & Light reported net income of $347 million or $0.83 per share. FPL's contribution to earnings per share increased $0.09 relative to the prior year's comparable quarter driven almost entirely by the substantial investments we have made in the business, including the nuclear uprates in our Martin solar facility. 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 cap. We continue to expect 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 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 modest differences from normal weather. 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. But on an annual basis, we expect that retail regulatory return to be approximately 11% in 2011 and 2012. During the quarter, we reversed $47 million of surplus depreciation to maintain a regulatory ROE of 11% in accordance with the settlement agreement. Year-to-date, we have recognized approximately $84 million of surplus depreciation amortization. For the full year 2011, assuming normal weather and operating conditions, we now expect to amortize between $160 million and $180 million, down from our previous range of $180 million to $200 million provided on our second quarter earnings call. This revision is largely a result of modestly favorable weather experienced in the third quarter. At this point, we expect to utilize between $510 million and $530 million of surplus depreciation in 2012, leaving us at the end of 2012 with between $180 million and $220 million remaining of the original $895 million established in the last rate case. Although, of course, the exact amount will depend upon a variety of other factors affecting 2012 results including the actual 2012 weather. Some of FPL's key customer metrics continue to show mixed results. The table in the upper left shows the change in retail kilowatt-hour sales in the quarter versus last year's comparable period. Overall, on a comparable basis, retail kilowatt-hour sales decreased by 2.4% with the average number of customers increasing 0.5%. Although the usage due to weather is down slightly from last year, cooling degree days were 6.9% higher than normal. Non-weather related or underlying usage and all other declined by 1.1%. We continue to analyze customer usage statistics to assess how much of the decline can be attributed to the economic environment, and how much is the result of mandated efficiency standards. At this point, we believe each is contributing roughly equally to the decline. There is, however, more work for us to do in this important area. As depicted in the graph in the upper right corner, during the third quarter of 2011, we had approximately 24,000 more customers than we did in the comparable period of 2010. This is the seventh 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. While the percentage of low usage customers is flat to last year, inactive accounts declined approximately 4.4% since the end of last year's third quarter. We also want to highlight a recent update from the Office of Economic and Demographic Research regarding its population growth outlook for Florida. The chart at the bottom right corner provides annual projected population growth in Florida through 2021. The chart shows population growth rates increasing from 0.6% in 2012 to a peak of 1.5% in 2016 before tapering off slightly. We believe this is a positive indication of long-term potential customer growth. Turning to Florida's economic environment. A number of the indicators we follow have improved since the depth of the recession, but progress has been less consistent than we would prefer to see. Both the retail sales index and the tourism taxable sales are up over the comparable period in 2010. The trailing 12-month average of existing home sales continues to trend positively, suggesting the market is moving through the inventory of available homes. We continue to believe Florida offers a unique proposition in terms of housing affordability, great weather, low taxes and a pro-business economy. All of which should continue to lead to ongoing customer growth for FPL in the future. Let me now turn to Energy Resources, which reported third quarter 2011 GAAP earnings of $67 million or $0.16 per share. Adjusted earnings for the third quarter, which exclude the effect of non-qualifying hedges, net OTTI and the previously announced loss in the 4 natural gas-fired generation assets held for sale, were $204 million or $0.49 per share. Energy Resources' third quarter adjusted EPS decreased $0.15 from last year's comparable quarter. New wind and solar investment contributions decreased $0.06 relative to last year as a result of lower CITC elections and lower state tax credits. Our estimate for full-year 2011 CITC elections is unchanged at roughly 275 megawatts compared with approximately 600 megawatts for 2010 projects. We continue to expect the full-year impact of lower CITC elections in 2011 relative to 2010 to be approximately $0.07. In aggregate, the existing asset portfolio contribution was roughly flat relative to the prior year comparable quarter. Wind resource in the quarter was 88% relative to normal compared to 99% relative to normal in the prior year comparable quarter. The weaker wind resource was the primary driver of the negative $0.04 contribution from existing wind assets relative to the prior year comparable quarter. Year-to-date, the wind resource has been at 98% of normal. The Texas gas-fired generation assets contributed $0.02 primarily as a result of extreme hot weather in the [indiscernible] region. In the nuclear asset portfolio, Seabrook's contribution was lower by $0.03 as a result of lower price hedges while Point Beach contributed $0.05 more as a result of decommissioning fund gains, favorable generation and the lack of an outage in this quarter. Our shale gas well-drilling program contributed an additional $0.05 compared to the prior year comparable quarter. Customer supply in proprietary trading were down $0.13. This includes lower earnings at Gexa, a retail business, of approximately $0.05 attributable to the extreme hot weather in Texas during the month of August, and lower contributions from our proprietary trading business of roughly $0.07. As you know, there are 3 main parts to our Texas portfolio

