Conference Call
FPL Group’s Acquisition of the PointBeach Nuclear Plant
December 20, 2006
(1)Acquisition of the PointBeach Nuclear Plant
Jim von Riesemann:
Good morning everyone and thank you for joining us on short notice. This morning, we announced an agreement to purchase the Point Beach Nuclear Plant from Wisconsin Energy for $998 million.
Moray Dewhurst, FPL Group’s Chief Financial Officer, will provide an overview of today’s announcement. Also joining us on the call today are Lew Hay, FPL Group’s Chairman and Chief Executive Officer; Jim Robo, FPL Group’s President and Chief Operating Officer;and, Mitch Davidson, President of FPL Energy. Following Moray’s remarks, our senior management team will be available to take your questions.
Before I turn it over to Moray, let me remind you that the purpose of today’s call is to provide more information related to today’s announcement. As many of you may know, last Friday, we issued an 8-K updating our earnings per share expectations for 2006 and reaffirmed our views for 2007 and 2008. We will hold our regularly scheduled earnings conference call in late January where we will provide information and answer questions on other aspects of FPL Group’s businesses.
(2)Safe Harbor Statement
Let me remind you that our comments today will include “forward-looking statements” within the meaning of the private Securities Litigation Reform Act of 1995.
Any statements made herein about future operating results or other future events are forward-looking statements under the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to vary is contained in the Appendix herein, in our SEC filings, and in the investors section of our website,
And now, I would like to turn the call over to Moray Dewhurst. Moray…
Moray Dewhurst:
(3)Acquisition Overview
Yesterday, FPL Energy entered into definitive agreements with Wisconsin Electric Power Company, or We Energies, a subsidiary of Wisconsin Energy Corporation, to purchase the Point Beach Nuclear Plant and to sell the output of the plant back to We Energies under long-term contract. These agreements represent a further step in FPL Energy’s strategy of building its position in key segments of the competitive power generation business and in FPL Group’s strategy of building scale in nuclear power operations. Through these agreements, we expect to provide an important customer reliable power at costs equal to or lower than they could have expected through continued ownership, while relieving them of the burdens of owning a stand-alone nuclear station, and at the same time to deliver solid and growing financial results leading to enhanced shareholder value for FPL Group shareholders. We believe this will be an excellent result for both parties and we look forward to building our relationship with Wisconsin Energy.
The basic terms of the transaction, which I will describe in more detail in a moment, include a purchase price of $998 million, including approximately $215 million in fuel and other inventory, for the transfer of a 100% interest in the two-unit station, which has a nominal output of 1033 megawatts. FPL Energy will sell 100% of the output of the plant back to We Energies for a base period through the end of the current operating license for each unit. Under the agreements, Wisconsin Energy also has certain other options which I will outline.
This acquisition, which will be financed in a balanced manner consistent with our overall financing plan, will be accretive to FPL Group’s EPS expectations, with a minor impact in the first couple of years giving way to healthy accretion in subsequent years.
We expect to close the transaction in 2007, with a target date of late third quarter. As always, closing will be subject to various required regulatory approvals.
(4)PointBeach Nuclear Plant Overview
Let’s turn quickly to a review of the PointBeach facility. For those of you not familiar with the plant, this is a 1033 megawatt, dual-unit pressurized water reactor. The first unit began commercial operation in 1970 and the second in 1973. There are 67 megawatt uprates planned at each unit beginning in 2010 and 2011, respectively.
A 20 year license extension for each unit was granted by the NRC in 2005. The plant is in good material condition following recent capital investments by We Energies.
The facility is staffed by approximately 660 full-time employees and is located about 30 miles southeast of Green Bay, Wisconsin.
(5)Transaction Summary
In this transaction, we will be purchasing a 100% interest in the PointBeach station. The purchase price is $998 million, and this includes approximately $215 million for existing fuel and other inventory. This represents about 758 dollars per kilowatt for the plant itself.
We Energies, an A-rated entity, is the counterparty for the PPA, which is for 100% of the output of the plant and runs through the end of the license period for each unit, ending in 2030 and 2033 for Units 1 and 2, respectively. We Energies also has a pre-closing option to elect a shorter PPA period, subject to regulatory approval. The PPA pricing is based on the cost of We Energies alternative of continued ownership and escalates over its term.
