FPL Group, FPL, FPL Group Capital and FPL Energy each have subsidiaries and affiliates with names that include FPL, FPL Energy, FPLE and similar references.  For convenience and simplicity, in this report the terms FPL Group, FPL, FPL Group Capital and FPL Energy are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates.  The precise meaning depends on the context.

TABLE OF CONTENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking.  Forward-looking statements involve estimates, assumptions and uncertainties.  Accordingly, any such statements are qualified in their entirety by reference to important factors included in Part I, Item 1A.  Risk Factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on FPL Group's and/or FPL's operations and financial results, and could cause FPL Group's and/or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and/or FPL in this combined Form 10-K, in presentations, on their respective websites, in response to questions or otherwise.

Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made.  New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

FPL Group was incorporated in 1984 under the laws of Florida.  FPL Group's principal subsidiary, FPL, is a rate-regulated utility engaged primarily in the generation, transmission, distribution and sale of electric energy.  FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock and provides funding for FPL Group's operating subsidiaries other than FPL.  The business activities of these operating subsidiaries primarily consist of FPL Energy's competitive energy business.  At December 31, 2006, FPL Group and its subsidiaries employed approximately 13,300 people.  For financial information regarding FPL Group's business segments, see Note 17.

In 2005, President Bush signed into law the 2005 Energy Act, which substantially affected the regulation of energy companies.  The 2005 Energy Act included provisions that, among other things, amended federal energy laws, provided the FERC with new oversight responsibilities, repealed the Public Utility Holding Company Act of 1935, as amended, which regulated the financial structure of certain utility holding companies and, among other things, restricted mergers and acquisitions in the electric industry, and enacted the Holding Company Act.  FPL Group is a holding company, as defined in the Holding Company Act.

In December 2005, FPL Group and Constellation Energy announced a proposed merger.  As a result of continued uncertainty over regulatory and judicial matters in Maryland, on October 24, 2006, FPL Group and Constellation Energy mutually agreed to terminate the proposed merger.  No termination fee is payable under the termination agreement unless Constellation Energy agrees with another party to a comparable transaction on or prior to September 30, 2007, in which case a fee will be payable to FPL Group by Constellation Energy.  For additional information, see Note 2.

Climate Change - As a participant in President Bush's Climate Leader Program to reduce greenhouse gas intensity in the United States by 18% by 2012, FPL Group has inventoried its greenhouse gas emission rates and has committed to a 2008 reduction target of 18% below a 2001 baseline emission rate measured in pounds per megawatt-hour.  FPL Group believes that the planned operation of its generating portfolio, along with its current efficiency initiatives, greenhouse gas management efforts and increased use of renewable energy, will allow it to achieve this target.  In addition, FPL Group has joined the U.S. Climate Action Partnership, an alliance made up of a diverse group of U.S.-based businesses and environmental organizations, which in early 2007 issued a set of principles and recommendations to address global climate change and the reduction of greenhouse gas emissions.

The U.S. Congress is considering several legislative proposals that would establish new mandatory regulatory requirements and reduction targets for greenhouse gases.  Based on the most current reference data available from government sources, FPL Group is among the lowest emitters of greenhouse gases measured by its rate of emissions to generation in pounds per megawatt-hour.  However, these legislative proposals have differing methods of implementation and the impact on FPL's and FPL Energy's generating units and/or the financial impact (either positive or negative) to FPL Group and FPL could be material, depending on the eventual structure of any legislation enacted and specific implementation rules adopted.

Multi-Pollutant Legislation - The U.S. Congress and the Bush Administration are considering several legislative proposals that would establish new regulatory requirements and reduction targets for sulfur dioxide, nitrogen oxide, mercury, and in some proposals, carbon dioxide.  Based on the most current reference data available from government sources, FPL Group is among the lowest generators of these emissions measured by its rate of emissions to generation in pounds per megawatt-hour.  However, these multi-pollutant proposals have differing methods of implementation and the impact on FPL's and FPL Energy's generating units and/or the financial impact (either positive or negative) to FPL Group and FPL could be material, depending on the eventual structure of any legislation enacted and specific implementation rules adopted.

Clean Air Act Mercury/Nickel Rule - In 2005, the EPA proposed a final rule to regulate mercury emissions from coal-fired electric utility steam generating units under Section 111 of the Clean Air Act.  The EPA's proposed final rule seeks to reduce mercury emissions starting in 2010 through "cobenefits" reduction occurring as a result of pollution control equipment currently installed or to be installed in response to the Clean Air Interstate Rule or other environmental rules.  This proposed final rule would also allow the EPA to implement a mercury emissions trading program.  There is considerable opposition to the proposed final rule from environmental groups, which contend that there should be more stringent control of mercury emissions.

During 2005, the EPA determined that new data indicated that nickel emissions from oil-fired units should not be regulated under Section 112 of the Clean Air Act, which set Maximum Achievable Control Technology standards, and as a result the EPA published a final rule delisting nickel from the requirements of regulation under Section 112.  Both the mercury and nickel rulemaking decisions are being challenged by various states and environmental groups.

Clean Air Interstate Rule (CAIR) - In 2005, the EPA published a final CAIR that requires SO₂ and NOx emissions reductions from electric generating units in 28 states where their emissions are transported to downwind states allegedly resulting in fine particulate (PM 2.5) and ozone non-attainment.  The final rule requires phased reductions in SO₂ emissions by 2010 and by 2015, and reductions in NOx emissions by 2009 and by 2015, eventually reaching a nationwide reduction of 65% below a 2002 baseline emission rate for each.  In the final rule, through the use of modeling data, the states in which FPL facilities are located were determined to be contributors of PM 2.5 and/or ozone production in downwind states.  However, FPL Group believes that the emissions from most of its Florida generating facilities are not affecting the non-attainment status of downwind areas.  In 2005, FPL Group filed a petition for reconsideration with the EPA and a lawsuit in the U.S. Court of Appeals for the District of Columbia challenging the SO₂ and NOx provisions in CAIR.  In March 2006, the EPA denied FPL Group's and other petitioners' requests to revise the final rule.  FPL Group will continue to challenge the SO₂ and NOx provisions of the final rule through the lawsuit that it filed.