[Lewis Hay:]

Thanks, Armando. To close, let me just say that while we're not satisfied with the financial results this year at Energy Resources, we remain very positive about our outlook for the future. During my tenure as CEO, we have never before enjoyed a position in which so much of our future is represented by projects in our current backlog with high visibility and a clear path to completion. Altogether, our backlogs total almost $20 billion of capital investments across FPL, Energy Resources and Lone Star. Our growth for the next few years will be driven primarily by growth at Florida Power & Light, where our investments are fundamentally substituting capital for fuel and thereby making our delivery system more efficient. We already have what we believe is the best customer value proposition in Florida, combining the lowest bills in the state with top-quartile reliability, award-winning customer service and the risk mitigation that comes for our clean emissions profile and we're working hard to improve this. Our investments will mean real benefits for our customers in the form of lower bill -- lower fuel bills, which means total bills will need to rise very little even in nominal terms and will likely continue to decline in real terms. As a result, we believe we should be able to earn a fair rate of return on the capital we are investing the business. This will lead to strong growth and contributions to earnings per share. While the outlook for FPL is for fairly consistent growth, at Energy Resources, we first need to fight through the effects of some headwinds, most notably the impact of the decline in power and gas prices that has occurred over the last few years and which will somewhat mask the positive impact of the strong growth in new business through the end of next year. Nevertheless, Energy Resources has a bright and highly visible future path to growth through 2014 in the form of continued investment in new wind and solar projects. And at the same time, the mix of Energy Resources' businesses will continue to shift toward long-term contracted projects, thus improving the overall risk profile. Combining all of these, we continue to believe we can grow earnings per share at 5% to 7% per year through 2014 relative to a 2011 base of $4.35 to $4.65, which equates to a range of $5.05 to $5.65. We can -- we believe we can do so even after conservatively assuming no U.S. wind additions in 2013 or 2014. Yet we firmly believe we will find additional growth opportunities in the years ahead beyond those we have currently identified, and we will be working very hard to do so. Notwithstanding the short-term uncertainties related to renewable energy policy, we believe that U.S. Renewable Energy policies will continue to be supportive of future investments over the long haul. We understand that we have much work to do to execute effectively against our extensive backlog of projects, and that is our immediate focus. But we will continue to seek ways to deploy new capital at attractive returns to build long-term value for our shareholders. With that, I'm going to turn the call over to the conference moderator for questions. Thank you.

[Operator:]

[Operator Instructions] And we'll take our first question from Daniel Eggers, Crédit Suisse.

[Dan Eggers:]

Lew, maybe you kind of hit on at the end but could you talk a little more about where you guys see renewable tax policy headed and then as it relates to the backlog, how much of the solar and wind you guys have in place that's dependent upon an extension of U.S. tax policy beyond the 2012 expiration as currently laid out in law?

