form10k123108.htm
 


 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

Commission
File
Number
 
Exact name of registrants as specified in their
charters, address of principal executive offices and
registrants' telephone number
 
IRS Employer
Identification
Number
 
1-8841
 
2-27612
 
 
 
FPL GROUP, INC.
FLORIDA POWER & LIGHT COMPANY
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
 
 
59-2449419
 
59-0247775
 

State or other jurisdiction of incorporation or organization:    Florida

 
Name of exchange
on which registered
Securities registered pursuant to Section 12(b) of the Act:
FPL Group, Inc.:   Common Stock, $0.01 Par Value
Florida Power & Light Company:   None
 
New York Stock Exchange

Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act of 1933.
FPL Group, Inc.    Yes þ    No ¨                                                Florida Power & Light Company    Yes þ    No ¨

Indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.
FPL Group, Inc.    Yes ¨    No þ                                                Florida Power & Light Company    Yes ¨    No þ

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.
FPL Group, Inc.    Yes þ    No ¨                                                Florida Power & Light Company    Yes þ    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants' knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

FPL Group, Inc.
Large Accelerated Filer þ
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company ¨
Florida Power & Light Company
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer þ
Smaller Reporting Company ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).  Yes ¨   No  þ

Aggregate market value of the voting and non-voting common equity of FPL Group, Inc. held by non-affiliates as of June 30, 2008 (based on the closing market price on the Composite Tape on June 30, 2008) was $26,714,502,227.

There was no voting or non-voting common equity of Florida Power & Light Company held by non-affiliates as of June 30, 2008.

The number of shares outstanding of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $0.01 par value, outstanding at January 31, 2009: 408,946,823 shares.

As of January 31, 2009, there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by FPL Group, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of FPL Group, Inc.'s Proxy Statement for the 2009 Annual Meeting of Shareholders are incorporated by reference in Part III hereof.

________________________________________

This combined Form 10-K represents separate filings by FPL Group, Inc. and Florida Power & Light Company.  Information contained herein relating to an individual registrant is filed by that registrant on its own behalf.  Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations.

Florida Power & Light Company meets the conditions set forth in General Instruction I.(1)(a) and (b) of Form 10-K and is therefore filing this Form with the reduced disclosure format.

 

 

 
DEFINITIONS

Acronyms and defined terms used in the text include the following:

Term
Meaning
AFUDC
allowance for funds used during construction
AFUDC - equity
equity component of allowance for funds used during construction
BART
Best Available Retrofit Technology
capacity clause
capacity cost recovery clause, as established by the FPSC
charter
restated articles of incorporation, as amended, of FPL Group or FPL, as the case may be
CO2
carbon dioxide
DOE
U.S. Department of Energy
Duane Arnold
Duane Arnold Energy Center
EMF
electric and magnetic field(s)
EMT
Energy Marketing & Trading
environmental clause
environmental compliance cost recovery clause, as established by the FPSC
EPA
U.S. Environmental Protection Agency
ERCOT
Electric Reliability Council of Texas
Exchange Act
Securities Exchange Act of 1934, as amended
FAS
Statement of Financial Accounting Standards No.
FASB
Financial Accounting Standards Board
FDEP
Florida Department of Environmental Protection
FERC
Federal Energy Regulatory Commission
FGT
Florida Gas Transmission Company
FIN
FASB Interpretation No.
FMPA
Florida Municipal Power Agency
FPL
Florida Power & Light Company
FPL FiberNet
FPL FiberNet, LLC
FPL Group
FPL Group, Inc.
FPL Group Capital
FPL Group Capital Inc
FPSC
Florida Public Service Commission
fuel clause
fuel and purchased power cost recovery clause, as established by the FPSC
Gulfstream
Gulfstream Natural Gas System, L.L.C.
Holding Company Act
Public Utility Holding Company Act of 2005
IRS
Internal Revenue Service
kv
kilovolt(s)
kwh
kilowatt-hour(s)
LIBOR
London InterBank Offered Rate
LTIP
FPL Group, Inc. Amended and Restated Long Term Incentive Plan
Management's Discussion
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
mortgage
mortgage and deed of trust dated as of January 1, 1944, from FPL to Deutsche Bank Trust Company Americas, as supplemented and amended
mw
megawatt(s)
NEPOOL
New England Power Pool
NextEra Energy Resources
NextEra Energy Resources, LLC, formerly known as FPL Energy, LLC
Note ___
note ___ to consolidated financial statements
NOx
nitrogen oxide
NRC
U.S. Nuclear Regulatory Commission
Nuclear Waste Policy Act
Nuclear Waste Policy Act of 1982, as amended
O&M expenses
other operations and maintenance expenses in the consolidated statements of income
PJM
PJM Interconnection, L.L.C.
PMI
FPL Energy Power Marketing, LLC
Point Beach
Point Beach Nuclear Power Plant
PTCs
production tax credits
PURPA
Public Utility Regulatory Policies Act of 1978, as amended
qualifying facilities
non-utility power production facilities meeting the requirements of a qualifying facility under the PURPA
RFP
request for proposal
ROE
return on common equity
Seabrook
Seabrook Station
SEC
U.S. Securities and Exchange Commission
SEGS
Solar Electric Generating System
SO2
sulfur dioxide
VIE
variable interest entity

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

 
2

 

TABLE OF CONTENTS


 
Page No.
   
Definitions
2
Forward-Looking Statements
3
 
 
PART I
 
     
Item 1.
Business
4
Item 1A.
Risk Factors
19
Item 1B.
Unresolved Staff Comments
22
Item 2.
Properties
23
Item 3.
Legal Proceedings
26
Item 4.
Submission of Matters to a Vote of Security Holders
26
 
 
PART II
 
     
Item 5.
Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
26
Item 6.
Selected Financial Data
27
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
50
Item 8.
Financial Statements and Supplementary Data
51
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
101
Item 9A.
Controls and Procedures
101
Item 9B.
Other Information
101
 
 
PART III
 
     
Item 10.
Directors, Executive Officers and Corporate Governance
101
Item 11.
Executive Compensation
101
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
101
Item 13.
Certain Relationships and Related Transactions, and Director Independence
102
Item 14.
Principal Accounting Fees and Services
102
 
 
PART IV
 
     
Item 15.
Exhibits, Financial Statement Schedules
103
     
Signatures
 
110


FORWARD-LOOKING STATEMENTS

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, future events or performance, climate change strategy or growth strategies (often, but not always, through the use of words or phrases such as will, will likely result, are expected to, will continue, is anticipated, aim, believe, could, should, would, estimated, may, plan, potential, projection, target, outlook, predict and intend or words of similar meaning) 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 or implied 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, unless otherwise required by law.  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 or implied in any forward-looking statement.

 
3

 

PART I

Item 1.  Business

FPL GROUP

FPL Group was incorporated in 1984 under the laws of Florida.  FPL Group has two principal operating subsidiaries, FPL and NextEra Energy Resources (formerly known as FPL Energy, LLC).  FPL is a rate-regulated utility engaged primarily in the generation, transmission, distribution and sale of electric energy.  NextEra Energy Resources is FPL Group's competitive energy subsidiary which produces the majority of its electricity from clean and renewable fuels.  FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock of, or has equity interests in, FPL Group's operating subsidiaries, other than FPL, and provides funding for those subsidiaries, including NextEra Energy Resources.   At December 31, 2008, FPL Group and its subsidiaries employed approximately 15,300 people.  For a discussion of FPL's and NextEra Energy Resources' businesses, see FPL Operations and NextEra Energy Resources Operations.  For financial information regarding FPL Group's business segments, see Note 16.