Clean Air Visibility Rule - In 2005, the EPA issued the Clean Air Visibility Rule to address regional haze in areas which include certain national park and wilderness areas through the installation of BART for electric generating units.  BART eligible units include those built between 1962 and 1977 that have the potential to emit more than 250 tons of visibility-impairing pollution a year.  The rule requires states to identify the facilities required to install BART controls by 2008 and allows for a five-year period to implement pollution controls.

Clean Water Act Section 316(b) - In 2004, the EPA issued a rule under Section 316(b) of the Clean Water Act to address location, design, construction and capacity of intake structures at existing power plants with once-through cooling water systems.  The rule requires FPL Group to demonstrate that it has met or will meet new impingement mortality (the loss of organisms against screens and other exclusion devices) and/or entrainment (the loss of organisms by passing through the cooling water system) reductions by complying with one of several compliance alternatives, including the use of technology and/or operational measure and response to the rule may involve the performance of biological studies.  FPL Group has been conducting the necessary studies/analyses over the past few years and was planning to submit solutions for regulatory approval in early 2008.  However, on January 25, 2007, the U.S. Court of Appeals for the Second Circuit ruled on a challenge to the rule by a number of environmental groups and six northeastern states.  In its ruling, the court eliminated several of the compliance alternatives, including the use of restoration measures, from consideration and remanded the rule to the EPA for further rulemaking.  Accordingly, the final requirements are uncertain.

FPL currently holds 176 franchise agreements to provide electric service in various municipalities and counties in Florida with varying expiration dates through 2037.  Of the 176 franchise agreements, 13 expire in 2007, six expire in 2008 and 157 expire during the period 2009 through 2037.  Ongoing negotiations are taking place to renew franchises with upcoming expirations.  FPL considers its franchises to be adequate for the conduct of its business.

The basic costs of providing electric service, other than fuel and certain other costs, are recovered through base rates, which are designed to recover the costs of constructing, operating and maintaining the utility system.  These basic costs include O&M expenses, depreciation and taxes, as well as a return on FPL's investment in assets used and useful in providing electric service (rate base).  The rate of return on rate base approximates FPL's weighted-average cost of capital, which includes its costs for outstanding debt and preferred stock and, typically, an allowed ROE.  The FPSC monitors FPL's actual ROE through a surveillance report that is filed monthly by FPL with the FPSC.  The FPSC does not provide assurance that an allowed ROE will be achieved.  Base rates are determined in rate proceedings or through negotiations, which occur at irregular intervals at the initiative of FPL, the FPSC, the State of Florida Office of Public Counsel or a substantially affected party.

FPL was impacted by four hurricanes in 2005 and three hurricanes in 2004, which caused major damage in parts of FPL's service territory.  Storm restoration costs incurred by FPL during 2005 and 2004 exceeded the amount in the storm and property insurance reserve.  At December 31, 2006, FPL's storm reserve deficiency totaled approximately $868 million.  In May 2006, the FPSC approved the issuance of up to $708 million of bonds pursuant to the securitization provisions of Section 366.8260 of the Florida Statutes for the net-of-tax recovery by FPL of the estimated storm reserve deficiency, including interest, and for a storm and property insurance reserve of $200 million.  The unrecovered 2004 storm restoration costs are being recovered through a previously approved storm damage surcharge applied to retail customer bills since February 2005.  Once the bonds are issued, a surcharge to retail customers will be used for repayment of the outstanding bonds.  FPL is working with the FPSC staff and its financial advisors to complete the issuance of the bonds.  See Note 1 - Storm Reserve Deficiency.

In January 2006, FPL introduced an initiative to enhance its electrical grid as a result of heightened hurricane activity and in response to concerns expressed by the community, state leaders and regulators.  The estimated capital expenditures associated with this initiative, as well as the FPSC's approved storm preparedness plan (collectively, Storm Secure^SM Plan) for 2007 through 2011 are included in FPL's projected capital expenditures.  See Capital Expenditures below and Note 16 - Commitments.  See also Management's Discussion - Results of Operations - FPL for further discussion regarding the impact of Storm Secure Plan costs on O&M expenses.  The estimated costs associated with the Storm Secure Plan, both capital expenditures and O&M expenses, are subject to change over time based on, among other things, productivity enhancements and prioritization.

The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred.  Such costs may include, among others, O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable, storm restoration costs and costs associated with the construction or acquisition of new facilities.

The FPSC promotes cost competitiveness in the building of new steam generating capacity by requiring investor-owned electric utilities, such as FPL, to issue an RFP.  The RFP process allows independent power producers and others to bid to supply the new generating capacity.  If a bidder has the most cost-effective alternative, meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and/or operating generation capacity of the type proposed, the investor-owned electric utility would seek to negotiate a power purchase agreement with the selected bidder and request that the FPSC approve the terms of the power purchase agreement and, if appropriate, provide the required authorization for the construction of the bidder's generation capacity.  In September 2006, the FPSC granted FPL an exemption from the FPSC's bid rule for two ultra super critical pulverized coal generating units that FPL is seeking to build in Glades County, Florida.  See System Capability and Load.  Effective February 2007, the FPSC eliminated the requirement for utilities to issue an RFP for new nuclear power plants sited after June 2006.

Turkey Point Unit No. 5 is currently under construction and is expected to be placed in service during the second quarter of 2007.  In June 2006, the FPSC approved FPL's proposal to build two approximately 1,220 mw natural gas-fired combined-cycle units in western Palm Beach County, Florida, with planned in-service dates of 2009 and 2010, which were subsequently approved by the Siting Board (comprised of the Florida governor and cabinet) under the Siting Act in December 2006.  In February 2007, FPL filed a need application with the FPSC to build two ultra super critical pulverized coal generating units totaling approximately 1,960 mw in Glades County, Florida with planned in-service dates of 2013 and 2014.

FPL's 2006 fuel mix based on kwh produced was as follows:

FPL has four firm transportation contracts in place with FGT and one firm transportation contract with Gulfstream that together are expected to satisfy substantially all of the anticipated needs for natural gas transportation at its existing units.  The four existing FGT contracts expire between 2015 and 2022, while the Gulfstream contract expires in 2028.  The two contracts expiring in 2015 may be extended by FPL until 2030.  To the extent desirable, FPL can also purchase interruptible gas transportation service from FGT and Gulfstream based on pipeline availability.  FPL has several short- and medium-term natural gas supply contracts to provide a portion of FPL's anticipated needs for natural gas.  The remainder of FPL's gas requirements are purchased under other contracts and in the spot market.  In addition, FPL has entered into several long-term agreements for storage capacity and transportation of natural gas from facilities that have not yet begun construction.  These agreements range from 12 to 23 years in length and are contingent upon certain events, including approval by the FERC and completion of construction of the facilities in 2008 and 2009.  FPL's oil requirements are obtained under short-term contracts and in the spot market.  See Note 16 - Contracts.

