TOP CONTRIBUTORS

Imran Qureshi

FPL AT A GLANCE

P/E ► 12.3 AVG EV/EBITDA ► 6.08 AVG ROA ► 5.5% AVG ROE ► 13.8% AVG Debt to Equity ► 2.70 AVG Current Ratio ► 0.637 LOW Interest Coverage Ratio ► 3.38 AVG

 

 

 

 

 

 

Florida Power & Light Group (NYSE: FPL) is Florida's largest electric utility with over 4.5 million residential customers. ^[1]. FPL also sells its energy, through its wholesale segment, to utility companies located in over 27 states.

FP&L generates an estimated 37,500 megawatts using a diversified combination of energy sources including natural-gas, wind and nuclear.^[2] Around 5,100 megawatts^[3] of FPL Energy's electricity is created through its 7,500^[3] wind turbines. FPL Group plans to add 8,000 to 10,000 megawatts^[3] of new wind capacity to their portfolio by the end of 2012.

FPL Group's retail operations in Florida are particularly susceptible to adverse weather conditions such as hurricanes and tropical storms. For instance, FPL's service base was affected by four hurricanes in 2005 and three hurricanes in 2004 that caused damage totalling more than $200MM in excess of the coverage provided by the company's storm insurance.^[4]

Company Overview

FPL Group has two primary business segments: a Merchant Energy Business (FPL Energy), and a Regulated Energy Business (FP&L). Since its incorporation, FPL has grown rapidly due to Florida's population growth as well as from the merger with Gexa Corp.^[5] during 2005. Florida Power & Light gets the majority of its revenue from its retail base in Florida which has increased by 25.8%^[6] from 2005.

Business and Financial Metrics

However, from 2006 to 2007, revenue dropped by 3.1% to 1.1 billion^[6]. In its 10-K SEC Filing, FPL noted that although its customer base increased by 2.0%^[6], the usage per customer dropped 0.4%^[6]. This, coupled with the implosion of the Florida housing market, resulted in a $366 million loss through the 2006-2007 fiscal year.

As reported in June '08, FPL Group operates on a net profit margin of 7.95%^[7], a 5.2% reduction from its 5-yr average of 8.39%^[7]. From 2005, however, costs have increased overall by 37%.

Since operating debt and its interest is generally a "hidden cost" with utility companies - which generally have low profit margins to begin with - it is usually more important to look at net income instead of its revenues and expenses which may not show the whole story. In the 2007 fiscal year, FPL Group's net income swelled 2.4% to $1.31 billion following $1.28 billion in 2006 even amid fears of soaring energy costs.

Business Segments

Retail Operations: (Represents 54% of overall revenue): This is FPL's domestic energy distributor which is regulated by Florida legislation.

Wholesale Market: (Represents 39% of overall revenue): Operating in 29 states, FPL Energy auctions off electricity to various (in state) utility companies. Since they are unregulated, FPL Energy operates largely through renewable energy (as seen in the breakdown below).

Note: Since the SEC 10-K filing is nearing its expiration period, this data, and therefore its interpretation, may be revised to reflect its current market status.

Key Trends/Forces

Ahead of the Curve: FPL's "Green" Policy

In 2005, the EPA - in order to address the problems of global warming, pollution, and sanitation - issued the Clean Air Act Mercury/Nickel Rule, Clean Air Interstate Rule, and the Clean Air Visibility Rule^[11]. The rule calls for 65% less emissions from 2002 to 2012^[11] and has created pressure for energy utility companies to lower greenhouse gas output while still maintaining competitive rates. FPL's sources of energy have a broad range of non-traditional or alternative energy sources. Some of the more significant contributions include Florida Light & Power's co-ownership of SEGS which is the largest solar panel array in the world. FPL's wind energy is its main renewable energy source . As of Sept. 30, 2008, it produces 5,574.4 megawatts solely from wind power alone and expects to bolster wind energy production to 10,000 megawatts by 2012.

The Wholesale Advantage

FPL Group's subsidiaries include both a regulated (FP&L) and an unregulated division (FPL Energy). "Regulated" divisions are, by definition, subject to state environmental legislation (which are usually strict). Combined with a "not in my backyard" mentality (i.e no one wants a nuclear plant next to their house), such divisions are severely limited in what fuels they can use and where they can place their factories. For instance, FP&L's plan to create two more coal plants - which were supposed to decrease consumer prices - was denied by Florida's state legislature due to environmental concerns^[4].