In February 2009, the American Recovery and Reinvestment Act of 2009 (Recovery Act) was signed into law.  It includes approximately $787 billion in tax incentives and new spending, a portion of which relates to renewable energy, energy efficiency and energy reliability.  The Recovery Act includes, among other things, provisions that allow companies building wind facilities the option to choose between three investment cost recovery mechanisms: (i) PTCs which were extended for wind facilities through 2012, (ii) investment tax credits of 30% of the cost for qualifying wind facilities placed in service prior to 2013, or (iii) an election to receive a cash grant of 30% of the cost of qualifying wind facilities placed in service in 2009 or 2010, or if construction began prior to December 31, 2010 and the wind facility is placed in service prior to 2013.  An election to receive a cash grant of 30%, in lieu of the 30% investment tax credit allowable under present law, also applies to the cost of qualifying solar facilities placed in service in either 2009 or 2010, or if construction began prior to December 31, 2010 and the solar facility is placed in service prior to 2017.  In addition, 50% bonus depreciation was extended on most types of property placed in service in 2009, and certain property placed in service in 2010.  FPL Group and FPL are in the process of evaluating the effect of the Recovery Act on their businesses.

Website Access to SEC Filings.  FPL Group and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on FPL Group's internet website, www.fplgroup.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.  Information on FPL Group's website (or any of its subsidiaries' websites) is not incorporated by reference in this annual report on Form 10-K.  The SEC maintains an internet website at www.sec.gov that contains reports, proxy and other information about FPL Group and FPL filed electronically with the SEC.

FPL OPERATIONS

General.  FPL was incorporated under the laws of Florida in 1925 and is a wholly-owned subsidiary of FPL Group.  FPL supplies electric service to a population of more than 8.7 million throughout most of the east and lower west coasts of Florida.  During 2008, FPL served approximately 4.5 million customer accounts.  The percentage of FPL's operating revenues by customer class was as follows:

   
Years Ended December 31,
   
2008
 
2007
 
2006
             
Residential
 
53
%
 
54
%
 
54
%
Commercial
 
40
   
39
   
39
 
Industrial
 
3
   
3
   
3
 
Other, including deferred or recovered clause revenues, the net change in unbilled revenues, transmission and wholesale sales and customer-related fees
 
4
   
4
   
4
 
   
100
%
 
100
%
 
100
%

Over the last ten years, FPL's average annual customer growth has been 2.1%.  However, beginning in 2007, FPL has experienced a slowdown in retail customer growth and a decline in non-weather related usage per retail customer.  Retail customer growth in 2008 was 0.3%, although during the fourth quarter of 2008 FPL experienced a decline in customer accounts of 0.2%.  FPL believes that the economic slowdown, the downturn in the housing market and the credit crisis that have affected the country and the state of Florida have contributed to the slowdown in customer growth and to the decline in non-weather related usage per retail customer.  In 2008, FPL experienced an increase in inactive accounts (accounts with installed meters without corresponding customer names) and in low-usage customers (customers using less than 200 kwh per month), which have contributed to the decline in retail customer growth and non-weather related usage per retail customer.
 
 
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Regulation.  FPL's retail operations provided approximately 99% of FPL's 2008 operating revenues.  Retail operations are regulated by the FPSC, which has jurisdiction over retail rates, service territory, issuances of securities, planning, siting and construction of facilities and other matters.  FPL is also subject to regulation by the FERC with respect to certain aspects of its operations, including, but not limited to, the acquisition and disposition of facilities, interchange and transmission services and wholesale purchases and sales of electric energy.  In addition, FPL's nuclear power plants are subject to the jurisdiction of the NRC.  NRC regulations govern the granting of licenses for the construction, operation and retirement of nuclear power plants and subject these plants to continuing review and regulation.

Retail Ratemaking.  The underlying concept of utility ratemaking is to set rates at a level that allows the utility the opportunity to collect from customers total revenues (revenue requirements) equal to its cost of providing service, including a reasonable rate of return on invested capital.  To accomplish this, the FPSC uses various ratemaking mechanisms, including, among other things, base rates and cost recovery clauses.

In general, 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).  At the time base rates are determined, the allowed rate of return on rate base approximates FPL's estimated weighted-average cost of capital, which includes its costs for outstanding debt and, typically, an allowed ROE.  The FPSC monitors FPL's actual regulatory 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.

Base Rates - In 2005, the FPSC approved a stipulation and settlement agreement regarding FPL's retail base rates (2005 rate agreement), signed by FPL and all of the interveners in its 2005 base rate proceeding.  FPL expects the 2005 rate agreement to be in effect through December 31, 2009; thereafter, it shall remain in effect until terminated on the date new retail base rates become effective pursuant to an FPSC order.

The 2005 rate agreement provides that retail base rates will not increase during the term of the agreement except to allow recovery of the revenue requirements of any power plant approved pursuant to the Florida Power Plant Siting Act (Siting Act) that achieves commercial operation during the term of the 2005 rate agreement.  Retail base rates increased on May 1, 2007 when a 1,144 mw natural gas-fired plant at FPL's Turkey Point site (Turkey Point Unit No. 5) was placed in service.  As approved by the FPSC, FPL's retail base revenues will increase in 2009 when two natural gas-fired combined-cycle units (West County Energy Center Units Nos. 1 and 2), each with approximately 1,220 mw of net generating capacity, are placed in service, which is expected to occur by the third quarter of 2009 and fourth quarter of 2009, respectively (see Fossil Operations below).  The 2005 rate agreement also has a revenue sharing mechanism, whereby revenues from retail base operations in excess of certain thresholds will be shared with customers on the basis of two-thirds refunded to customers and one-third retained by FPL.  Revenues from retail base operations in excess of a second, higher threshold (cap) will be refunded 100% to customers.  The revenue sharing threshold and cap are established by increasing the prior year's threshold and cap by the sum of the following:  (i) the average annual growth rate in retail kwh sales for the ten-year period ending December 31 of the preceding year multiplied by the prior year's retail base rate revenue sharing threshold and cap and (ii) the amount of any incremental base rate increases for power plants approved pursuant to the Siting Act that achieve commercial operation during the term of the 2005 rate agreement.  The revenue sharing threshold and cap for 2009 are estimated to be $4,534 million and $4,713 million, respectively.  For the year ended December 31, 2008, revenues from retail base operations did not exceed the 2008 thresholds.

Under the terms of the 2005 rate agreement: (i) FPL's electric property depreciation rates are based upon the comprehensive depreciation studies it filed with the FPSC in March 2005; however, FPL may reduce depreciation by up to $125 million annually, (ii) FPL has the ability to recover prudently incurred storm restoration costs, either through securitization provisions pursuant to the Florida Statutes or through surcharges, and (iii) FPL will be allowed to recover through a cost recovery clause prudently incurred incremental costs associated with complying with an FPSC or FERC order regarding a regional transmission organization.

FPL does not have an authorized regulatory ROE under the 2005 rate agreement for the purpose of addressing earnings levels.  For all other regulatory purposes, FPL has an ROE of 11.75%.  Under the 2005 rate agreement, the revenue sharing mechanism described above is the appropriate and exclusive mechanism to address earnings levels.  However, if FPL's regulatory ROE, as reported to the FPSC in FPL's monthly earnings surveillance report, falls below 10% during the term of the 2005 rate agreement, FPL may petition the FPSC to amend its base rates.

In November 2008, FPL notified the FPSC that it intends to initiate a base rate proceeding in March 2009.  In the notification, FPL stated that it expects to request an $800 million to $950 million annual increase in base rates beginning on January 1, 2010 and an additional annual base rate increase beginning on January 1, 2011.  These amounts exclude the effects of depreciation, which depend in part on the results of a detailed depreciation study that FPL is currently finalizing.  Further, FPL expects to request that the FPSC continue to allow FPL to use the mechanism for recovery of the revenue requirements of any new power plant approved pursuant to the Siting Act that was established in FPL's 2005 rate agreement.  Hearings on the base rate proceeding are expected during the third quarter of 2009 and a final decision is expected by the end of 2009.  The final decision may approve rates that are different from those that FPL will request.

