Clear Skies Act Allowance Allocation Alternatives

R. LaBauve, Vice President

Environmental Services

February 28, 2005

Leading U.S. GeneratorLeading U.S. Generator

Stateline Stateline (wind) (wind)

Vansycle Vansycle (wind) (wind)

Wind NorthWind North (Altamont area)(Altamont area)

POSDEF (coal)POSDEF (coal)

Wind South Wind South (Tehachapi area)(Tehachapi area) SEGS (solar)SEGS (solar)

BlytheBlythe(CC)(CC)

Gray CountyGray County (wind) (wind)

LamarLamar (CC)(CC)

Forney Forney

(CC)(CC)

Southwest Mesa (wind)Southwest Mesa (wind)King Mt. (wind)King Mt. (wind)Woodward Mt. (wind)Woodward Mt. (wind)Indian Mesa (wind)Indian Mesa (wind)

Lake Benton IILake Benton II (wind)(wind)

SomersetSomerset(wind)(wind)

DoswellDoswell (CC) (CT)(CC) (CT)

CherokeeCherokee (CC) (CC)

Maine Hydro SystemMaine Hydro System

Cape (GT Oil)Cape (GT Oil)

W.F. WymanW.F. Wyman(Oil)(Oil)

OperatingOperatingUnder construction/ Under construction/ advanced developmentadvanced development

BayswaterBayswater (CT) (CT)

MontfortMontfort (wind)(wind)

CalhounCalhoun (CT) (CT)

BellinghamBellingham(CC)(CC)

Marcus HookMarcus Hook (CC)(CC)

MountaineerMountaineer(wind)(wind)

Stateline II Stateline II (wind) (wind)

North Dakota Wind EnergyNorth Dakota Wind EnergyCenter I & II (wind)Center I & II (wind)

South Dakota Wind South Dakota Wind Energy Center (wind) Energy Center (wind)

Cerro GordoCerro Gordo (wind)(wind)

Marcus HookMarcus Hook (CT)(CT)

HancockHancock (wind)(wind)

New MexicoNew Mexico (wind) (wind)

High WindsHigh Winds (wind)(wind)

Jamaica BayJamaica Bay (CT) (CT)

Delaware Mt. (wind)Delaware Mt. (wind)

Rhode Island State Rhode Island State Energy Center (CC) Energy Center (CC)

Mill RunMill Run(wind)(wind)

Green MountainGreen Mountain(wind)(wind)

SayrevilleSayreville (CC)(CC)

WaymartWaymart(wind)(wind)

Oklahoma IOklahoma I (wind)(wind)

Wyoming Wyoming (wind)(wind)

MeyersdaleMeyersdale (wind)(wind)

ZWHC ZWHC (wind)(wind)

Cabazon (wind)Cabazon (wind)

Green PowerGreen Power(wind)(wind)

Seabrook (Nuclear)Seabrook (Nuclear)

FPL – 19,122 MWFPL – 19,122 MW(gas, oil, coal, nuclear)(gas, oil, coal, nuclear)

FPL – 19,122 MWFPL – 19,122 MW(gas, oil, coal, nuclear)(gas, oil, coal, nuclear)

Martin 8Martin 8(CC)(CC)

Manatee 3Manatee 3 (CC)(CC)

WPP3 (wind)

WPP93 (wind)

More than 30,000 Megawatts (MW)

Long Island OWPLong Island OWP (Wind) (Wind)

Weatherford (wind)Weatherford (wind)

Callahan Callahan (wind)(wind)

WPP 94 (wind)WPP 94 (wind)

Turkey Point 5Turkey Point 5(CC)(CC)

FPL Energy is the largest wind generator in the U.S. with more than 2,750 MW’s in operation.

FPL Energy owns 50% and operates the two largest solar fields in the world: SEGS VIII & IX-Mojave Desert, CA

FPL Energy is the largest generator of solar power in the world with 310 MW’s.

In February, 2005 FPL Energy purchased a 45% interest in the SEGS III-VII solar plants and will operate the 141 MW facility. The power from the SEGS project is sold to Southern California Edison.