Because regulated utilities are limited in their ability to expand their generation capacity, dependence on wholesale energy, which is provided by unregulated divisions, has been growing in recent years. These companies (or divisions in the case of FPL Energy) have separate energy sources that are auctioned off to regulated utility companies.

Domestic Weather Volatility

Since Florida is affected by several hurricanes on an annual basis. FPL Group maintains several storm and property insurances which are basically company wide insurance against weather effects like thunderstorms. However, even these safety buffers could not hold during the 2004-2005 fiscal year when the damage from seven hurricanes overshot the insurance by approximately $200 million.^[12] As of 2007, FPL holds $652 million in storm recovery bonds. However, unpredictable weather patterns can still easily add volatility into FPL Group's market status.^[12]

Competition

References

1. ↑ FPL Group Profile
2. ↑ ^{2.0 2.1 2.2} Morningstar Analyst Report
3. ↑ ^{3.0 3.1 3.2} Annual Letter to Shareholders
4. ↑ ^{4.0 4.1} FPL's 10-K SEC Filing page 7
5. ↑ FPL Group completes acquisition of Texas retail electric provider Gexa Corp
6. ↑ ^{6.00 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10} 10-K SEC Filing, Page 29
7. ↑ ^{7.0 7.1 7.2} FPL Group - Reuters
8. ↑ ^{8.0 8.1 8.2}
9. ↑ ^{9.0 9.1 9.2} 10-K SEC Filing, Page 27 Item 1
10. ↑ ^{10.0 10.1} FPL Energy Portfolio by Fuel Type
11. ↑ ^{11.0 11.1} FPL 10-K SEC Filing, Page 4
12. ↑ ^{12.0 12.1} FPL's 10-K SEC Filing, Page 64
13. ↑ CEG's 2007 10-k (Pg 29)
14. ↑ D's 2007 10-k (Pg 53)
15. ↑ AYE's 2007 10-k (Pg 58)
16. ↑ EIX's 2007 Annual Report (Pg 102)
17. ↑ AEP's 2007 10-k (Part 1)
18. ↑ DUK's 2007 10-k (Pg 38)
19. ↑ ETR's 2007 10-k (Pg 1)
20. ↑ EXC's 2007 10-k (Pg 67)
21. ↑ PEG's 2007 10-k (Pg 40)
22. ↑ CEG Generation
23. ↑ D's 2007 10-k (Pg 18)
24. ↑ AYE - About Us
25. ↑ EIX's 2006 Annual Report (Pg 18 & 29)
26. ↑ AEP's Investor Page)
27. ↑ DUK's Energy Business Segments
28. ↑ Entergy - About Us
29. ↑ Exelon - Power Generation
30. ↑ PEG's 2006 10-k (Pg 40)
31. ↑ Baltimore Gas & Electric
32. ↑ D's 2007 10-k (Pg 1)
33. ↑ AYE's About Us
34. ↑ EIX's 2006 Annual Report (Pg 17)
35. ↑ AEP's Investor Page)
36. ↑ DUK's Energy Business Segments
37. ↑ Entergy - About Us
38. ↑ Exelon - About Us
39. ↑ PEG's 2006 10-k (Pg 10)
40. ↑ CEG's 2007 10-k (Pg 29)
41. ↑ D's 2007 10-k (Pg 53)
42. ↑ AYE's 2007 10-k (Pg 58)
43. ↑ EIX's 2007 Annual Report (Pg 102)
44. ↑ AEP's 2007 10-k (Part 1)
45. ↑ DUK's 2007 10-k (Pg 38)
46. ↑ ETR's 2007 10-k (Pg 1)
47. ↑ EXC's 2006 10-k (Pg 67)
48. ↑ PEG's 2007 10-k (Pg 47)
49. ↑ CEG's 2007 10-k (Pg 24)
50. ↑ D's 2007 10-k (Pg 18)
51. ↑ AYE's Generation Facilities
52. ↑ EIX's 2006 Annual Report (Pg 19)
53. ↑ AEP's Power Plants and other assets
54. ↑ DUK's 2006 10-k (Pg 34)
55. ↑ Entergy's 2006 10-k (Pg 173)
56. ↑ Exelon's 2006 10-k - Properties
57. ↑ PSEG's 2006 10-k (Pg 41)

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