 
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Cost Recovery Clauses - Fuel costs are recovered from customers through levelized charges per kwh established under the fuel clause.  These charges are calculated annually based on estimated fuel costs and estimated customer usage for the following year, plus or minus a true-up adjustment to reflect the variance of actual costs and usage from the estimates used in setting the fuel adjustment charges for prior periods.  An adjustment to the levelized charges may be approved during the course of a year to reflect a projected variance based on actual costs and usage.  In 2008, approximately $6.1 billion of costs were recovered through the fuel clause.  FPL uses a risk management fuel procurement program which was approved by the FPSC at the program's inception.  The FPSC reviews the program activities and results for prudence on an annual basis as part of its annual review of fuel costs.  The program is intended to manage fuel price volatility by locking in fuel prices for a portion of FPL's fuel requirements.  See Energy Marketing and Trading, Management's Discussion – Results of Operations, Note 1 – Regulation and Note 3.

Capacity payments to other utilities and generating companies for purchased power are recovered from customers through the capacity clause and base rates.  In 2008, approximately $517 million of these costs were recovered through the capacity clause.  Beginning in 2009, FPL will recover pre-construction costs and carrying charges (equal to the pretax AFUDC rate) on construction costs for new nuclear capacity through the capacity clause.  Once the new capacity goes into service, construction costs will be recovered through base rate increases.  See Nuclear Operations below.

Costs associated with implementing energy conservation programs totaled approximately $182 million in 2008 and were recovered from customers through the energy conservation cost recovery clause.  Costs of complying with federal, state and local environmental regulations enacted after April 1993 are recovered through the environmental clause to the extent not included in base rates.  In 2008, approximately $40 million of these costs were recovered through the environmental clause.  Beginning in 2009, FPL will recover costs associated with its proposed solar generating facilities through the environmental clause.  See Solar Operations below.

Other Recovery Mechanisms - FPL maintains a funded storm and property insurance reserve.  Four hurricanes in 2005 and three hurricanes in 2004 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, resulting in a storm reserve deficiency.  In 2007, FPL formed a wholly-owned bankruptcy remote special purpose subsidiary for the purpose of issuing storm-recovery bonds, pursuant to the securitization provisions of the Florida Statutes and an FPSC financing order.  In May 2007, the FPL subsidiary issued $652 million aggregate principal amount of senior secured bonds (storm-recovery bonds), primarily for the after-tax equivalent of the total of FPL's unrecovered balance of the 2004 storm restoration costs, the 2005 storm restoration costs and approximately $200 million to reestablish FPL's storm and property insurance reserve.  The storm-recovery bonds, including interest and bond issuance costs, are being repaid through a surcharge to retail customers.  Prior to the issuance of these storm-recovery bonds, FPL had been recovering the 2004 storm restoration costs from retail customers through a storm damage surcharge.  See Management's Discussion – Results of Operations – FPL and Note 9 – FPL.

In 2007, the FPSC denied FPL's need petition for two ultra super critical pulverized coal generating units in Glades County, Florida.  In December 2008, the FPSC approved the recovery of approximately $34 million of pre-construction costs associated with these units over a five-year period beginning January 2010.

The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred.  Such costs may include, among others, fuel and 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.

Competition.  FPL currently holds 176 franchise agreements to provide electric service in various municipalities and counties in Florida with varying expiration dates through 2039.  Of the 176 franchise agreements, three expire in 2009, 14 expire in 2010 and 159 expire during the period 2011 through 2039.  Negotiations are ongoing to renew franchises with upcoming expirations.  FPL also provides service to 13 other municipalities and to 22 unincorporated areas within its service area without franchise agreements.  FPL considers its franchises to be adequate for the conduct of its business.

FPL currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups, primarily industrial customers.  The FERC has jurisdiction over potential changes that could affect competition in wholesale transactions.  In 2008, operating revenues from wholesale and industrial customers combined represented less than 4% of FPL's total operating revenues.  Various states, other than Florida, have enacted legislation or have state commissions that have issued orders designed to allow retail customers to choose their electricity supplier.  Management believes it is unlikely there will be any state actions to restructure the retail electric industry in Florida in the near future.  If the basis of regulation for some or all of FPL's business changes from cost-based regulation, existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund.  Further, other aspects of the business, such as generation assets and long-term power purchase commitments, would need to be reviewed to assess their recoverability in a changed regulatory environment.  See Management's Discussion – Critical Accounting Policies and Estimates – Regulatory Accounting.


 
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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 generating 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 generating capacity.  In 2007, the FPSC eliminated the requirement for utilities to issue an RFP for new nuclear power plants sited after June 2006.  See Nuclear Operations below regarding the approval by the FPSC for two additional nuclear units.

Environmental.  FPL is subject to environmental laws and regulations and is affected by some of the emerging issues included in the Environmental Matters section below.  FPL expects to seek recovery through the environmental clause for compliance costs associated with any new environmental laws and regulations.

During 2008, FPL spent approximately $181 million on capital additions to comply with existing environmental laws and regulations.  FPL's capital expenditures to comply with existing environmental laws and regulations are estimated to be $1.2 billion for 2009 through 2011, including approximately $632 million in 2009, and are included in estimated capital expenditures set forth in Capital Expenditures below.  These amounts include the capital expenditures associated with three solar generating facilities currently under construction.  See Solar Operations below.

System Capability and Load.  At December 31, 2008, FPL's resources for serving load consisted of 24,997 mw, of which 22,087 mw were from FPL-owned facilities (see Item 2 - Generating Facilities) and 2,910 mw were available through purchased power contracts (see Note 15 – Contracts).  FPL's projected reserve margin for the summer of 2009 is approximately 28%.  This reserve margin is expected to be achieved through the combination of output from FPL's active generating units, purchased power contracts and the capability to reduce peak demand through the implementation of load management, which was estimated to be capable of reducing demand by 1,734 mw at December 31, 2008.  Occasionally, unusually cold temperatures during the winter months result in significant increases in electricity usage for short periods of time.  However, customer usage and operating revenues are typically higher during the summer months, largely due to the prevalent use of air conditioning in FPL's service territory.  The highest peak load FPL has served to date was 22,361 mw, which occurred on August 17, 2005.  FPL had adequate resources available at the time of this peak to meet customer demand.  See Fossil Operations, Nuclear Operations and Solar Operations below regarding additional capacity currently under construction.

Fuel Mix.  FPL's generating plants use a variety of fuels.  The diverse fuel options, along with purchased power, enable FPL to shift between sources of generation to achieve a more economical fuel mix.  See Fossil Operations, Nuclear Operations and Item 2 – Generating Facilities.

FPL's 2008 fuel mix based on kwh produced was as follows:

 
Fuel Source
 
Percentage of
kwh Produced
       
Natural gas
 
53
%
Nuclear
 
22
%
Purchased power
 
14
%
Coal
 
6
%
Oil
 
5
%

Fossil Operations.  FPL owns and operates 83 units that use fossil fuels such as natural gas and/or oil, and has a joint-ownership interest in three coal units.  FPL's fossil units are out of service from time to time for routine maintenance or on standby during periods of reduced demand.  FPL is currently constructing three natural gas-fired combined-cycle units of approximately 1,220 mw each at its West County Energy Center, which units are expected to be placed in service by the third quarter of 2009, fourth quarter of 2009 and mid-2011.  The estimated total cost (including AFUDC) of the two units expected to be placed into service in 2009 is approximately $1.3 billion and the estimated total cost (including AFUDC) of the third unit is approximately $900 million.  In 2008, the FPSC approved FPL's plan to modernize its Cape Canaveral and Riviera power plants to high-efficiency natural gas-fired units.  Each modernized plant is expected to provide approximately 1,200 mw of capacity and be placed into service by 2013 and 2014 at an estimated total cost (including AFUDC) of $1.1 billion and $1.3 billion, respectively.  Approval by the Florida Power Plant Siting Board (Siting Board), comprised of the Florida governor and cabinet, is pending and is expected in early 2010.  The construction costs of the three new units and power plant modernizations (through early 2010) yet to be incurred as of December 31, 2008 are included in estimated capital expenditures set forth in Capital Expenditures below.  See Note 15 – Commitments.