[Lewis Hay:]

Okay, Dan. First of all, I'll answer the second part of your question. None of the forecast that we gave you is dependent on any future extensions or changes in tax policy. So I think that was in pretty darn good shape. As far as what we see happening right now, we don't have -- we don't even have a murky crystal ball or a clear crystal ball on this. You all read the papers and between the U.S. deficit situation and some of the partisan politics, it's hard to say where things are going to go in the short term. Although I will note, a bill has just been introduced in Congress to extend wind PTCs to 2016, which is the same period of time where the solar PTCs expire. But historically, renewables have received strong bi-partisan support and I think it will -- renewables are going to be an important part of our energy mix going forward. And the other thing that I will add is, as I think you all have seen now, over the years, the cost for renewables, wind and solar, especially, continues to come down. And so they are becoming more and more competitive. So it's proof that these incentives have worked in terms of making renewables much more cost effective. So it's hard to predict what's going to happen very short term. I'm pleased that we're in a position that we can give guidance out through 2014 that doesn't rely on any changes to U.S. energy policy. But again, as I said at the end of my prepared remarks, I see over the long haul that we will have continued support for renewables and renewables are going to be a viable business.

[Dan Eggers:]

When I look at the -- what you guys laid out today that you're going to implement buybacks in '13 and '14 kind of to fill in some of the excess cash presumably because the reinvestment pipeline is slowing a bit at that point in time, should we think of that as a placeholder given the current environment, or is it just the opportunities that as you guys look out is getting a little less compelling for some of the resources or reinvestment than what you've seen in past years?

[Lewis Hay:]

Well, let me -- first of all, we're providing you total clarity on what we've seen in terms of contracted projects, projects that we have contracted as of November 2011. It's the biggest backlog we've ever had in our history, and it's also a backlog that goes for more years than we've really ever had in history. So I wouldn't read anything more into it other than it's a very big, very positive backlog. And so the comments on our capital position and therefore share count, are really a function of those known contracted projects that we've just told you about. As I think Armando said and I said, we're going to continue to look for other opportunities and if you look at our track record of finding other opportunities, I think it's a pretty darn good bet that we will have other opportunities. But for a financial forecast, you have to make some kind of assumption at this point. We never like to assume things that we don't know about, and so I think that provides sort of a baseline kind of forecast. For sure, we're not going to go and invest in things that are dilutive or highly dilutive. So if we find new investments, they've got to have a better economic proposition than what you're seeing in the numbers we've just laid out. So I can assure you, my request to the team and the things that they're going to be incentivized on are to execute well on the projects that we've talked about, but also to keep the nose to the grindstone, if you will, in coming up with attractive investment opportunities.

[Dan Eggers:]

Okay, and one last quick question. Does the free cash flow positive position assume any sort of tax equity to monetize some of the PTC balance, or is that natural cash from operations to get to the free cash position?

[Armando Pimentel:]

It's very small tax equity in our financial forecast going forward, but it's not to say there's not none. We have used the end tax equity -- and this by the way is your last question because we've got to get to others. We've used tax equity over the last 24 months really on not only new projects, but existing projects to do a couple of things. The cash is nice, but the real primary piece has been to reduce the amount of production tax credits that would otherwise have been capitalized on our balance sheet. And we've done a great job of that and I believe in one of our future earnings calls, we're gonna kind of lay out exactly what we've done so investors can see how good we've done on that front.

[Operator:]

And we'll take our next question from Michael Lapides with Goldman Sachs.

[Michael J. Lapides:]

Real quick. And I apologize because when you ran through it in your prepared remarks, it's a little bit hard to catch up with. Could you run through all of the solar projects you're doing over the next 3 to 4 years, 3 to 5 years and the timeline for megawatts coming into service, please?

