- Adjusted earnings for 2007 which exclude the affect of non qualifying hedges were $130 million compared to $133 million. The equivalent per share contribution in both quarters was 33 cents per share. To repeat last year’s fourth quarter adjusted results included litigation gain amounting to 15 cents per share for the quarter and 16 cents per share for the full year.
- Excluded from adjusted results are the affects of transactions in the non qualifying hedge category. During the quarter the forward curve for natural gas rose and has naturally led to book losses in the non qualifying hedge category. These are of course offset by equivalent gains in the economic value of the underlying physical asset positions, which gains appear no where in the financial statements.

FPL Energy’s fourth quarter adjusted EPS growth was flat comparatively but the prior period was driven to a great extent by the one time gain on resolution of litigation.

The existing portfolio added 15 cents per share in the quarter driven primarily by favorable market conditions in the New England fleet and the absence of a refueling outage at Seabrook. The existing wind fleet improved year over year. New asset contributions namely wind and Point Beach accounted for 6 cents per share improvement. The 2007 fourth quarter results benefited from approximately 1215 MW of additional wind capacity compared with a year ago. Results from marketing and trading activities increased by 3 cents per share. This was offset by the absence of a 3 cents per share gain posted in 2006 from the sale of certain development rights. All other factors were a negative 6 cents per share owing primarily to additional interest expense and overhead associated with continued growth of the business.

New investment added 19 cents per share which was about what expected although the company was behind with the wind portfolio owing to some delays in one particular project. This was offset by a small contribution from Point Beach which was not in the expectations. The existing portfolio added 28 cents per share which was at the upper end of what was expected. Wind resource in Texas was weak in the early part of the year but other parts of the year of portfolio outperformed expectation

Last year the company had a gain of 3 cents per share from the disposal of certain development rights has hurt the 2007 comparison by the same amount. Same market conditions that led to additional opportunities for physical assets also were beneficial to marketing and trading operations, the contribution of which increased by 14 cents per share of which half came from full requirements portfolio.

Fiscal 2007 Highlights

- Net income was $1.312 billion or $3.27 per share compared to $1.28 billion or $3.23 per share in 2006. Excluding the mark-to-market affect of non qualifying hedges and merger related costs, adjusted earnings were $1.40 billion or $3.48 per share compared to $1.20 billion or $3.04 per share in 2006.
- Earnings in 2006 were reduced $27 million by the net write off of certain disallowed storm costs, and usage due to weather in 2006 contributed about $19 million relative to expected from normal weather. Excluding these two items normalized 2006 results might be thought of as about $810 million which would have resulted in an increase in 2007 earnings of about $26 million over normalized 2006 earnings. The company expected 2007 to be a challenging year on the cost front and indicated some uncertainty about the revenue outlook.
- Customer growth on average for the full year was in line with expectations adding 11 cents per share to earnings.

- Weather for the year as a whole was in line with normal although with large swings which has complicated analysis of usage patterns. Non weather related usage was inconsistent throughout the year and did not deliver the growth expected for either the fourth quarter or the year. Results were aided by a base revenue increase associated with the addition of the 1144 MW Turkey Point Generating Facility which went into service in May, ahead of schedule and under budget. For the year the revenue associated with the new Turkey Point Facility added 13 cents per share. This was the first application of the generation base rate adjustment or GBRA which is a mechanism introduced as part of the FPL’s 2005 rates settlement and stipulation agreement which allows FPL to increase base rates for the cost of approved new generation facilities placed into service prior to the end of the agreement in 2009 with a simplified administrative review. The addition of Turkey Point 5 to portfolio is beneficial both to customers and to shareholders with increase in base rates more than offset by the fuel savings arising from the incremental efficiency of the new unit.

- On the expense front costs were up but not as high as indicated when the company discussed expectations for 2007 in late 2006. The absence of disallowed storm costs broken separately on financial statement helped the comparative results by 7 cents per share. FPL undertook several initiatives throughout the year to continue to position the company for the long term. The company continues to make good progress with West County Energy Center generation expansion, two identical natural gas units of approximately 1220 MW are currently under construction. The first facility is expected to be placed into service in mid 2009 and the second approximately a year later. The total approved cost of the two units is approximately $1.3 billion. These units will be among the lowest emitting and most efficient fossil units anywhere in the world and like Turkey Point 5 will have the affect of displacing older less efficient capacity as well as supporting continued service territory growth.