 
7

 

FPL has four firm transportation contracts in place with FGT, two firm transportation contracts with Gulfstream and one firm transportation contract with Southeast Supply Header, LLC, 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 2021 and 2025, while both Gulfstream contracts expire in 2032.  The Southeast Supply Header contract expires in 2020.  To the extent desirable, FPL can also purchase interruptible natural 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 natural gas requirements is purchased under other contracts and in the spot market.  FPL has a long-term agreement for the storage of natural gas that expires in 2013.  In addition, FPL has entered into several long-term agreements for storage capacity and transportation of natural gas from facilities that have not yet started construction, or if started, have not yet completed construction.  These agreements range from 15 to 25 years in length and contain firm commitments by FPL totaling up to approximately $209 million annually or $5.1 billion over the terms of the agreements.  These firm commitments are contingent upon the occurrence of certain events, including approval by the FERC and/or completion of construction of the facilities from June 2009 to 2011.  See Note 15 - Contracts.  FPL's oil requirements are obtained under short-term contracts and in the spot market.

FPL has, through its joint ownership interest in St. Johns River Power Park (SJRPP) Units Nos. 1 and 2, a coal supply and transportation contract for all of the 2009 fuel needs and a portion of the 2010 and 2011 fuel needs for those units.  All of the transportation requirements and a portion of the coal 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 15 – Contracts.

Nuclear Operations.  FPL owns, or has undivided interests in, and operates four nuclear units, two at Turkey Point and two at St. Lucie, with a total net generating capability of 2,939 mw.  The nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications.  Scheduled nuclear refueling outages typically require the unit to be removed from service for approximately 30 days.  The following table summarizes certain information related to FPL's nuclear units:

Facility
 
Unit
 
Net
Capability
(mw)
 
Operating License
Expiration Dates
 
Next Scheduled
Refueling Outage
                 
St. Lucie
 
1
 
839
 
2036
 
April 2010
St. Lucie
 
2
 
714
 
2043
 
April 2009
Turkey Point
 
3
 
693
 
2032
 
March 2009
Turkey Point
 
4
 
693
 
2033
 
October 2009

FPL is in the process of adding approximately 400 mw of baseload capacity at its existing nuclear units at St. Lucie and Turkey Point, which additional capacity is projected to be placed in service by the end of 2012 at an estimated total cost (including carrying charges) of approximately $1.6 billion.  The construction costs relating to the 400 mw of baseload capacity yet to be incurred as of December 31, 2008 are included in estimated capital expenditures set forth in Capital Expenditures below.  In 2008, the FPSC approved FPL's need petition for two additional nuclear units at its Turkey Point site with projected in-service dates between 2018 and 2020, which units are expected in the aggregate to add between 2,200 mw and 3,040 mw of baseload capacity.  Additional approvals from other regulatory agencies will be required later in the process.  See Note 15 – Commitments.

During 2003, nuclear utilities other than FPL identified pressurizer heater sleeves made with a particular material (alloy 600) that 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 began the modification of St. Lucie Unit No. 1's non-pressurizer penetrations that have alloy 600 weld materials during its fall 2008 outage and expects to complete the modifications 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 modify rather than replace St. Lucie Unit No. 2's alloy 600 pressurizer heater sleeves during its fall 2010 outage.  During St. Lucie Unit No. 2's scheduled refueling outage in the fall of 2007, FPL inspected the pressurizer heater sleeves and began modifications of other pressurizer and non-pressurizer penetrations that have alloy 600 weld materials.  The modifications to St. Lucie Unit No. 2's other penetrations are scheduled to be completed by 2010.  The estimated cost of modifications for the St. Lucie units is included in estimated capital expenditures set forth in Capital Expenditures below.  See Note 15 – Commitments.  All pressurizer penetrations and welds at Turkey Point Units Nos. 3 and 4 use a different material.


 
8

 

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 2009 through 2022.  Under the Nuclear Waste Policy Act, the DOE is responsible for the development of a repository for the disposal of spent nuclear fuel and high-level radioactive waste.  As required by the Nuclear Waste Policy Act, FPL is a party to contracts with the DOE to provide for disposal of spent nuclear fuel from its Turkey Point and St. Lucie nuclear units.  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 2008, FPL has paid approximately $607 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 appeals 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 claims court ruled in another utility's case that the 1997 court decision regarding the DOE's unavoidable delay defense was not binding on that federal court.  An appeal is pending in that case.  The DOE filed a license application for a permanent disposal facility for spent nuclear fuel with the NRC in June 2008, and a licensing proceeding is ongoing before the NRC.  However, it is uncertain when a permanent disposal facility will be constructed and when it would be ready to begin receiving spent nuclear fuel shipments.

FPL uses both on site storage pools and dry storage casks to store spent nuclear fuel generated by St. Lucie Units Nos. 1 and 2, which should allow FPL to store all spent nuclear fuel generated by these units through license expiration.  FPL currently stores all spent nuclear fuel generated by Turkey Point Units Nos. 3 and 4 in on site storage pools.  These spent nuclear fuel storage pools do not have sufficient storage capacity for the life of the respective units.  Beginning in 2011, FPL plans to begin using dry storage casks to store spent nuclear fuel at the Turkey Point facility.  Costs for the dry storage casks yet to be incurred are included in estimated capital expenditures set forth in Capital Expenditures below.

The NRC's regulations require FPL to submit a plan for decontamination and decommissioning five years before the projected end of plant operation.  FPL's current plans, under the 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.

Solar Operations.  In 2008, the FPSC approved FPL’s proposal to construct three solar generating facilities, which are expected to have a capacity totaling 110 mw.  The solar generating facilities are expected to be placed into service by the end of 2010 at an estimated total cost (including carrying charges) of approximately $728 million.  The construction costs of these new solar generating facilities yet to be incurred as of December 31, 2008 are included in estimated capital expenditures set forth in Capital Expenditures below.  See Note 15 – Commitments.

Energy Marketing and Trading.  EMT, a division of FPL, buys and sells wholesale energy commodities, such as natural gas, oil and electricity.  EMT procures natural gas and oil for FPL's use in power generation and sells excess natural gas, oil and electricity.  EMT also uses derivative instruments, such as swaps, options and forwards, to manage the commodity price risk inherent in the purchase and sale of fuel and electricity.  Substantially all of the results of EMT's activities are passed through to customers in the fuel or capacity clauses.  See Retail Ratemaking, Management's Discussion – Results of Operations – FPL and Energy Marketing and Trading and Market Risk Sensitivity and Note 3.

Capital Expenditures.  Capital expenditures at FPL include, among other things, the cost for construction or acquisition of additional facilities and equipment to meet customer demand, as well as capital improvements to and maintenance of existing facilities.  FPL's capital expenditures totaled $2.3 billion in 2008 (including AFUDC of approximately $53 million), $1.9 billion in 2007 (including AFUDC of approximately $36 million) and $1.7 billion in 2006 (including AFUDC of approximately $32 million).  Planned capital expenditures that are conditional on obtaining regulatory approvals are not included in the table below until such approvals are received.


 
9

 

At December 31, 2008, planned capital expenditures for 2009 through 2013 were estimated as follows:

 
2009
 
2010
 
2011
 
2012
 
2013
 
Total
 
(millions)
Generation: (a)
                                 
New (b) (c) (d)
$
1,350
 
$
1,355
 
$
760
 
$
355
 
$
40
 
$
3,860
Existing
 
665
   
680
   
610
   
515
   
430
   
2,900
Transmission and distribution
 
615
   
865
   
925
   
930
   
975
   
4,310
Nuclear fuel
 
125
   
205
   
215
   
220
   
265
   
1,030
General and other
 
170
   
290
   
315
   
300
   
235
   
1,310
Total
$
2,925
 
$
3,395
 
$
2,825
 
$
2,320
 
$
1,945
 
$
13,410
____________________
(a)
Includes AFUDC of approximately $63 million, $53 million, $32 million and $4 million in 2009 to 2012, respectively.
(b)
Includes land, generating structures, transmission interconnection and integration and licensing.
(c)
Includes pre-construction costs and carrying charges (equal to the pretax AFUDC rate) on construction costs recoverable through the capacity clause of approximately $72 million, $201 million, $323 million, $50 million and $19 million in 2009 to 2013, respectively.
(d)
Excludes capital expenditures of approximately $2.2 billion for the modernization of the Cape Canaveral and Riviera power plants for the period from early-2010 (when approval by the Siting Board is expected) through 2013.  Also excludes construction costs of approximately $2.5 billion during the period 2012 to 2013 for the two additional nuclear units at FPL's Turkey Point site.  Construction costs will not begin until license approval is received from the NRC, which is expected in 2012.