FPL has, through its joint ownership interest in St. Johns River Power Park (SJRPP) Units Nos. 1 and 2, long-term coal supply and transportation contracts for a portion of the fuel needs for those units.  All of the transportation requirements and a portion of the fuel supply needs for Scherer Unit No. 4 are covered by a series of annual and long-term contracts.  FPL's remaining fuel requirements for these units will be obtained in the spot market.  See Note 16 - Contracts.

Scheduled nuclear refueling outages by unit are as follows:

In 2003, the NRC issued an order requiring all pressurized water reactor licensees, including FPL, to perform visual and volumetric inspections of reactor vessel heads at each unit's scheduled refueling outage to identify if degradation such as cracking or corrosion has occurred.  In conjunction with the NRC order, FPL has performed visual and volumetric inspections of its nuclear units' reactor vessel heads during their scheduled refueling outages since October 2002.  FPL replaced the reactor vessel heads at Turkey Point Unit No. 3, Turkey Point Unit No. 4 and St. Lucie Unit No. 1 during their scheduled refueling outages in the fall of 2004, spring of 2005 and fall of 2005, respectively, and therefore no further inspections will be required at these units until 2009.  The inspections during scheduled refueling outages at St. Lucie Unit No. 2 in 2003 and 2005 revealed CRDM nozzles with cracks, which were repaired during the outages.  FPL intends to replace the reactor vessel head at St. Lucie Unit No. 2 during its next scheduled refueling outage in the fall of 2007.  The cost to replace St. Lucie Unit No. 2's reactor vessel head, including AFUDC, is included in FPL's estimated capital expenditures below.  See Management's Discussion - Results of Operations - FPL and Note 16 - Commitments.

St. Lucie Unit No. 2's steam generators are reaching the end of their useful life.  As flaws were identified in individual tubes, they were plugged in order to prevent the tubes from leaking during plant operations.  FPL intends to replace the steam generators along with the reactor vessel head at St. Lucie Unit No. 2 during its next scheduled refueling outage in the fall of 2007.  The cost to replace St. Lucie Unit No. 2's steam generators, including AFUDC, is included in FPL's estimated capital expenditures below.  See 16 - Commitments.

During 2003, nuclear utilities other than FPL identified that pressurizer heater sleeves made with a particular material (alloy 600) were experiencing penetration cracks and leaks as a result of primary water stress corrosion cracking.  As a result, in 2004, the NRC issued a bulletin requesting utilities to identify and inspect all alloy 600 and weld materials in all pressurizer locations and connected steam space piping.  Due to the amount of time and cost associated with correcting potential leaks, FPL replaced St. Lucie Unit No. 1's pressurizer during its fall 2005 outage. FPL will begin the repair of St. Lucie Unit No. 1's non-pressurizer penetrations with alloy 600 weld materials during its fall 2008 outage and expects to complete the repairs by 2010.  The St. Lucie Unit No. 2 pressurizer has 30 heater sleeves as compared to 120 heater sleeves in the St. Lucie Unit No. 1 pressurizer.  Accordingly, FPL has decided to repair rather than replace St. Lucie Unit No. 2's alloy 600 pressurizer heater sleeves during its spring 2009 outage.  During St. Lucie Unit No. 2's next scheduled refueling and steam generator and reactor vessel head replacement outage in the fall of 2007, FPL will inspect the pressurizer heater sleeves and begin repairs of other pressurizer and non-pressurizer penetrations with alloy 600 weld materials.  The repairs to St. Lucie Unit No. 2's other penetrations are scheduled to be completed by 2010.  The estimated cost of repairs for the St. Lucie units are included in FPL's estimated capital expenditures below.  See Note 16 - Commitments.  All pressurizer penetrations and welds at Turkey Point Units Nos. 3 and 4 utilize a different material.

FPL leases nuclear fuel for all four of its nuclear units.  See Note 1 - Nuclear Fuel.  FPL Group and FPL consolidate the lessor entity in accordance with FIN 46, "Consolidation of Variable Interest Entities", as revised (FIN 46(R)).  See Note 9 - FPL.  The contracts for the supply, conversion, enrichment and fabrication of FPL's nuclear fuel have expiration dates ranging from 2008 through 2016.  Currently, FPL is storing spent fuel on site pending its removal by the DOE.  Under the Nuclear Waste Policy Act, the DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants.  Through December 2006, FPL has paid approximately $562 million in such fees to the DOE's nuclear waste fund.  The DOE did not meet its statutory obligation for disposal of spent nuclear fuel under the Nuclear Waste Policy Act.  In 1997, a federal court ruled, in response to petitions filed by utilities, state governments and utility commissions, that the DOE could not assert a claim that its delay was unavoidable in any defense against lawsuits by utilities seeking money damages arising out of the DOE's failure to perform its obligations.  In 1998, FPL filed a lawsuit against the DOE seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from FPL's nuclear power plants.  The matter is pending.  In October 2006, a federal court ruled in another utility's case that the 1997 court decision regarding DOE's unavoidable delay defense was not binding on this federal court.  An appeal is pending in that case.  Based on current projections, FPL will lose its ability to store additional spent fuel on site for St. Lucie Unit No. 1 in 2008, St. Lucie Unit No. 2 in 2010, Turkey Point Unit No. 3 in 2010 and Turkey Point Unit No. 4 in 2012.  Degradation in a material used in the spent fuel pools at Turkey Point Units Nos. 3 and 4 could result in implementation of alternative spent fuel storage options sooner than projected. FPL expects to extend the storage capacity of Turkey Point Unit No. 3 to early 2012 by recovering storage cells in the spent fuel pools that are currently damaged or otherwise unusable.  In addition, FPL plans to begin using dry storage casks to store spent fuel at the St. Lucie Units prior to 2009 and at the Turkey Point Units prior to 2012, which would extend their capability to store spent fuel indefinitely.  The cost for the dry storage casks is included in FPL's estimated capital expenditures below.