The transaction also includes the transfer of at least$360 million of decommissioning funds, which represents a well-funded balance relative to the expected decommissioning obligation. We Energies has an option to transfer additional decommissioning funds, in which case there would be a purchase price adjustment. This option is also subject to regulatory approval.
The net economics to FPL Energy of the PPA and decommissioning options available to We Energies are somewhat different, but all provide attractive returns and risk profiles.
(6)Key Approvals Required
Like all similar transactions, this one is subject to a variety of regulatory approvals, including the FERC, the NRC, anti-trust analysis and the Public Service Commissionof Wisconsin. We are committed to supporting We Energies in the state approval process and do not anticipate any major issues. We have set a target for closing in the latter part of the Third Quarter and both we and the seller are motivated to seek an expeditious close. Of course, there can be no guarantees that we will be able to achieve our mutual goal.
(7)Strategic Rationale
As most of you know, the acquisition of good quality nuclear assets at attractive economics has been a key element of our strategy for some years. This transaction will further our strategy in two key directions. We recognized several years ago that consolidation in nuclear operations was a likely persistent trend and that there were significant advantages to building a larger portfolio of nuclear assets. The addition of PointBeach will add to our portfolio and we believe the result will be both better performance for PointBeach and longer term advantages to our entire fleet. In addition, the acquisition furthers our strategy at FPL Energy of building a significant position in competitive wholesale generation in key markets. It adds another high quality asset with a long term contract to our growing Midwest portfolio. This is a market where to date we have not developed a significant merchant position but where we continue to see opportunities for contracted assets. From a commercial perspective PointBeach will be integrated into our regional portfolio, which also includes Duane Arnold and roughly a dozen wind projects.
The acquisition of PointBeach is also consistent with our approach to environmental issues. FPL Group continues to believe that we can expect to see carbon dioxide emission constraints in time, and depending upon the exact form of implementation we would expect PointBeach at minimum not to be disadvantaged and potentially to have some upside as a result.
(8)Financially Attractive
We are confident that the acquisition of PointBeach will enable us to add to shareholder value. We are purchasing an asset with a long-term, relatively predictable cash flow stream at an attractive price. With a high credit quality customer and the benefits of our existing nuclear expertise we believe the risk profile is a good one. We have clear visibility to expected future cash flows for many years and potential upsides over the long term.
We also like the specific earnings profile of this deal and its fit with our overall FPL Energy objectives. From an earnings perspective, we expect the deal to be mildly accretive in the first two years but increasingly so thereafter. 2008 will be a transition year and includes refueling outages at both units. Growth in PPA pricing, coupled with the benefits of an expected uprate starting in 2010 will boost accretion steadily over the longer haul. As most of you know, FPL Energy’s growth profile through the end of the decade is already very solid, and this asset will play a significant role in enabling us to sustain that profile in the 2010 and beyond time period. We think this is a good fit to our overall value proposition.
(9)Financing Consistent with FPL Group Plan
From a financing perspective, we believe a fair way to evaluate this asset is with roughly a 50-50 mix of debt and equity, and this is the basis for our earnings accretion assumptions. As you know, we evaluate all new investments at FPL Energy with an appropriate mix of debt and equity, while the actual determination of any need to come to the market for new equity is made at the enterprise level, taking into account our total investment opportunity set. While no final decision has yet been made,given the size of this deal as well as the outstanding wind development pipeline we are pursuing this year, it seems likely that the total investment we will deploy this year will be greater than we are comfortable funding internally. In addition, with the recent extension of the PTC program through the end of 2008, we may well have additional opportunities for the 2008 wind program to consider. On the financing side, we were very pleased with the market reception of our hybrid security issuance earlier this year and we believe there is more room in the capital structure for instruments of this general type. Consequently, we will be re-assessing our net need for external equity later in 2007 when we have more visibility on these issues. If we do need to come to the market for additional equity it would most likely not be until late in 2007 or early in 2008. Of course, we have the flexibility to close independent of any decision on equity issuance.
(10)Summary
To summarize, the transaction is financially attractive. The facility has a long-term contract with an important and strong, existing FPL Energy customer.
PointBeach is a good asset with a moderate risk profile and the potential for performance improvement. The transaction further enhances FPL Energy’s portfolio diversification and provides us another opportunity to leverage our nuclear expertise. I look forward to welcoming the PointBeach team to the FPL Group portfolio.
With that, we will be happy to take your questions. Again, as a reminder, please limit yourself to questions about this particular transaction. May we have the first question please?
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