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 15 - Commitments.

Electric and Magnetic Fields.  EMF are present around electrical facilities, including, but not limited to, appliances, power lines and building wiring.  Since the 1970s, there has been public, scientific and regulatory attention given to the question of whether EMF causes or contributes to adverse health effects.  U.S. and international scientific organizations have evaluated the EMF research.  Their reviews have generally concluded that while some epidemiology studies report an association with childhood leukemia, controlled laboratory studies do not support that association and the scientific studies overall have not demonstrated that EMF cause or contribute to any type of cancer or other disease.

The FDEP established EMF standards for electricity facilities in 1989.  The FDEP regularly reviews the EMF science and has not made any changes in the state's EMF standards.  FPL facilities comply with the FDEP standards.  Future changes in the FDEP regulations could require additional capital expenditures by FPL for such things as increasing the width of right of ways 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.

Employees.  FPL had approximately 10,700 employees at December 31, 2008.  Approximately 32% of the employees are represented by the International Brotherhood of Electrical Workers (IBEW) under a collective bargaining agreement with FPL, which has been extended until October 31, 2009.  FPL and the IBEW are discussing a proposal for a new agreement.

NEXTERA ENERGY RESOURCES OPERATIONS

General.  NextEra Energy Resources, a wholly-owned subsidiary of FPL Group Capital, was formed in 1998 to aggregate FPL Group's existing competitive energy business.  It is a limited liability company organized under the laws of Delaware.  Through its subsidiaries, NextEra Energy Resources currently owns, develops, constructs, manages and operates primarily domestic electric-generating facilities in wholesale energy markets.  NextEra Energy Resources also provides full energy and capacity requirements services primarily to distribution utilities in certain markets and owns a retail electric provider based in Texas.

At December 31, 2008, NextEra Energy Resources managed or participated in the management of approximately 96% of its projects, which represented approximately 99% of the net generating capacity in which NextEra Energy Resources has an ownership interest.  NextEra Energy Resources had ownership interests in operating independent power projects with a net generating capability totaling 16,928 mw (see Item 2 – Generating Facilities).  Generation capacity spans various regions and is produced using a variety of fuel sources, thereby reducing overall volatility related to varying market conditions and seasonality on a portfolio basis.  At December 31, 2008, the percentage of capacity by geographic region was:

Geographic Region
 
Percentage of Generation Capacity
ERCOT
 
30
%
Northeast
 
30
%
Midwest
 
18
%
West
 
15
%
Other South
 
7
%


 
10

 

At December 31, 2008, fuel sources for these projects were as follows:

Fuel Source
 
Percentage of Generation Capacity
Natural Gas
 
39
%
Wind
 
38
%
Nuclear
 
15
%
Oil
 
5
%
Hydro
 
2
%
Other
 
1
%

NextEra Energy Resources seeks to expand its portfolio through project development and acquisitions where economic prospects are attractive.  NextEra Energy Resources expects its future portfolio capacity growth to come primarily from wind and solar development and from asset acquisitions.  NextEra Energy Resources plans to add a total of 7,000 mw to 9,000 mw of new wind generation over the 2008 – 2012 period, of which approximately 1,300 mw were added in 2008.  NextEra Energy Resources expects to add approximately 1,100 mw in 2009, of which approximately 480 mw are either under construction or have obtained applicable internal approvals for construction.  In addition, NextEra Energy Resources intends to pursue opportunities for new solar generating facilities.  The wind and solar expansions are subject to, among other things, continued public policy support.

NextEra Energy Resources' capital expenditures and investments totaled approximately $2.8 billion, $3.1 billion and $1.8 billion in 2008, 2007 and 2006, respectively.  At December 31, 2008, planned capital expenditures for 2009 through 2013 were estimated as follows:

 
2009
 
2010
 
2011
 
2012
 
2013
 
Total
 
(millions)
                                   
Wind (a)
$
2,035
 
$
20
 
$
20
 
$
15
 
$
10
 
$
2,100
Nuclear (b)
 
370
   
430
   
295
   
275
   
305
   
1,675
Natural gas
 
105
   
70
   
75
   
85
   
50
   
385
Other
 
70
   
60
   
45
   
35
   
30
   
240
Total
$
2,580
 
$
580
 
$
435
 
$
410
 
$
395
 
$
4,400
____________________
(a)
Includes capital expenditures for new wind projects that have been identified and related transmission.  NextEra Energy Resources expects to add approximately 1,100 mw in 2009 and 1,000 mw to 2,000 mw of new wind generation per year from 2010 through 2012, subject to, among other things, continued public policy support, which includes, but is not limited to, support for the construction and availability of sufficient transmission facilities and capacity, and access to reasonable capital and credit markets.  The cost of the planned wind additions for the 2010 through 2012 period is estimated to be approximately $2.5 billion to $4.5 billion in each year, which is not included in the table above.
(b)
Includes nuclear fuel.

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 15 - Commitments.

In July 2008, the Public Utility Commission of Texas (PUCT) approved a $4.92 billion transmission grid improvement program that would add approximately 2,300 miles of 345 kv lines to deliver wind power from the Competitive Renewable Energy Zones (CREZ) in west Texas and the Texas Panhandle to the Dallas/Fort Worth area and other population centers in Texas.  In January 2009, Lone Star Transmission, LLC, a wholly-owned subsidiary of NextEra Energy Resources, was allocated $565 million in projects by the PUCT under the CREZ program.  The January 2009 determination is subject to, among other things, reconsideration, appeal and receipt of all applicable regulatory approvals.  Due to these contingencies, the estimated costs associated with this project are not included in the capital expenditures table above.

Regulation.  At December 31, 2008, NextEra Energy Resources had ownership interests in operating independent power projects that have received exempt wholesale generator status as defined under the Holding Company Act, which represent approximately 95% of NextEra Energy Resources' net generating capacity.  Exempt wholesale generators own or operate a facility exclusively to sell electricity to wholesale customers.  They are barred from selling electricity directly to retail customers.  NextEra Energy Resources' exempt wholesale generators produce electricity from wind, hydropower, fossil fuels and nuclear facilities.  In addition, approximately 5% of NextEra Energy Resources' net generating capacity has qualifying facility status under PURPA.  NextEra Energy Resources' qualifying facilities generate electricity from wind, solar, fossil fuels or waste-product combustion.  Qualifying facility status exempts the projects from, among other things, many of the provisions of the Federal Power Act, as well as state laws and regulations relating to rates and financial or organizational regulation of electric utilities.  While projects with qualifying facility and/or exempt wholesale generator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including, but not limited to, those regarding siting, construction, operation, licensing, pollution abatement and other environmental laws.


 
11

 

Each of the markets in which NextEra Energy Resources operates is subject to regulation and specific rules.  NextEra Energy Resources continues to evaluate regional market redesigns of existing operating rules for the purchase and sale of energy commodities.  California is scheduled to implement a locational marginal price (LMP) market design, which is a market-pricing approach used to manage the efficient use of the transmission system when congestion occurs on the electricity grid, in the second quarter of 2009.  ERCOT is also implementing an LMP market design currently scheduled to be implemented in late 2010.  In the California and ERCOT markets, the final market design is not fully known at this time and NextEra Energy Resources is currently unable to determine the effects, if any, on its operations resulting from the implementation of the anticipated revised market designs.

Competition.  Competitive wholesale markets in the United States continue to evolve and vary by geographic region.  Revenues from electricity sales in these markets vary based on the prices obtainable for energy, capacity and other ancillary services.  Some of the factors affecting success in these markets include the ability to operate generating assets efficiently and reliably, the price and supply of fuel, transmission constraints, wind, solar and hydro resources (weather conditions), competition from new sources of generation, effective risk management, demand growth and exposure to legal and regulatory changes.