In 2002, the governor of Nevada submitted a Notice of Disapproval to Congress regarding President Bush's recommendation to develop Yucca Mountain as a nuclear waste repository.  The Yucca Mountain site is the DOE's recommended location to store and dispose of spent nuclear fuel and high-level radioactive waste.  In 2002, Congress overrode the Notice of Disapproval through a majority vote of both houses and the President signed the joint resolution of Congress into law.  The State of Nevada has initiated legal actions to attempt to block the project.  In 2004, the U.S. Court of Appeals for the District of Columbia Circuit ruled on a series of challenges to the statutes and regulations established to govern a nuclear waste repository at the Yucca Mountain site.  The court denied all the challenges except for one, regarding an EPA rule governing the time period the public would be protected from hypothetical radiation leaks at the Yucca Mountain repository.  The court's decision will likely result in revisions to the EPA's and NRC's licensing rules for Yucca Mountain and could further delay the licensing process for Yucca Mountain.  In a progress report submitted to Congress, the DOE Office of Civilian Radioactive Waste Management stated that the DOE plans to submit a license application for a permanent disposal facility for spent nuclear fuel to the NRC by June 20, 2008, and indicated that the best achievable schedule would anticipate commencing initial repository operations in 2017.  Although the DOE has stated that it anticipates that its permanent disposal facility will commence operations in 2017, there is considerable doubt within the utility industry that this schedule will be met.

The NRC's regulations require FPL to submit a plan for decontamination and decommissioning five years prior to the projected end of plant operation.  FPL's current plans, under the extended operating licenses, provide for prompt dismantlement of Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2032 and 2033, respectively.  Current plans provide for St. Lucie Unit No. 1 to be mothballed beginning in 2036 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 at the end of its useful life in 2043.  See estimated decommissioning cost data in Note 1 - Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs - FPL.

These estimates are subject to continuing review and adjustment and actual capital expenditures may vary from these estimates.  See Management's Discussion - Liquidity and Capital Resources - Contractual Obligations and Planned Capital Expenditures and Note 16 - Commitments.

During 2006, FPL spent approximately $82 million on capital additions to comply with environmental laws and regulations.  FPL's capital expenditures to comply with environmental laws and regulations are estimated to be $347 million for 2007 through 2009, including approximately $106 million in 2007, and are included in estimated capital expenditures set forth in Capital Expenditures above.

In 1999, the U.S. National Institute of Environmental Health Sciences, at the culmination of a five-year federally supported EMF research effort, concluded that the scientific evidence suggesting that EMF exposures pose any health risk is weak, but cannot be completely discounted.  In 2001, the IARC conducted an evaluation of power frequency EMF and cancer; it classified power frequency magnetic fields as "possibly carcinogenic" based on an association with childhood leukemia reported in some epidemiology studies.  The IARC did not conclude that power frequency EMF cause or contribute to the development of childhood leukemia or any other cancer.  In 2002, the National Institute of Environmental Health Sciences said in a booklet it published on EMF: "For most health outcomes, there is no evidence that EMF exposures have adverse effects.  There is some evidence from epidemiology studies that exposure to power-frequency EMF is associated with an increased risk for childhood leukemia.  This association is difficult to interpret in the absence of reproducible laboratory evidence or a scientific explanation that links magnetic fields with childhood leukemia."

Florida has had EMF regulations in place for many years, and FPL believes it is in compliance with the FDEP regulations regarding EMF levels within and at the edge of the rights of way for transmission lines.  Future changes in the FDEP regulations could require additional capital expenditures by FPL for such things as increasing the right of way corridors or relocating or reconfiguring transmission facilities.  It is not presently known whether any such expenditures will be required.  Currently, there are no such changes proposed to the FDEP regulations.

FPL Energy manages or participates in the management of approximately 95% of its projects, which represent approximately 98% of the net generating capacity in which FPL Energy has an ownership interest.  At December 31, 2006, FPL Energy had ownership interests in operating independent power projects with a net generating capability totaling 13,343 mw (see Item 2 - Generating Facilities).  Generation capacity spans various regions and is produced utilizing a variety of fuel sources, thereby reducing overall volatility related to varying market conditions and seasonality on a portfolio basis.  At December 31, 2006, the percentage of capacity by NERC region or power pool was:

FPL Energy expects its future portfolio capacity growth to come primarily from wind development and from asset acquisitions.  FPL Energy plans to add a total of at least 1,500 mw of new wind generation over the 2007 and 2008 period, including approximately 450 mw which are currently under construction.  In December 2006, FPL Energy entered into an agreement to purchase Point Beach, a two-unit, 1,033 mw nuclear power plant.  The transaction is subject to, among other things, the receipt of approvals from various federal and state regulatory agencies.  FPL Energy expects to close the transaction in the third quarter of 2007.  See Nuclear Operations.

FPL Energy's capital expenditures and investments totaled approximately $1.8 billion, $0.9 billion and $0.4 billion in 2006, 2005 and 2004, respectively.  Capital expenditures for 2007 through 2011 are estimated as follows:

These estimates are subject to continuing review and adjustment and actual capital expenditures may vary from these estimates.  See Management's Discussion - Liquidity and Capital Resources - Contractual Obligations and Planned Capital Expenditures and Note 16 - Commitments.

During 2006, other companies in the electric industry, including FPL, experienced compressor blade failures in certain CTCs made by a single manufacturer.  FPL Energy has 19 of these CTCs in its generating fleet.  FPL Energy is conducting inspections of its rotating compressor blades in its generating fleet and replacing any blade sets found to have cracks.  FPL Energy is also planning to proactively replace a portion of the stationary compressor blades it considers to be at higher risk of failure.  See the discussion at FPL Operations - Fossil Operations.

FPL Energy continues to evaluate regional market redesigns of existing operating rules for the purchase and sale of energy commodities.  During 2006, revised market rules for capacity were approved in the NEPOOL and PJM regions.  California is scheduled to implement a revised market design no earlier than late 2008.  ERCOT is considering adopting a revised market design with potential implementation in 2009.  In the California and ERCOT markets, the final market design is not fully known at this time and FPL Energy is currently unable to determine the effects, if any, on its operations resulting from the implementation of such revised market designs.