[Armando J. Olivera:]

Sure. The first project would be our Spain solar project. It's really 2 projects, each slightly less than 50 megawatts. The first part of that will come in, in the first half of 2013. And the second half will come in, in the latter parts of 2013. The second project that we mentioned is our Genesis solar project. It's a 250-megawatt thermal project out in California, 125 megawatts of that project will come in mid- to last-half of 2013 and the other 125 megawatts will come in around mid-2014. The third project is Desert Sunlight. That's an equity investment by us, 50%. That megawatt is currently -- those megawatts are currently scheduled to come in roughly 150 megawatts later in 2013, roughly 90 megawatts, I'd say, probably throughout 2014 and roughly 30 megawatts, I'd say, probably the first half of 2015. And then we've got McCoy, which we talked about today. McCoy is a 250-megawatt, also a PV Project like Desert Sunlight. That's actually -- there is some CapEx from McCoy in our forecast period, it's not significant and by our forecast period, I mean through 2014. But we don't expect any earnings associated with McCoy until 2015. Most of that -- most of those earnings though will probably be in 2016.

[Michael J. Lapides:]

Okay. And on the wind side, the CapEx you're showing for wind post-2012 largely driven by the Canadian development, I assume?

[Armando Pimentel:]

It is all driven by our Canadian projects.

[Michael J. Lapides:]

Got it. Last item, if I just take the very low end of your 2011 guidance, so $4.35. Take the mid-point of your 2012 guidance, let's say, $4.50-ish. To get to the midpoint of your 2014, that's implying almost a 10% year-over-year growth in '13 and '14 from '12. Is that -- can I ask a question what in terms of pricing assumptions granted that you don't have that much exposure to the forward curves? But that's a pretty big uptick, and just trying to put my arms around it a little bit.

[Armando Pimentel:]

Well, it's the things we laid out. I'm not going to remember the slide. The slide's probably in the upper teens but it's 2012 -- I'm sorry, 2013 drivers and the 2013 drivers really come in 3 pieces. First, you've got Florida Power & Light Company, which is making significant investments to rate base in 2011, 2012. And we'll have new rates in 2013 since our rate agreement ends at the end of 2012. That's the first big driver. The second big driver's $800 million of rate base in our Texas utility our transmission utility, Lone Star. And the next big driver which we laid out really on 19, and we laid it out from '11 to '13 but it's really the Energy Resources solar projects, which I talked about in my prepared comments. So you've got first half of Genesis, you've got Spain Solar, you've got Desert Sunlight and you've got a whole bunch of wind that you're putting in, primarily in '12 as opposed to '11. And those wind projects that are going in, in '12 will have a full year of operations in 2013. When you put all that together, that accounts for the big driver from '12 to '13. The other piece that we shouldn't forget I also mentioned in my prepared remarks, we've got a -- at Energy Resources, a significant amount of headwinds from the roll-off of above-market hedges from 2011 to 2012. So if you look at Slide 19, and you look at the merchant pricing down of $85 million from '11 to '13, $60 of that is actually from '11 to '12. And so you have much less headwinds in 2013. Now I'm going just make this comment because you also had Merchant in there. On the Merchant side of the business, our Merchant gross margin at this point is not fully locked up. But even in 2014, as I mentioned in my prepared remarks, we've got 70% of that margin in 2014 locked up. And in 2013, if you look at the new slide that's in the appendix, we've got 86% of that gross margin currently hedged. So we feel fairly comfortable that there will be a big up in adjusted earnings per share assuming we can execute on our plans. But if we execute on our plans, there should be a pretty big up in adjusted EPS from 2012 to 2013.

[Michael J. Lapides:]

Got it. One last item, a little bit of a modeling one. O&M trajectory at Energy Resources, it actually -- if I just look at the financials on the back of your tables, it actually was down a little bit year-over-year from third quarter last year to third quarter this year. Just curious a, the driver of that especially since you've added some new assets and b, kind of the trajectory going forward.

[Armando Pimentel:]

Trajectory going forward, I don't think is going to be -- well, we've got a whole bunch of new projects that are going in, right. So all of those new projects going in are going to have their own O&M. And let me just -- I'm going to get to the rest of your question in a second. But if you go to Slide 19, for those of you that are out there trying to model all this, the green bars that you see there, those ups that you see on those projects, those green bars are already net of the O&M for those new projects. So the O&M increase that you see on that slide which I think is part of your question, Michael, is really for existing projects, not new projects. As far as our expectations just on a general basis going forward, I wouldn't expect it to be much more than inflation and maybe it's slightly even less than inflation on a go-forward basis.