Expanded competition in a frequently changing regulatory environment presents both opportunities and risks for NextEra Energy Resources.  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.  NextEra Energy Resources seeks to reduce its market risk by having a diversified portfolio by fuel type and location, as well as by contracting for the future sale of a significant amount of the electricity output of its plants.  The combination of new wind projects, expected increase in contribution from existing merchant assets and asset acquisitions are expected to be the key drivers supporting NextEra Energy Resources' growth over the next few years.

Environmental.  NextEra Energy Resources is subject to environmental laws and regulations and is affected by some of the emerging issues included in the Environmental Matters section below.

During 2008, NextEra Energy Resources spent approximately $4 million on capital additions to comply with existing environmental laws and regulations.  NextEra Energy Resources' capital additions to comply with existing environmental laws and regulations are estimated to be $11 million for 2009 through 2011, including approximately $5 million in 2009, and are included in estimated capital expenditures set forth in General above.

Portfolio by Category.  NextEra Energy Resources' assets can be categorized into the following three groups:  wind, contracted and merchant.

Wind Assets - At December 31, 2008, NextEra Energy Resources had ownership interests in wind plants with a combined capacity of approximately 6,375 mw (net ownership), of which approximately 69% have long-term contracts with utilities and power marketers, predominantly under fixed-price agreements with expiration dates ranging from 2011 to 2033.  The expected output of the remaining 31% is substantially hedged through 2010 and partially hedged through 2013 against changes in commodity prices.  NextEra Energy Resources operates substantially all of these wind facilities.  Approximately 91% of NextEra Energy Resources' net ownership in wind facilities has received exempt wholesale generator status as defined under the Holding Company Act.  Essentially all of the remaining facilities have qualifying facility status under PURPA.  NextEra Energy Resources' wind facilities are located in 16 states and Canada.  NextEra Energy Resources expects to add approximately 1,100 mw of new wind generation in 2009, of which approximately 480 mw are either under construction or have obtained applicable internal approvals for construction.

Contracted Assets – At December 31, 2008, NextEra Energy Resources had 3,537 mw of non-wind 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 2010 to 2033 and have firm fuel and transportation agreements with expiration dates ranging from 2009 to 2018.  See Note 15 - Contracts.  Approximately 1,825 mw of this capacity is natural gas-fired generation.  The remaining 1,712 mw uses a variety of fuels and technologies such as nuclear, waste-to-energy, oil, solar, coal and petroleum coke.  As of December 31, 2008, approximately 92% of NextEra Energy Resources' contracted generating capacity is from power plants that have received exempt wholesale generator status under the Holding Company Act, while the remaining 8% has qualifying facility status under PURPA.

Merchant Assets – At December 31, 2008, NextEra Energy Resources' portfolio of merchant assets includes 7,016 mw of owned nuclear, natural gas, oil and hydro generation, of which 2,789 mw is located in the ERCOT region, 2,751 mw in the NEPOOL region and 1,476 mw in other regions.  The merchant assets include 965 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 85% (based on net mw capability) of the natural gas fueled merchant assets have natural gas supply agreements or a combination of natural gas supply and transportation agreements to provide for on-peak natural gas requirements.  See Note 15 - Contracts.  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.  Managing market risk through these instruments introduces other types of risk, primarily counterparty and operational risks.  See Energy Marketing and Trading below.


 
12

 

Nuclear Operations.  NextEra Energy Resources wholly owns, or has undivided interests in, three nuclear power plants with a total net generating capability of 2,545 mw.  NextEra Energy Resources is responsible for all plant operations and the ultimate decommissioning of the plants, the cost of which is shared on a pro-rata basis by the joint owners for the jointly owned plants.  See estimated decommissioning cost data in Note 1 – Decommissioning of Nuclear Plants, Dismantlement of Plants and Other Accrued Asset Removal Costs – NextEra Energy Resources.  The nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications.  The following table summarizes certain information related to NextEra Energy Resources' nuclear units.

Facility
 
Location
 
Net
Capability
(mw)
 
Portfolio
Category
 
Operating License Expiration Dates
 
Next Scheduled
Refueling Outage
                             
Seabrook
 
New Hampshire
   
1,098
   
Merchant
   
2030
(a)
 
October 2009
Duane Arnold
 
Iowa
   
424
   
Contracted(b)
   
2014
(c)
 
October 2010
Point Beach Unit No. 1
 
Wisconsin
   
509
   
Contracted(d)
   
2030
   
March 2010
Point Beach Unit No. 2
 
Wisconsin
   
514
   
Contracted(d)
   
2033
   
October 2009
____________________
(a)
NextEra Energy Resources intends to seek approval from the NRC to renew Seabrook's operating license for an additional 20 years.
(b)
NextEra Energy Resources sells substantially all of its share of the output of Duane Arnold under a long-term contract expiring in 2014.
(c)
In September 2008, NextEra Energy Resources filed an application with the NRC to renew Duane Arnold’s operating license for an additional 20 years.
(d)
NextEra Energy Resources sells 100% of the output of Point Beach Units Nos. 1 and 2 under a long-term contract through the current license terms.

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, NextEra Energy Resources modified Seabrook's pressurizer penetrations that have alloy 600 weld materials during its April 2008 outage and plans to begin inspections of the reactor vessel alloy 600 penetrations during the scheduled fall 2009 outage.  The estimated cost of modifications is included in NextEra Energy Resources' estimated capital expenditures set forth in General above.  All pressurizer penetrations at Point Beach Units Nos. 1 and 2 use a different material except for the Point Beach Unit No. 2 steam generator nozzles, which have been modified to address the degradation concern.  Duane Arnold, which is a boiling water reactor, is not affected by this issue.

NextEra Energy Resources' nuclear facilities have several contracts for the supply, conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from 2009 to 2018.  See Note 15 – Contracts.  Under the Nuclear Waste Policy Act, the DOE is responsible for the development of a repository for the disposal of spent nuclear fuel and high-level radioactive waste.  As required by the Nuclear Waste Policy Act, subsidiaries of NextEra Energy Resources are parties to contracts with the DOE to provide for disposal of spent nuclear fuel from its Seabrook, Duane Arnold and Point Beach nuclear units.  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, Duane Arnold and Point Beach, including amounts paid by all joint owners, since the start of the plants' operations through December 2008, is approximately $491 million, of which NextEra Energy Resources has paid approximately $75 million since the date of the plants' acquisition.  NextEra Energy Resources, through its ownership interest in Seabrook, Duane Arnold and Point Beach, is involved in litigation against the DOE seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from the Seabrook, Duane Arnold and Point Beach facilities.  The matter is pending.  The DOE filed a license application for a permanent disposal facility for spent nuclear fuel with the NRC in June 2008, and a licensing proceeding is ongoing before the NRC.  However, it is uncertain when a permanent disposal facility will be constructed and when it would be ready to begin receiving spent nuclear fuel shipments.  All of NextEra Energy Resources' nuclear facilities use both on site storage pools and dry storage casks to store spent nuclear fuel generated by these facilities, which should allow NextEra Energy Resources to store spent nuclear fuel at these facilities through license expiration.

Energy Marketing and Trading.  PMI, a subsidiary of NextEra Energy Resources, buys and sells wholesale energy commodities, such as natural gas, oil and electricity.  Its primary role is to manage the commodity risk of NextEra Energy Resources' portfolio and to sell the output from NextEra Energy Resources' plants that has not been sold under long-term contracts.  PMI procures natural gas and oil for NextEra Energy Resources' use in power generation, as well as substantially all of the electricity needs for NextEra Energy Resources' retail operations conducted primarily in Texas, which at December 31, 2008 served approximately 1,200 mw of peak load to approximately 160,000 customers.  PMI uses derivative instruments such as swaps, options and forwards to manage the risk associated with fluctuating commodity prices and to optimize the value of NextEra Energy Resources' power generation assets.  PMI also provides full energy and capacity requirements services primarily to distribution utilities in certain markets and engages in energy trading activities to take advantage of expected future favorable price movements.  Full energy and capacity requirements services include load-following services, which require the supplier of energy to vary the quantity delivered based on the load demand needs of the customer, as well as various ancillary services.  At December 31, 2008, PMI provided full energy and capacity requirements services totaling approximately 3,300 mw of peak load in the NEPOOL, PJM and ERCOT markets.  The results of PMI's activities are included in NextEra Energy Resources' operating results.  See Management's Discussion – Energy Marketing and Trading and Market Risk Sensitivity, Note 1 – Energy Trading and Note 3.