Expanded competition in a frequently changing regulatory environment presents both opportunities and risks for FPL Energy.  Opportunities exist for the selective acquisition of generation assets and for the construction and operation of efficient plants that can sell power in competitive markets.  FPL Energy seeks to reduce its market risk by having a diversified portfolio, by fuel type and location, as well as by contracting for the sale of a significant amount of the electricity output of its plants.  The major markets in which FPL Energy operates have shown signs of continued improvement since 2004, such as improved spark spreads and energy prices in ERCOT and NEPOOL.  The combination of new wind projects, expected increase in contribution from merchant assets and asset acquisitions are expected to be the key drivers in supporting FPL Energy's growth over the next few years.

Wind Assets - At December 31, 2006, FPL Energy had ownership interests in wind plants with a combined capacity of approximately 4,016 mw (net ownership), of which approximately 77% have long-term contracts with utilities and power marketers predominantly under fixed-price agreements with expiration dates ranging from 2011 to 2031.  The expected output of the remaining 23% is hedged against changes in commodity prices for at least five years.  FPL Energy operates substantially all of these wind facilities.  Approximately 93% of FPL Energy's net ownership in wind facilities has received exempt wholesale generator status as defined under the Holding Company Act.  The remaining facilities have qualifying facility status under PURPA.  FPL Energy's wind facilities are located in fifteen states, thereby reducing weather-related performance risk on a portfolio basis.  FPL Energy plans to add a total of at least 1,500 mw of new wind generation over the 2007 and 2008 period, including approximately 450 mw which are currently under construction.

Contracted Assets - At December 31, 2006, FPL Energy had 2,469 mw of contracted assets.  The contracted category includes all projects, other than wind, with contracts for substantially all of their output.  Essentially all of these contracted assets were under power sales contracts with utilities, with contract expiration dates ranging from 2008 to 2020 and have firm fuel and transportation agreements with expiration dates ranging from 2007 to 2017.  Approximately 1,776 mw of this capacity is gas-fired generation.  The remaining 693 mw uses a variety of fuels and technologies such as nuclear, waste-to-energy, oil, solar, coal and petroleum coke.  As of December 31, 2006, approximately 91% of FPL Energy's contracted generating capacity is from power plants that have received exempt wholesale generator status under the Holding Company Act, while the remaining 9% has qualifying facility status under PURPA.

Merchant Assets - At December 31, 2006, FPL Energy's portfolio of merchant assets includes 6,858 mw of owned nuclear, natural gas, oil and hydro generation, of which 2,700 mw is located in the ERCOT region, 2,686 mw in the NEPOOL region and 1,472 mw in other regions.  The merchant assets include 898 mw of peak generating facilities.  Merchant assets are plants that do not have long-term power sales agreements to sell their output and therefore require active marketing and hedging.  Approximately 62% of the merchant assets have gas supply agreements or a combination of gas supply and transportation agreements to provide for on-peak gas requirements.  Derivative instruments (primarily swaps, options and forwards) are used to lock in pricing and manage the commodity price risk inherent in power sales and fuel purchases.  Reducing market risk through these instruments introduces other types of risk however, primarily counterparty and operational risks.  See Energy Marketing and Trading.

Seabrook completed the second phase of a power uprate in October 2006 which increased FPL Energy's net plant output to 1,098 mw.  In December 2005, FPL Energy obtained NRC approval to extend Seabrook's operating license from 2026 to 2030 to recapture the period of non-operation from 1986 to 1990.  FPL Energy intends to seek approval from the NRC to renew Seabrook's operating license for an additional 20 years.  If granted, this approval would extend the term of the NRC operating license for Seabrook to 2050.  Seabrook is periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications.  The next refueling outage at Seabrook is scheduled for April 2008.

In 2003, the NRC issued an order requiring all pressurized water reactor licensees, including Seabrook, to perform visual and volumetric inspections of reactor vessel heads at certain scheduled refueling outages to identify if degradation such as cracking or corrosion has occurred.  Seabrook performed 100% visual and volumetric inspections during its fall 2006 refueling outage, and no degradation was identified.  Seabrook will be required to perform visual inspections every third refueling outage and volumetric inspections every fourth refueling outage.

In 2004, the NRC issued a bulletin requesting utilities to identify and inspect all alloy 600 and weld materials in all pressurizer locations and connected steam space piping.  This issue impacts some pressurizer and reactor vessel penetrations at Seabrook.  In order to meet industry requirements, FPL Energy is planning to repair Seabrook's pressurizer penetrations with alloy 600 weld materials during its April 2008 outage and begin inspections of the reactor vessel alloy 600 penetrations during the fall 2009 outage.  The estimated cost of repairs is included in FPL Energy's estimated capital expenditures set forth in General above.  Based on alloy 600 issues recently identified at another company's nuclear plant, the NRC may mandate that certain nuclear plants, including Seabrook, accelerate repairs to their pressurizer penetrations into 2007.   Accelerated repairs at Seabrook would have an adverse effect on FPL Energy's 2007 results of operations.

In January 2006, FPL Energy completed the acquisition of Duane Arnold from Interstate Power and Light Company (IP&L), a subsidiary of Alliant Energy Corporation.  In October 2006, Duane Arnold completed a power uprate which increased FPL Energy's net plant output to 424 mw.  FPL Energy sells substantially all of its share of the output of Duane Arnold to IP&L under a long-term contract expiring in 2014.  FPL Energy expects to file for a license extension for Duane Arnold in 2009, which, if approved, will enable the plant to continue to operate for an additional 20 years beyond its current license expiration of 2014.  Duane Arnold's most recent scheduled refueling outage began in February 2007, and the next one is expected to begin in January 2009.

FPL Energy's nuclear facilities have several contracts for the supply, conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from 2007 to 2014.  See Note 16 - Contracts.  Currently, Seabrook and Duane Arnold are storing spent fuel on site pending its removal by the DOE.  Under the Nuclear Waste Policy Act, the DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants.  The total cumulative amount of such fees paid to the DOE's nuclear waste fund for Seabrook and Duane Arnold, including amounts paid by all joint owners since the start of the plants' operations, is approximately $234 million, of which FPL Energy has paid approximately $35 million since the date of the plants' acquisition.  FPL Energy through its ownership interest in Seabrook and Duane Arnold is involved in litigation against the DOE seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from the Seabrook and Duane Arnold facilities.  The matter is pending.  For details on the current status of permanent fuel storage with the DOE, see FPL Operations - Nuclear Operations.  Based on current projections, FPL Energy will lose its ability to store spent fuel as early as 2009 at Seabrook and 2014 at Duane Arnold.  FPL Energy is proceeding with a dry cask storage system at Seabrook which will be placed into commercial operation prior to 2009, the cost of which is included in FPL Energy's estimated capital expenditures set forth in General above.  This would allow for all of Seabrook's spent fuel to be stored on site, including spent fuel storage through its license extension period of 2050, if granted.  Duane Arnold currently is using both a spent fuel pool and a dry cask storage system and is making plans for additional dry cask storage modules to increase on site storage capability beginning in 2009, the estimated cost of which is included in FPL Energy's estimated capital expenditures set forth in General above.