[Operator:]

And our next question comes from Paul Patterson, Glenrock Associates.

[Paul Patterson:]

The CITC benefit in 2011, 2012 and 2013, I wasn't completely clear as to how we should be thinking about the level of CITC contribution to your growth rate.

[Armando Pimentel:]

Let me give you a little shortcut. From 2010 to 2011, this is on adjusted earnings. From '10 to '11, you're down about $28 million, that's the $0.07 per share that I talked about in my prepared remarks. From 2011 to 2012, you're going to be roughly up $18 million and that's all most -- actually all associated with wind. And from 2012 to 2013, you will be up roughly $12 million. That $12 million is a net number though, because you will not have any CITC for wind in 2013, so you'll be down on the wind side probably around $62 million, that's the gross number, and you'll be up on solar roughly $74 million.

[Paul Patterson:]

Okay, great. And what's the total number of CITC in that year?

[Armando Pimentel:]

CITC in 2013 is probably somewhere around 275 megawatts or so, all of solar.

[Paul Patterson:]

And that's equals what kind of dollar amount?

[Armando Pimentel:]

Roughly $70 million to $74 million, after tax.

[Paul Patterson:]

Okay, great. Excellent. And then when we're looking at the slides on the hedging, the Merchant wind in New England seem to be moving in different directions year-over-year. The megawatt hours seem the same but in some cases, it seems like there's a big increase in what we're seeing.

[Armando Pimentel:]

Yes, Paul, that's true. You should -- you and the rest of folks should understand. We try to hedge really on what I call corporate-wide basis at Energy Resources. And that means a times, we may move some hedges from some of our wind assets to some of our power assets and back and forth. And we're not really doing that to confuse you, although it might have confused folks. I think the better way to look at it would be actually to look at the total amounts that you see, especially when you're looking at Texas wind and Northeast. What's happened to those total numbers.

[Operator:]

And we'll take our next question from Jonathan Arnold, Deutsche Bank.

[Jonathan P. Arnold:]

Could I just follow-up on Paul's question, and thank you for that disclosure on the '13 CITC. How should we think about that number in '14, I mean with respect to your guidance and growth rate?

[Armando Pimentel:]

The '14 CITC number, that's actually a number I don't have in front of me. Hold on just -- do you have another question actually, Paul? I'm sorry, do you have another question, Jonathan? I don't have that number in front of me.

[Jonathan P. Arnold:]

Should we try that first? The other one was on the gas plants that you recently sold where you got the operating contracts back, I think, for some varying numbers of years. Could you quantify what the benefit of those ongoing operating contracts is likely to be to earnings and where we'd be looking for that? And is it something we'd notice as in when they roll down?

[Armando Pimentel:]

Well, we'll go back to your first question, Jonathan, because we're not going to answer that question.

[Jonathan P. Arnold:]

You're not going to answer either half of that question?

[Armando Pimentel:]

Yes. That's -- I think that's a competitive question, and I don't think it's really appropriate for us to answer. But on your first question where you were wondering how many megawatts of CITC we would have in 2014, I'd say roughly between 200 and 215 megawatts and it's all solar at that point.

[Jonathan P. Arnold:]

So it will be a little -- there'll be a slight headwind versus '13 but not significant?

[Armando Pimentel:]

Not significant.

[Jonathan P. Arnold:]

Okay. And on my other question, I mean is this a number we'll notice when those contracts end rather than asking for a specific? Is it a driver we should even think about?

[Armando Pimentel:]

Jonathan, here's what I would say about it, which is, obviously, it's accretive right now to earnings but it's small. And we're not doing it for free, but that O&M service is a competitive business and so it's accretive, it's small and not going to be a giant driver one way or another.

[Operator:]

At this time, I would like to close the conference out. We thank you for your participation.