 
13

 

Employees.  NextEra Energy Resources had approximately 4,350 employees at December 31, 2008.  Subsidiaries of NextEra Energy Resources have collective bargaining agreements with various unions which are summarized in the table below.

Union
 
Location
 
Contract
Expiration
Date
 
% of NextEra Energy
Resources Employees
Covered
                   
IBEW
 
Wisconsin
 
June 2009 – August 2010 (a)
   
11
%
 
Utility Workers Union of America
 
New Hampshire
 
December 2013
   
5
   
IBEW
 
Iowa
 
May 2012
   
4
   
IBEW
 
Maine
 
February 2013
   
2
   
Security Police and Fire Professionals of America
 
Iowa
 
July 2012
   
2
   
Total
           
24
%
 
____________________
(a)
Various employees at Point Beach are represented by the IBEW under four separate contracts with different expiration dates.

In addition, the employees of an operating project in California, constituting less than 1% of NextEra Energy Resources' employees, are represented by the IBEW, which is currently negotiating its first collective bargaining agreement.

OTHER FPL GROUP OPERATIONS

FPL Group's Corporate and Other segment represents other business activities, primarily FPL FiberNet, that are not separately reportable.  See Note 16.

FPL FiberNet.  FPL FiberNet, a wholly-owned subsidiary of FPL Group Capital, was formed in 2000 to enhance the value of FPL Group's fiber-optic network assets that were originally built to support FPL operations.  Accordingly, in 2000, FPL's existing fiber-optic lines were transferred to FPL FiberNet.  FPL FiberNet is a limited liability company organized under the laws of Delaware.  FPL FiberNet leases wholesale fiber-optic network capacity and dark fiber to FPL and other customers, primarily telephone, wireless carriers, internet and other telecommunications companies.  FPL FiberNet's primary business focus is the Florida metropolitan (metro) market.  Metro networks cover Miami, Fort Lauderdale, West Palm Beach, Tampa, St. Petersburg, Orlando and Jacksonville.  FPL FiberNet also has a long-haul network within Florida that leases bandwidth at wholesale rates.  At December 31, 2008, FPL FiberNet's network consisted of approximately 2,745 route miles, which interconnect major cities throughout Florida.

In 2006, as a result of significant changes in the business climate, FPL FiberNet performed an impairment analysis and concluded that an impairment charge related to its metro market assets was necessary.  The business climate changes included 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 had a negative impact on the value of FPL FiberNet's metro market assets.  While the metro market business was expected to continue to generate positive cash flows, management's expectation of the rate of future growth in cash flows was reduced as a result of these business climate changes.  Accordingly, FPL FiberNet recorded an impairment charge of approximately $98 million ($60 million after-tax) in 2006.  See Note 5 – Corporate and Other.  Currently, the wireless sector is experiencing growth, which has been offset by consolidations, price declines and loss of customers in the wire line sector.

At December 31, 2008, FPL Group's investment in FPL FiberNet totaled approximately $130 million.  FPL FiberNet invested approximately $28 million during 2008 and plans to invest a total of approximately $140 million over the next five years primarily to meet customers' specific requirements under contract.

ENVIRONMENTAL MATTERS

Federal, state and local environmental laws and regulations cover air and water quality, land use, power plant and transmission line siting, EMF from power lines and substations, oil discharge from transformers, lead paint, asbestos, noise and aesthetics, solid waste, natural resources, wildlife mortality and other environmental matters.  Compliance with these laws and regulations increases the cost of electric service by requiring, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities.  Environmental laws and regulations are subject to change.  The following is a discussion of emerging federal and state initiatives and rules that could potentially affect FPL Group and its subsidiaries, including FPL and NextEra Energy Resources.

Climate Change - The U.S. Congress and certain states and regions are considering several legislative and regulatory proposals that would establish new regulatory requirements and reduction targets for greenhouse gases.  Based on current reference data available from government sources, FPL Group is among the lowest emitters of greenhouse gases in the United States measured by its rate of emissions to generation in pounds per megawatt-hour.  However, these legislative and regulatory proposals have differing methods of implementation and the impact on FPL's and NextEra Energy Resources' 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 or specific implementation rules adopted.

 
14

 

In anticipation of the potential for further imposition of greenhouse gas emission limits on the electric industry in the future, FPL Group is involved in several climate change initiatives, including, but not limited to, the following:

·  
participation in various groups, including working with the Governor of Florida on the Governor's Action Team on Energy and Climate Change, the FDEP, the Florida Energy and Climate Commission and the FPSC in addressing executive orders issued in 2007 by the Governor of Florida (see below for additional information);

·  
voluntary reporting of its greenhouse gas emissions to the DOE under the Energy Policy Act of 1992;

·  
voluntary reporting of its greenhouse gas emissions and climate change strategy through the Carbon Disclosure Project (an investor-led initiative to identify climate change impacts on publicly-traded companies);

·  
participation in the U.S. Climate Action Partnership (an alliance made up of a diverse group of U.S.-based businesses and environmental organizations, which in January 2009 issued the Blueprint for Legislative Action, a set of legislative principles and recommendations to address global climate change and the reduction of greenhouse gas emissions);

·  
participation in the Clinton Global Initiative (an organization which seeks to foster shared commitment by individuals, businesses and governments to confront major world issues and achieve real change);

·  
participation in the EPA's Climate Leaders Program to reduce greenhouse gas intensity in the United States 18% by 2012, including reporting of emissions data annually.  During 2008, FPL Group met its commitment to achieve a 2008 target emissions rate reduction of 18% below a 2001 baseline emission rate measured in pounds per megawatt-hour; and

·  
supporting Edison Electric Institute's climate change framework, which supports the concept of mandatory legislation capping carbon emissions economy wide and recommends, among other things, an 80% reduction of carbon emissions from current levels by 2050.

In July 2007, the Governor of Florida issued three executive orders aimed at reducing Florida greenhouse gas emissions and improving Florida's energy efficiency.  The orders state, among other things, that Florida utilities will be required to reduce emissions to 2000 levels by 2017; to 1990 levels by 2025; and to 20% of 1990 levels by 2050, and that the FPSC should begin the process of adopting a renewable portfolio standard (RPS) that would require utilities to produce at least 20% of their energy from renewable sources, with an emphasis on wind and solar energy.  In May 2008, the Florida legislature passed an energy bill which required the FPSC to develop an RPS and to provide a draft of an RPS rule to the legislature by February 1, 2009.  The FPSC’s draft rule, submitted to the legislature in late January 2009, requires, among other things, Florida investor-owned utilities, including FPL, to meet certain renewable energy standards.  The standards are to be met through the production or the purchase of renewable energy credits and are defined as percentages of the prior year’s retail megawatt-hour electricity sales, beginning with a standard of 7% by January 1, 2013 and culminating with a standard of 20% by January 1, 2021.  The draft rule authorizes recovery of the costs associated with the construction and operation of new renewable energy resources, purchase of renewable energy credits and the purchase of capacity and energy from existing and new renewable energy resources through a new renewable energy cost recovery clause.  As proposed by the FPSC, renewable energy resources would include new solar and wind generation.  The FPSC's submission to the legislature also provides reasons supporting expansion of the 2008 legislation through new legislation to include clean energy resources such as new nuclear facilities and uprates approved by the FPSC since 2006, energy savings from energy efficiency and energy savings from demand side management programs in meeting the RPS.  The FPSC's draft rule also addresses the cost of compliance by providing a cap on the increase to customer revenue requirements due to the purchase of renewable energy credits and/or the construction of renewable energy resources of up to 2% of the utility's total annual revenues from retail sales of electricity.  The May 2008 energy legislation also authorizes the FDEP to develop a cap and trade rule (a system by which affected generators buy and trade allowances under a set cap) to reduce greenhouse gas emissions, but provides that the rule will not be adopted until after January 1, 2010 and will not be effective until ratified by the legislature.  The final requirements and their impact on FPL and FPL Group cannot be determined at this time.