In December 2006, FPL Energy entered into an agreement to purchase Point Beach, a two-unit, 1,033 mw nuclear power plant located in Wisconsin from Wisconsin Electric Power Company (Wisconsin Electric), a subsidiary of Wisconsin Energy Corporation. Under the agreement, FPL Energy will sell the output of Point Beach to Wisconsin Electric under a long-term contract.  The duration of the contract will be, at the option of Wisconsin Electric, either through the current license terms of 2030 for Unit 1 and 2033 for Unit 2 or for a term of 16 or 17 years from the closing date for Units 1 and 2, respectively.  FPL Energy will assume responsibility for decommissioning the plant.  Also, upon closing, FPL Energy will assume management and operation of Point Beach.  The transaction is subject to, among other things, the receipt of approvals from various federal and state regulatory agencies.  FPL Energy expects to close the transaction in the third quarter of 2007.

During 2006, FPL Energy spent approximately $3 million on capital additions to comply with environmental laws and regulations.  FPL Energy's capital additions to comply with environmental laws and regulations are estimated to be $15 million for 2007 through 2009, including approximately $4 million in 2007, and are included in estimated capital expenditures set forth in General above.

FPL Group's Corporate and Other segment represents other business activities, primarily FPL FiberNet, that are not separately reportable.  See Note 17.

In light of recent significant changes in the business climate, FPL FiberNet performed an impairment analysis in the fourth quarter of 2006 and concluded that an impairment charge related to its metro market assets was necessary.  The business climate changes include customer consolidations, migration to a more efficient form of networking technology and lack of future benefits to be achieved through competitive pricing, all of which have a negative impact on the value of FPL FiberNet's metro market assets.  While the metro market business is expected to continue to generate positive cash flows, management's expectation of the rate of future growth in cash flow has been reduced as a result of these business climate changes.  Accordingly, FPL FiberNet recorded an impairment charge of $98 million ($60 million after-tax).

At December 31, 2006, FPL Group's remaining investment in FPL FiberNet totaled approximately $130 million.  FPL FiberNet invested approximately $14 million during 2006 and plans to invest a total of $57 million over the next five years to meet customers' specific requirements and sustain its fiber-optic network.

FPL Group and FPL are subject to complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions, including initiatives regarding deregulation and restructuring of the energy industry and environmental matters.  FPL holds franchise agreements with local municipalities and counties, and must renegotiate expiring agreements.  These factors may have a negative impact on the business and results of operations of FPL Group and FPL.

The risks described herein are not the only risks facing FPL Group and FPL.  Additional risks and uncertainties not currently known to FPL Group or FPL, or that are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.

FPL Group and its subsidiaries maintain properties which are adequate for their operations.  At December 31, 2006, the electric generating, transmission, distribution and general facilities of FPL represented approximately 44%, 13%, 38% and 5%, respectively, of FPL's gross investment in electric utility plant in service.

In addition, at December 31, 2006, FPL owned and operated 558 substations, one of which is jointly owned.  See Note 8.

In November 1999, the Attorney General of the United States, on behalf of the EPA, brought an action in the U.S. District Court for the Northern District of Georgia against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Prevention of Significant Deterioration (PSD) provisions and the New Source Performance Standards (NSPS) of the Clean Air Act.  In May 2001, the EPA amended its complaint.  The amended complaint alleges, among other things, that Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining a PSD permit, without complying with NSPS requirements, and without applying best available control technology for nitrogen oxides, sulfur dioxides and particulate matter as required by the Clean Air Act.  It also alleges that unspecified major modifications have been made at Scherer Unit No. 4 that require its compliance with the aforementioned Clean Air Act provisions.  The EPA seeks injunctive relief requiring the installation of best available control technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after June 1, 1975 through January 30, 1997 and $27,500 per day for each violation thereafter.  The EPA further revised its civil penalty rule in February 2004, such that the maximum penalty is $32,500 per day for each violation after March 15, 2004.  Georgia Power Company has answered the amended complaint, asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses.  In June 2001, a federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery in several Clean Air Act cases that was filed with a Multi-District Litigation (MDL) panel.  In August 2001, the MDL panel denied the motion for consolidation.  In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery.  Georgia Power Company opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals ruled on the Tennessee Valley Authority's (TVA) appeal of an EPA administrative compliance order relating to legal issues that are also central to this case.  In August 2002, the federal district court denied without prejudice the EPA's motion to reopen.  In June 2003, the Eleventh Circuit issued its order dismissing the TVA's appeal because it found the provision of the Clean Air Act allowing the EPA to issue binding administrative compliance orders was unconstitutional, and hence found that the TVA order was a non-final order that courts of appeal do not have jurisdiction to review.  In September 2003, the Eleventh Circuit denied the EPA's motion for rehearing.  In May 2004, the U.S. Supreme Court denied the EPA's petition for review of the Eleventh Circuit order.  The EPA has not yet moved to reopen the Georgia Power Company case.

In August 2001, FMPA filed with the U.S. Court of Appeals for the District of Columbia (DC Circuit) a petition for review asking the DC Circuit to reverse and remand orders of the FERC denying FMPA's request for credits for transmission facilities owned by FMPA members.  In 1993, FPL filed a comprehensive restructuring of its then-existing tariff structure.  All issues in that case were settled in September 2000 except for three issues reserved by FMPA: (i) FMPA's request for transmission credits related to the costs of its transmission facilities (the crediting issue), (ii) treatment of behind-the-meter generation and load ratio pricing for network integration transmission service (the behind-the-meter issue), and (iii) exclusions from FPL's transmission rates of the costs of FPL's facilities that fail to meet the same integration test that was applied to FMPA's facilities with respect to the crediting issue (the rate base issue).  The FERC and the DC Circuit have rejected FMPA's claim for transmission credits, which would have reduced FMPA's payment obligation to FPL for network integration transmission service.

