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The Finance Forum: Growth in a Back-to-Basics World

Thomas Fanning, executive vice president and CFO, Southern Co.
Fortnightly Magazine - October 15 2003

retail deregulated market. We think that's important. It's almost intuition for us. We learn lots of lessons in that market that we can translate over."

Balanced Portfolio:
FPL Marries Wind, Wires

Moray P. Dewhurst, vice president, finance and CFO, FPL Group

FPL's CFO has seen it all. He remembers how a little while ago it was all about independent power or merchant players. Before that it was those utilities that had international strategies. In fact, if you look back far enough in history there has always been a utility strategy that was the flavor of the month. "It seems to me if you look at the utility business, now and again different business models become more or less in phase. They become almost fads at the moment," Moray Dewhurst says. As a result, FPL's CFO says, if you look at any given time at the highest P/E (price-to-earnings ratio) multiple company in the industry, that may not be the same company that has the highest P/E multiple five years from then or 10 years from then. "You don't want to be constantly striving to be the one outlier because in doing so you will force yourself into adopting a business model that ends up being risky and time based in not too long a period," he says. Especially, as the industry is fiercely competitive and opportunities for being significantly better than the competition are not huge, he says.

"Real success is defined as being a little bit better than the next guy and sustaining that over a long period of time," Dewhurst opines.

The way FPL plans to sustain its earnings growth, or go the distance as it were, is by maintaining its basic conservative approach to a business that balances steady returns with growth opportunities. "You have the traditional regulated utility at FPL and the great virtue there is stability [exhibiting 3 percent growth and producing 85 percent of earnings on a net income basis]. But to your point those businesses historically have tended to lag in terms of capital market performance during economic upturns. But that is one piece of the portfolio. Then, we also have the component at FPL Energy [that produces 15 percent of earnings on a net income basis] where because of the nature of the investments we made, not just the wind business, but also the merchant generation positions we have there. We have good upside leverage as the cycle starts to turn. That is certainly how we do differentiate ourselves," Dewhurst says.

Moreover, as the industry's biggest wind power developers, we asked what contribution that endeavor is contributing to the bottom line. Currently, wind represents less than a third of FPL Energy division earnings, but Dewhurst expects that contribution to increase over time. "The investment community [increasingly sees] the wind business as good solid incremental growth in a business where it difficult to find good sources of growth." Furthermore, part of FPL's growth plan to maintain its FPL Energy subsidiary's contribution between the ranges of 15 to 20 percent will also involve strategic acquisitions.