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Florida Power & Light Company |
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WIKI ANALYSIS
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. Like many utility companies, the rate at which it can charge customers for electricity is highly regulated. As a result, its earnings are often impacted either by the rate set or FPL's ability to control costs.
FPL generates its energy using a diversified combination of energy sources including natural-gas, wind and nuclear power. It is considered an industry leader in terms of green and renewable energy, as it generates substantial amounts of its electricity through its 7,500 wind turbines. FPL Group plans to add 8,000 to 10,000 megawatts of new wind capacity to their portfolio by the end of 2012.[2] Also, FPL Group's retail operations in Florida are particularly susceptible to adverse weather conditions such as hurricanes and tropical storms.
Company Overview
FPL Group has two principal operating subsidiaries, FPL and NextEra Energy Resources. Combined, they supply electricity to a population of more than 8.7 million throughout most of the east and lower west coasts of Florida. As of December 31, 2009 it had capacity of producing 47,000 mw of energy.[3] During 2009, FPL had total revenues of $15.6 billion and a net income of $1.62 billion.
Business and Financial Metrics
As of March 2010, FPL was able to get an adjustment on the rate they are allowed to charge. Beginning in March, FPL would increase rates by approximately $75 million a year, to increase its return on equity (ROE) to 10%.[3]
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).
| FPL Energy's Portfolio[4] | ||
| Energy Sources | Electricity Produced (megawatts) | % Utilization |
| GAS | 6,636.00 | 41.1% |
| OIL | 798.2 | 4.9% |
| WIND | 5,574.40 | 34.6% |
| NUCLEAR | 2,544.10 | 15.8% |
| HYDRO | 359.1 | 2.2% |
| SOLAR | 147.5 | 0.9% |
| COAL | 58 | 0.4% |
| TOTAL | 16,128.10 | - |
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[5]. The rule calls for 65% less emissions from 2002 to 2012[5] 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, and its investments in renewable energy put it ahead of competitors in this regard.
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[6].
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.[7] 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.[7]
Competition
As a regulated utility company, FPL has no real competition in the markets it serves. However, nationally there are a number of energy providers, who may potentially offer the same wholesale energy as FPL. These include:
- Constellation Energy Group (CEG)
- Dominion Resources (D)
- Allegheny Energy (AYE)
- American Electric Power Company (AEP)
- Entergy (ETR)
- Duke Energy Corporation (DUK)
References
- ↑ FPL 10-K 2009 Item 1 Pg. 4
- ↑ FPL 10-K 2009 Item 1 Pg. 10
- ↑ 3.0 3.1 FPL 10-K 2009 Item 7 Pg. 30
- ↑ FPL Energy Portfolio by Fuel Type
- ↑ 5.0 5.1 FPL 10-K SEC Filing, Page 4
- ↑ 10-K Page 7
- ↑ 7.0 7.1 FPL's 10-K SEC Filing, Page 64
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