FPL Group has a diverse fuel mix

Nuclear13%

Oil19%

Gas55%

Coal3%

Wind9%

Hydro1% Solar

<1%

FPL Group Generation is Increasing

FPL Group Generation

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

1995 1996 1997 1998 1999 2000 2001 2002 2003

MW

hs

FPL Group Emission Rates Dropping

FPL Group Nox rate reduced 44% since 1995

0.00

0.50

1.00

1.50

2.00

2.50

1995 1996 1997 1998 1999 2000 2001 2002 2003

lbs/mwh

FPL Group SO2 rate reduced 54% since 1995

0.00

1.00

2.00

3.00

4.00

5.00

6.00

1995 1996 1997 1998 1999 2000 2001 2002 2003

lbs/mwh

FPL Group CO2 rate below industry average

0.75

0.80

0.85

0.90

0.95

1.00

1.05

1995 1996 1997 1998 1999 2000 2001 2002 2003

lbs/kwh

Growth states will require additional allowances allocations

Percentage Change 1995 to 2003 for FPL Group

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

1995 2003

Year

Retail Customer Growth +18%

CO2 rate -10%

NOx rate -44%

SO2 rate -54%

FPL Utility Generation +28%

FPL Group Generation +70%

Multipollutant Emissions Reduction Legislation

History• Title IV of 1990 Clean Air Act implemented market-

based allowance trading system (cap & trade).• SO2 allowances were distributed to affected

facilities utilizing heat input method of allocation, based on amount of fuel burned in a baseline year(s).

• One-time heat input method disadvantages companies that have invested in early reductions, or companies that are in growth states.

Multipollutant Emissions Reduction Legislation--Output Based Allocations

• An updating, output-based allocation method distributes allowances based on a Generation Performance Standard (GPS) calculated from the ratio of the targeted emissions in tons as compared to the national electric generation total (MWh) :

National Emission Target Limit (tons)__ – National Electric Generation Total

(MWhs) = GPS (tons/MWh);• The resultant GPS is used to allocate allowances to

affected facilities.GPS (tons/MWh) X Unit’s Generation

(MWhs) = Unit’s Allowance Allocation (Tons)

Multipollutant Emissions Reduction Legislation--Output Based Allocations

• Distributes allowances based on unit performance by rewarding efficiency.

• Facilities emitting in excess of a national Generation Performance Standard would purchase allowances.

• Fuel neutral, levels the playing field for all generation.

Multipollutant Emissions Reduction Legislation--Output Based Allocations

• Allowances can be allocated to non-emitting generation.

• Efficient power plants will benefit from output-based allocations regardless of fuel type.

• Updating allocations adjust for efficiency improvement, new facilities and regional shifts in generation.

Oil & gas-fired companies pay more for cleaner fuel & higher efficiency

2004 Wholesale Fuel Cost $/MWh

$0.00

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

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FPL is Disadvantaged by Higher Wholesale Fuel Costs

2004 Fuel Cost $/MWh

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Typical Coal Utility Florida Power&Light

Estimated Cost of Clear Skies

Compliance Does not Level Playing Field Cost of Fuel Plus Clear Skies Act Compliance

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Typical Coal Utility Florida Power&Light

$/M

Wh

Clear Skies ComplianceCost

Fuel Cost

Fuel costs from Resource Data Institute, 2004.Clear Skies Compliance for Typical Coal Co. from Charles Rivers Associates modeling of Clear Skies Impacts; FPL from internal

Windfall Myth

Source: Resource Data Institute, PowerDat, 2004

FRCC-FPL

SERC - GA PJM- KY

ECAR - OH

$33.99 $17.93 $14.60 $13.70

Fuel Cost - $/MWh

•Florida (FRCC) rate payers pay considerably higher fuel costs for cleaner generation.

•An output-based allocation provides no windfall to clean generators, but merely levelizes the playing field with low-cost-fuel generators.

Clean Air Planning Act Provides More Fuel Neutral Allowance Allocations

SO2, NOx, CO2 & Hg ReductionOutput Based Compliance Costs

-$5.00

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

Typical Coal Utility Florida Power & Light -all gen. Florida Power & Light -fossil

$/M

Wh

Output Based Compliance

Fuel Cost

Fuel Costs from RDI for 2004Output Based Compliance for Typical Coal Co. from Charles Rivers Assocs for coal-based generation; FPL from internal