How did FPL Group perform financially in 1997?

FPL Group's net income increased 6.7% to $618 million and EPS increased 7.2% to $3.57. Operating revenues rose to $6.37 billion from $6.04 billion. Most of the improvement came from the independent power businesses of FPL Group Capital and ESI Energy, while the regulated utility, FPL, contributed the bulk of earnings.

What is the main risk to FPL's earnings from regulation?

In December 1997 a large FPL customer petitioned the FPSC to reduce base rates by lowering the authorized ROE and excluding amounts recorded under the special amortization program. Management said it cannot predict the outcome or its financial effect. FPL's 1997 retail ROE was 12.3%, within the 11%–13% authorized range, and base rates have not changed since 1984 apart from a 1990 tax-related reduction.

What are FPL Energy and the Central Maine acquisition about?

FPL Energy, formed in January 1998 as a subsidiary of FPL Group Capital, will hold FPL Group's non-regulated generation assets and pursue new domestic and international energy investments. It agreed to buy Central Maine Power's non-nuclear generation assets, subject to federal and state approval, with closing expected in the second half of 1998. Those assets would add to FPL Energy's roughly 3,100 MW of existing projects.

How significant are the pending lawsuits?

The qualifying-facility partnerships counterclaimed for about $2 billion, and the FMPA seeks $140 million before trebling on its antitrust claim. Management and the auditors state that these liabilities are not expected to have a material adverse effect on the financial statements, though management acknowledges that an unfavorable outcome in these suits could have a material effect.

How will FPL Group fund its capital needs?

Management expects 1998 capital expenditures, energy-related investments, and debt maturities to be funded from internally generated cash and debt issuances, with short-term bank borrowings for temporary needs. Bank credit lines total $1.3 billion, of which $900 million is available to FPL. Energy-related acquisition commitments are $1.1 billion for 1998.

NEE 10-K FY1997 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed February 27, 1998. Cited figures are marked; the original filing is the authoritative source.

FPL Group, Inc. (NYSE: NEE in later years; ticker FPL in this filing) reported 1997 net income of $618 million^a, up 6.7% from $579 million in 1996, and earnings per share of $3.57 (basic and diluted), up 7.2% from $3.33.

Growth was driven mainly by better results in non-utility operations, particularly ESI Energy's independent power projects, while Florida Power & Light Company (FPL), the regulated utility that generates about 96% of operating revenues, produced net income available to FPL Group of $608 million^b. FPL's base rates were unchanged in 1997, and its retail regulatory ROE was 12.3% against an FPSC authorized range of 11% to 13%. Total assets were $12.4 billion at year-end, and long-term debt declined to $2.9 billion from $3.1 billion.

Management is positioning the company for competition. In January 1998 it formed FPL Energy to hold non-regulated generation, acquired interests in two Northeast power plants, and agreed to buy Central Maine Power's non-nuclear generation assets, a deal expected to close in the second half of 1998 pending regulatory approval. Committed energy-related acquisitions total $1.1 billion^c for 1998, and planned utility capital expenditures are about $1.8 billion for 1998 through 2000.

Capital needs are expected to be met with internally generated funds and debt issuances. Key risks include a December 1997 petition by a large FPL customer seeking to cut base rates and reduce the authorized ROE, which management cannot predict the outcome of.

Other exposures include a roughly $2 billion^d counterclaim by the Palm Beach County qualifying-facility partnerships, the FMPA transmission antitrust suit seeking $140 million before trebling, and the unresolved Orimulsion permit at the Manatee plant. The DOE's failure to begin accepting spent nuclear fuel also remains a long-term issue for FPL's nuclear units.

02—Key points

Key Highlights

Net income rose 6.7% to $618 million in 1997; EPS rose 7.2% to $3.57, with growth led by non-utility independent power projects.
FPL (the regulated utility) generated about 96% of operating revenues of $6.37 billion; operating revenues grew to $6,369 million from $6,037 million, and base rates were unchanged during 1997.
Retail regulatory ROE was 12.3% in 1997, within the FPSC's authorized 11%–13% range (midpoint 12%), but a large customer petition seeks to reduce the ROE and base rates.
Formed FPL Energy in January 1998 and agreed to acquire Central Maine Power's non-nuclear generation assets, expected to close in the second half of 1998 pending approvals; FPL Energy's capacity will rise from about 3,100 MW to over 4,200 MW.
Long-term debt fell to $2.95 billion from $3.14 billion; the company repurchased about 1.0 million shares in 1997 and paid dividends of $1.92 per share (up from $1.84).
Capital expenditures were $551 million in 1997, with about $1.8 billion planned for 1998–2000 and $1.1 billion in energy-related acquisition commitments for 1998.
Significant litigation includes a ~$2 billion counterclaim by qualifying-facility partnerships, the FMPA antitrust suit ($140 million before trebling), and a pending Orimulsion permit decision for the Manatee plant.

03—Questions

Frequently Asked Questions

How did FPL Group perform financially in 1997?
FPL Group's net income increased 6.7% to $618 million and EPS increased 7.2% to $3.57. Operating revenues rose to $6.37 billion from $6.04 billion. Most of the improvement came from the independent power businesses of FPL Group Capital and ESI Energy, while the regulated utility, FPL, contributed the bulk of earnings.
What is the main risk to FPL's earnings from regulation?
In December 1997 a large FPL customer petitioned the FPSC to reduce base rates by lowering the authorized ROE and excluding amounts recorded under the special amortization program. Management said it cannot predict the outcome or its financial effect. FPL's 1997 retail ROE was 12.3%, within the 11%–13% authorized range, and base rates have not changed since 1984 apart from a 1990 tax-related reduction.
What are FPL Energy and the Central Maine acquisition about?
FPL Energy, formed in January 1998 as a subsidiary of FPL Group Capital, will hold FPL Group's non-regulated generation assets and pursue new domestic and international energy investments. It agreed to buy Central Maine Power's non-nuclear generation assets, subject to federal and state approval, with closing expected in the second half of 1998. Those assets would add to FPL Energy's roughly 3,100 MW of existing projects.
How significant are the pending lawsuits?
The qualifying-facility partnerships counterclaimed for about $2 billion, and the FMPA seeks $140 million before trebling on its antitrust claim. Management and the auditors state that these liabilities are not expected to have a material adverse effect on the financial statements, though management acknowledges that an unfavorable outcome in these suits could have a material effect.
How will FPL Group fund its capital needs?
Management expects 1998 capital expenditures, energy-related investments, and debt maturities to be funded from internally generated cash and debt issuances, with short-term bank borrowings for temporary needs. Bank credit lines total $1.3 billion, of which $900 million is available to FPL. Energy-related acquisition commitments are $1.1 billion for 1998.

04—Continue

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