- FPL made good progress in continuing development of advanced metering technology. To date the company has deployed about 50,000 advanced meters with another 50,000 expected to be deployed in 2008 ramping up further in 2009 and beyond if all continues to go well. FPL expects the full deployment of this advanced metering initiative to require a capital investment of approximately $500 million.
- Florida Power & Light Company reported net income of $836 million compared with $802 million in 2006. Earnings per share for 2007 were $2.09 versus $2.02 in the comparable period a year ago. For the full year customer growth ended up about where expected at 2%. The average number of customer accounts increased by 87,000. But essentially all this growth was concentrated in the first half of the year. The first half of the year saw customer growth rates ahead of expectations while the latter portion of the year experienced little growth. In the last four months of the year, Florida Power & Light Company customer growth was disappointing. As a result the fourth quarter year on year growth rate was only 1.5% equating to 64,000 customers.
- Total retail sales growth was 1.6% made up of 2% customer growth, and negative 0.8% weather affect and positive 0.4% from underlying usage growth mix and other. For most of 2007 usage growth has been lower than statistical model which takes into account weather affects, general economic conditions, price elasticity and long term trend data would suggest.

- O&M expense was $380 million compared to $350 million in last year’s fourth quarter driven by higher distribution, power generation and employee benefits costs. Comparative nuclear expenses were down owing to timing issues associated with scheduled plant outages.
- O&M expense was $1.45 billion up from $1.37 billion in 2006. Higher operating costs in nuclear power generation and distribution drove O&M expenses as well as costs associated with employee benefits. Generally speaking the trends anticipated were present but with the exception of nuclear costs the company was generally able to do better than expected.
- Depreciation fell to $773 million from $787 million. The fourth quarter and full year reflect underlying growth in transmission and distribution and the introduction of the Turkey Point fossil unit which were more than offset by reductions in certain amounts recovered through the capacity clause. Underlying base depreciation increased by approximately $8 million and $20 million for the quarter and year respectively.

- In 2006 FPL Energy recorded a gain on a litigation settlement which is included in adjusted earnings benefiting last year’s fourth quarter and year by 15 cents per share and 16 cents per share respectively. The annual growth was driven by margin expansion at the existing assets, notably in April where the company benefited from the anticipated roll over of older hedges to hire prices, by new assets primarily new wind projects with a minor contribution from Point Beach, and by increased contributions from wholesale, marketing and trading operations including full requirements business.
- The company added 1064 MW of incremental wind. This is ahead of where expected to be when the company shared revised wind program last July. For 2008 the company expects to add at least 1100 MW of incremental wind. To date the company has more than 750 MW under construction or already approved.
- Beyond 2008 the company expects to scale up growth even further subject to continued public policy support for the wind business.

- FPL Energy’s reported earnings were $540 million or $1.35 per share compared with $610 million or $1.54 per share in 2006. Adjusted earnings were $626 million or $1.56 per share versus $518 million or $1.31 per share last year.
- The full year impact of the non qualifying hedge category was a negative $86 million reflecting the large increase in forward prices observed over the course of the year.
- FPL Energy’s adjusted net earnings per share increased 25 cents per share. Results contain the unusual 16 cents per share item associated with the litigation gain settlement, so the effective increase was even greater. In the fall of 2006 the company indicated that 2007 would show healthy growth owing primarily to two key drivers, the roll over of older lowers priced hedges to more current market values and the additional contributions from new wind.

- Increases in interest expense had a negative 6 cents per share impact on the full year 2007 versus 2006 comparison. This was larger than set out in October 2006 owing to the impact of Point Beach. All other factors had a negative 11 cents per share impact on the full year comparison. This was primarily owning to increased spending to support future growth and was larger than expected since the company elected to accelerate growth plans particularly for the wind business part way through the year.
- As of the end of 2007 the company has over 5000 MW of wind projects in operation and continues to be the largest competitor in the US business.

Fiscal 2008 Outlook

- The company expects to produce average adjusted earnings per share growth of at least 10% through 2012 off the 2006 base.
- For 2008, the company expects adjusted earnings per share to be in the range of $3.83 to $3.93.
- For 2009, the company expects adjusted earnings per share to be in the range of $4.15 to $4.35.

Key questions from the fourth quarter earnings call conducted by FPL Group, Inc. on January 28, 2008.

Dan Eggers (Credit Suisse): Could you give color around some of the operating efficiency synergy type of benefits you anticipate that are helping to offset the O&M cost increase and help mitigate some of the volume pressure for 2008?

Moray Dewhurst: We were sharper across the board. We initiated a number of new small scale productivity initiatives. We knew it was going to be a difficult year on the cost front and we were more successful than we expected to be but I do not think there was anything in particular of note.

Armando Olivera: As we saw the downturn in the economy we started to pull back in distribution and transmission. Although a lot of that was capital cost, it was just enough O&M to help us during that transition. We sharpened our pencil too on the customer service side and managed to do well on the uncollectable side so a lot of small efforts across the board added up.