With regard to the behind-the-meter issue, the FERC rejected FMPA's argument that its obligation to pay for network integration transmission service should be reduced to the extent that FPL allegedly cannot provide transmission service because of "physical transmission limitations."  In June 2005, the DC Circuit remanded the case to the FERC for further consideration.  In December 2005, the FERC issued an order on remand finding that load ratio share pricing is appropriate notwithstanding constraints on a third-party's system.  In January 2006, FMPA filed a rehearing request of this order with the FERC, which the FERC denied in July 2006.  FMPA submitted a petition for review of the FERC's December 2005 and July 2006 orders at the DC Circuit.  A briefing schedule has not yet been established in that proceeding.

With regard to the rate base issue, in May 2004 FPL made a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same integration test that was applied to the FMPA facilities.  Pursuant to that filing, FPL's current network transmission rate would have been reduced by $0.02 per kilowatt (kw) per month.  In June 2004, FMPA filed a protest to FPL's compliance filing, arguing that FPL's current network transmission rate should be reduced by approximately $0.41 per kw per month.  In January 2005, the FERC issued an order on FPL's compliance filing.  In the order, the FERC accepted FPL's standards for analyzing the transmission system and agreed that FPL's "Georgia Ties" and "Turkey Point Lines" are part of FPL's integrated grid.  The FERC required FPL to make an additional compliance filing removing the cost of all radial transmission lines from transmission rates, analyzing the FPL transmission system to remove the cost of any transmission facilities that provide only "unneeded redundancy," and calculating rate adjustments using 1993 data rather than 1998 data.  FPL made this compliance filing in April 2005, which would reduce FPL's current rate by $0.04 per kw per month.  In May 2005, FMPA protested FPL's compliance filing and argued that FPL's rates should be reduced by an additional $0.20 per kw per month, potentially resulting in a refund obligation to FMPA of approximately $22 million at December 31, 2006.  Any reduction in FPL's network service rate also would apply effective January 1, 2004 to Seminole Electric Cooperative Inc. (Seminole), FPL's other network customer.  The potential refund obligation to Seminole based on FMPA's position is approximately $9 million at December 31, 2006.

In December 2005, the FERC issued an order accepting FPL's April 2005 compliance filing in part, rejecting it in part, and directing the submission of a further compliance filing.  The FERC concluded that it is not clear whether FPL failed to test its non-radial facilities in a manner comparable to the way it tested FMPA's facilities.  FPL filed a rehearing request in January 2006, which the FERC denied in July 2006.  FPL filed a request for rehearing of the FERC's July 2006 order.  In September 2006, FPL made the required compliance filing, removing additional transmission facilities from rates, which resulted in a refund liability of approximately $4 million to FMPA and approximately $1 million to Seminole at December 31, 2006.  FMPA has protested FPL's filing, claiming again that FPL's rates should be reduced by an additional $0.20 per kw per month.

In 1995 and 1996, FPL Group, through an indirect subsidiary, purchased from Adelphia Communications Corporation (Adelphia) 1,091,524 shares of Adelphia common stock and 20,000 shares of Adelphia preferred stock (convertible into 2,358,490 shares of Adelphia common stock) for an aggregate price of approximately $35,900,000.  On January 29, 1999, Adelphia repurchased all of these shares for $149,213,130 in cash.  On June 24, 2004, Adelphia, Adelphia Cablevision, L.L.C. and the Official Committee of Unsecured Creditors of Adelphia filed a complaint against FPL Group and its indirect subsidiary in the U.S. Bankruptcy Court, Southern District of New York.  The complaint alleges that the repurchase of these shares by Adelphia was a fraudulent transfer, in that at the time of the transaction Adelphia (i) was insolvent or was rendered insolvent, (ii) did not receive reasonably equivalent value in exchange for the cash it paid, and (iii) was engaged or about to engage in a business or transaction for which any property remaining with Adelphia had unreasonably small capital.  The complaint seeks the recovery for the benefit of Adelphia's bankruptcy estate of the cash paid for the repurchased shares, plus interest.  FPL Group has filed an answer to the complaint.  FPL Group believes that the complaint is without merit because, among other reasons, Adelphia will be unable to demonstrate that (i) Adelphia's repurchase of shares from FPL Group, which repurchase was at the market value for those shares, was not for reasonably equivalent value, (ii) Adelphia was insolvent at the time of the repurchase, or (iii) the repurchase left Adelphia with unreasonably small capital.  The case is in discovery and has been reset for trial in March 2008.

In February 2003, Scott and Rebecca Finestone brought an action on behalf of themselves and their son Zachary Finestone in the U.S. District Court for the Southern District of Florida alleging that their son has developed cancer (neuroblastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant.  The complaint, as subsequently amended, includes counts against FPL for strict liability for allegedly engaging in an ultra-hazardous activity and for alleged negligence in operating the plant in a manner that allowed emissions of the foregoing materials and failing to limit its release of nuclear fission products as prescribed by federal and state laws and regulations.  The plaintiffs seek damages in excess of $1 million.  In January 2006, the court granted FPL's motion for final summary judgment and dismissed the case.  On February 8, 2006, the plaintiffs filed a notice of appeal of the court's decision granting final summary judgment for FPL.  The appeal is pending before the U.S. Court of Appeals for the Eleventh Circuit.

In May 2003, Tish Blake and John Lowe, as personal representatives of the Estate of Ashton Lowe, on behalf of the estate and themselves, as surviving parents, brought an action in the U.S. District Court for the Southern District of Florida alleging that their son developed cancer (medulo-blastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant.  The allegations, counts and damages demanded in the complaint, as subsequently amended, are virtually identical to those contained in the Finestone lawsuit described above.  In January 2006, the court granted FPL's motion for final summary judgment and dismissed the case.  On February 8, 2006, the plaintiffs filed a notice of appeal of the court's decision granting final summary judgment for FPL.  The appeal is pending before the U.S. Court of Appeals for the Eleventh Circuit.

