UTILITY BUILDS WIND & SUN, LIKES CARBON CAPS

There is an old saying: Prior planning precludes poor performance. FPL Group has planned for the eventuality of a carbon-constrained economy by building New Energy assets in its FPL Energy subsidiary. When the federal government moves on legislation to require emissions reductions, FPL Group expects not only to “preclude poor performance” but to profit.

FPL prefers a tax to effectuate emissions reductions but will settle for a properly designed cap-and-trade system. It is too soon to know how much the cost of energy will increase with either. At $10/ton (and beginning in 2012), FPL estimates its profits to be in the $220 million range. $10/ton is widely seen as too conservative a guess. At $20/ton, the profit is $450 million; at $30, it's $690 million. The price in Europe presently averages around $25/metric tonne.

There will be debate on climate change legislation in both houses of Congress this year. The legislation includes a cap-and-trade system. No legislation is expected to become law until after the next President takes office.

Rich Rosenzweig, COO, carbon consulting firm, Natsource LLC: "This is the first time we've had this debate…Next year, with a new Congress and a new president, there will be a much higher probability that they'll actually pass a law."

Nevertheless, as FPL Group has demonstrated, it would be wise to plan ahead.

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Carbon caps would aid FPL
Eve Samples, May 27, 2008 (Palm Beach Post)

WHO
FPL Energy (Randy Clerihue, director of public affairs), utility Florida Power & Light Co. & parent company FPL Group Inc. (Lew Hay III, Chairman/CEO)

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WHAT
FPL Group expects its FPL Energy holdings to boost company earnings when federal legislation limiting greenhouse gas emissions (GhGs) is enacted.

WHEN
Stating in 2012, FPL Group sees a boost in pre-tax earnings of $220 million to $690 million from federal GHG reduction legislation.

FPL owns lots of wind and is looking forward to when the costs of coal and gas go up. (click to enlarge)

WHERE
FPL Group is based in Juno Beach, FL

WHY
- FPL Energy expects to benefit from any kind of emissions reduction program, be it cap-and-trade or tax, because the cost of energies generating emissions will increase, making the FPL holdings in wind and solar more competitive.
- Florida Power & Light Co., FPL Group's utility subsidiary, will have to bear higher costs on the electricity generated by Old Energy it needs to purchase but may be able to keep such purchases to a minimum due to access to FPL Energy’s New Energy resources.

FPL also owns the biggest big solar in the country right now. (click to enlarge)

QUOTES
- Lew Hay III, Chairman/CEO, FPL Group: "These are pretty big numbers, and they get bigger if you let your imagination run just a little while…"
- Randy Clerihue, director of public affairs, FPL Energy: "Other forms of energy that contain carbon, their costs will go up…So that pushes prices up across the board, including for carbon-free forms of energy."
- Mike Bedley, partner, Apex Power Co.: "As clean as this utility [Florida Power & Light] is, [increased costs] may be very minimal…"