In August 2003, Pedro C. and Emilia Roig brought an action on behalf of themselves and their son, Pedro Anthony Roig, in the Circuit Court of the Eleventh Judicial Circuit in and for Miami-Dade County, Florida (the state court), which was removed in October 2003 to the U.S. District Court for the Southern District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies and FPL, alleging that their son has suffered toxic neurological effects from mercury poisoning.  The sources of mercury exposure are alleged to be vaccines containing a preservative called thimerosal that were allegedly manufactured and distributed by the drug companies, mercury amalgam dental fillings, and emissions from FPL power plants in southeast Florida.  The complaint includes counts against all defendants for civil battery and against FPL for alleged negligence in operating the plants such that the son was exposed to mercury and other heavy metals emissions.  The damages demanded from FPL are for injuries and losses allegedly suffered by the son as a result of his exposure to the plants' mercury emissions and the parents' alleged pain and suffering, medical expenses, loss of wages, and loss of their son's services and companionship.  No amount of damages is specified.  The U.S. District Court remanded the action back to the state court.  The drug manufacturing and distribution companies have moved to dismiss the action.  Plaintiffs and FPL have agreed that FPL will not respond to the complaint until requested by the plaintiffs.

In December 2003, Edward and Janis Shiflett brought an action on behalf of themselves and their son, Phillip Benjamin Shiflett, in the Circuit Court of the Eighteenth Judicial Circuit in and for Brevard County, Florida (the state court), which was removed in January 2004 to the U.S. District Court for the Middle District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, FPL and the Orlando Utilities Commission, alleging that their son has suffered toxic neurological effects from mercury poisoning.  The allegations, counts and damages demanded in the complaint with respect to FPL are virtually identical to those contained in the Roig lawsuit described above.  FPL's motion to dismiss the complaint was denied.  The U.S. District Court subsequently remanded the action back to the state court.  The state court subsequently dismissed the drug manufacturing and distribution companies from the action.  Plaintiffs' appeal of that order is pending before the Florida Fifth District Court of Appeal.  Plaintiffs and FPL have agreed that FPL will not respond to the complaint until requested by the plaintiffs.

In October 2004, TXU Portfolio Management Company (TXU) served FPL Energy Pecos Wind I, LP, FPL Energy Pecos Wind I GP, LLC, FPL Energy Pecos Wind II, LP, FPL Energy Pecos Wind II GP, LLC and Indian Mesa Wind Farm, LP (FPL Energy Affiliates) as defendants in a civil action filed in the District Court in Dallas County, Texas.  The petition alleges that the FPL Energy Affiliates had a contractual obligation to produce and sell to TXU a minimum quantity of energy each year and that the FPL Energy Affiliates failed to meet this obligation.  The plaintiff has asserted claims for breach of contract and declaratory judgment and seeks damages of approximately $34 million.  The FPL Energy Affiliates filed their answer and counterclaim in November 2004, denying the allegations.  The counterclaim, as now amended, asserts claims for conversion, breach of fiduciary duty, breach of warranty, conspiracy, breach of contract and fraud and seeks termination of the contract and damages.  At the end of 2005, TXU amended its complaint to add FPL Group, FPL Energy, FPL Group Capital and ESI Energy, LLC (ESI Energy), as defendants.  Motions to dismiss those entities as defendants were filed, and FPL Group, FPL Group Capital and ESI Energy have been dismissed.  The case is in discovery and has been reset for trial in April 2007.

During 2006, a U.S. court judgment in favor of Karaha Bodas Company, LLC (KBC) totaling approximately $320 million, including interest, became final.  FPL Energy owns an equity interest in KBC.  The judgment related to proceedings initiated by KBC against PT Pertamina, Indonesia's state-owned oil/energy company to recover KBC's investment in a power generation project suspended indefinitely by the Indonesian government in 1998 and for lost profits.  A portion of the final judgment, or approximately $290 million, was received by KBC in 2006, of which approximately $7 million was distributed to FPL Energy in May 2006 and approximately $90 million, FPL Energy's portion of the remaining funds, was distributed to FPL Energy in mid-February 2007.  FPL Group recorded a $97 million pretax gain in equity in earnings of equity method investees in 2006 relating to the judgment.  Also, during 2004, judgment funds of approximately $30 million were received by KBC, of which approximately $7 million was distributed to FPL Energy.

In September 2006, PT Pertamina filed an action against KBC in the Grand Court of the Cayman Islands for fraud and for an injunction prohibiting KBC from disposing of, dealing with or diminishing the value of any of KBC's assets up to the value of PT Pertamina's funds KBC received as a result of the court judgment (approximately $320 million) pending resolution of the fraud claim.  FPL Energy's portion of the damages being sought is approximately $145 million.  KBC sought and in December 2006 received from the U.S. District Court for the Southern District of New York an anti-suit injunction against the plaintiff, prohibiting the plaintiff from pursuing the fraud action, or any similar action, and the request for injunctive relief in the Cayman court or any other court worldwide.  The plaintiff's appeal of that order to the U.S. Court of Appeals for the Second Circuit is pending.  In January 2007, the district court granted plaintiff's motion for stay pending appeal prohibiting the judgment funds from being distributed to KBC's owners, and in mid-February 2007, the U.S. Court of Appeals for the Second Circuit lifted the stay and the judgment funds of approximately $265 million were distributed.

In addition to those legal proceedings discussed above, FPL Group and its subsidiaries, including FPL, are involved in a number of other legal proceedings and claims in the ordinary course of their businesses.  Generating plants in which FPL Group or FPL have an ownership interest are also involved in legal proceedings and claims, the liabilities from which, if any, would be shared by FPL Group or FPL.

In the event that FPL Group and FPL, or their affiliates, do not prevail in these lawsuits, there may be a material adverse effect on their financial statements.  However, FPL Group and FPL believe that they, or their affiliates, have meritorious defenses to all the pending litigation and proceedings discussed above under the heading Legal Proceedings and are vigorously defending the lawsuits.  While management is unable to predict with certainty the outcome of the legal proceedings and claims discussed or described herein, based on current knowledge it is not expected that their ultimate resolution, individually or collectively, will have a material adverse effect on the financial statements of FPL Group or FPL.

The Annual Meeting of FPL Group's shareholders was held on December 15, 2006.  Of the 404,915,470 shares of common stock outstanding on the record date of October 25, 2006, a total of 347,815,519 shares (or 85.9% of the outstanding shares) were represented in person or by proxy.

The following directors were elected effective December 15, 2006:

The vote ratifying the appointment of Deloitte & Touche LLP as FPL Group's independent registered public accounting firm was 342,961,240 for, 1,830,348 against and 3,023,931 abstaining.