NextEra Energy Resources' plants operate in many states and regions that are in the process of developing legislation to reduce greenhouse gas emissions, including, but not limited to, the following:

·  
The Regional Greenhouse Gas Initiative (RGGI) is a greenhouse gas reduction initiative whereby ten Northeast and Mid-Atlantic member states have established a cap and trade program for covered electric generating units in Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, Vermont, Maryland, Massachusetts and Rhode Island.  RGGI members have agreed to stabilize power plant CO2 emissions at 2009 levels through the end of 2014 and to further reduce the sector's emissions another 10% by the end of 2018.  The RGGI greenhouse gas reduction requirements will affect 12 NextEra Energy Resources fossil electric generating units, requiring those electric generating units to reduce emissions or to acquire CO2 allowances for emissions of CO2 beginning in 2009.  All RGGI states have enacted legislation and regulations.  Based on NextEra Energy Resources' clean generating portfolio in the RGGI marketplace, NextEra Energy Resources expects that the requirement will have a positive overall impact on NextEra Energy Resources' earnings in 2009.


 
15

 

·  
The Western Climate Initiative (WCI) is a greenhouse gas reduction initiative with a goal of reducing CO2 emissions by 15% below 2005 levels by 2020 for participants (Arizona, California, Oregon, Montana, New Mexico, Washington and Utah, as well as British Columbia, Manitoba, Ontario and Quebec, Canada).

·  
California Greenhouse Gas Regulation – California has enacted legislation to reduce greenhouse gas emissions in the state to 1990 emissions levels by 2020.  Pursuant to the legislation, the California Air Resources Board (CARB) must implement multi-sector greenhouse gas reduction measures by January 1, 2012.  The CARB has recommended that California not implement a state-only greenhouse gas reduction program but instead participate in the regional WCI program.

·  
The Midwestern Greenhouse Gas Reduction Accord (MGGRA) is an initiative to reduce greenhouse gas emissions through the establishment of targets for greenhouse gas reductions and the development of a cap and trade program.  Participants in MGGRA are Illinois, Iowa, Kansas, Michigan, Minnesota, Wisconsin and Manitoba, Canada.  The final Model Rule is expected in September 2009, with a cap and trade program beginning in January 2012.  MGGRA is a multi-sector program that will initially be focused on the electricity generation and imports, industrial combustion and industrial processes sectors.  NextEra Energy Resources does not have any fossil-fired generation in the MGGRA region.

Except as discussed above regarding the RGGI, the final requirements to be enacted in connection with these initiatives are uncertain and the financial and operational impacts on FPL Group cannot be determined at this time.  However, NextEra Energy Resources' portfolio in these regions is heavily weighted toward non-CO2 emitting and low CO2 emitting generation sources (wind, hydro, solar, nuclear and natural gas).

Clean Air Act Mercury/Nickel Rule - During 2005, the EPA determined that new data indicated that nickel emissions from oil-fired units and mercury emissions from coal-fired units should not be regulated under Section 112 of the Clean Air Act, which set Maximum Achievable Control Technology standards (MACT), and as a result the EPA published a final rule delisting nickel and mercury from the requirements of regulation under Section 112.  In lieu of regulation under Section 112, the EPA issued a final rule (Clean Air Mercury Rule) to regulate mercury emissions from coal-fired electric utility steam generating units under Section 111 of the Clean Air Act.  The mercury and nickel delisting rule, as well as the Clean Air Mercury Rule, were challenged by various states and environmental groups.  In February 2008, the U.S. Court of Appeals for the District of Columbia vacated both the EPA's mercury and nickel delisting rule and the Clean Air Mercury Rule and in May 2008, denied EPA’s request for rehearing.  Several petitioners, including the EPA, requested review of the delisting decision by the U.S. Supreme Court, however, their requests were denied after the EPA requested withdrawal of its petition.  The EPA will now proceed with MACT rulemaking under Section 112.  Depending upon the final outcome of the EPA's rulemaking, it is possible that certain FPL oil-fired units, Scherer Unit No. 4, SJRPP Units Nos. 1 and 2, certain coal-fired units from which FPL purchases power and three of NextEra Energy Resources’ oil-fired units in Maine may be required to add additional pollution control equipment.

Clean Air Interstate Rule (CAIR) - In 2005, the EPA published a final rule that requires SO2 and NOx emissions reductions from electric generating units in 28 states, where the emissions from electric generating units are deemed to be transported to downwind states, allegedly resulting in fine particulate (PM 2.5) and ozone non-attainment areas.  In July 2008, the U.S. Court of Appeals for the District of Columbia issued an opinion vacating the CAIR and remanded the rule to the EPA for further rulemaking.  In September 2008, the EPA and three other parties petitioned for rehearing of that order.  In December 2008, the U.S. Court of Appeals for the District of Columbia remanded the CAIR back to EPA for further rulemaking without vacating the rule.  Because the U.S. Court of Appeals for the District of Columbia chose not to vacate the rule, FPL Group and FPL were required to begin complying with the current version of the CAIR on January 1, 2009 and must continue to comply until the EPA rewrites the rule.  FPL Group and FPL do not expect the impact of complying with the current version of the CAIR to have a material effect on their financial statements.

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 per year.  The rule requires states to complete BART determinations and allows for a five-year period to implement pollution controls.  While the impact of the final BART requirements of the Clean Air Visibility Rule are uncertain, FPL’s Turkey Point Fossil Units Nos. 1 and 2 and one of NextEra Energy Resources’ units located in Maine may be required to add additional emissions controls or switch fuels to meet the BART compliance requirements.

In 2007, the FDEP began the process to expand the number of units covered under the "Reasonable Further Progress" provision of the Clear Air Visibility Rule in an effort to reduce emissions of SO2 in areas which include certain national park and wilderness areas.  The provision requires that control measures be in place by 2017.  Six of FPL's generating facilities are affected under the Reasonable Further Progress provision (Manatee Units Nos. 1 and 2, Port Everglades Units Nos. 3 and 4 and Turkey Point Fossil Units Nos. 1 and 2).  While the final requirements of the Reasonable Further Progress provision are uncertain, it is possible that these units may be required to add additional emission controls or switch fuels to meet the provision's emissions requirements.


 
16

 

Clean Water Act Section 316(b) - In 2004, the EPA issued a rule under Section 316(b) of the Clean Water Act to address the location, design, construction and capacity of intake structures at existing power plants with once-through cooling water systems.  The rule would have required FPL Group to demonstrate that it had met or would 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 alternatives, including the use of technology and/or operational measures.  In 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 a "cost-benefit test" and restoration measures, from consideration and remanded the rule to the EPA for further rulemaking.  As a result of the 2007 court decision, the EPA has suspended its rule under Section 316(b) of the Clean Water Act and directed its jurisdictions to address Section 316(b) compliance based on best professional judgment when issuing and renewing permits.  In December 2008, the U.S. Supreme Court heard oral arguments with respect to the portion of the rule related to the cost-benefit test in determining the best technology available for minimizing adverse environmental impacts from the use of large cooling water intake systems at existing power plants.  Although the EPA has initiated new Section 316(b) rulemaking consistent with the ruling of the U.S. Court of Appeals for the Second Circuit, a new rule may be delayed until after the U.S. Supreme Court makes its decision, which is not expected until June 2009.  Depending upon the final outcome of the litigation, additional rulemaking by the EPA could impact eight of FPL's generating facilities (Cape Canaveral, Cutler, Fort Myers, Lauderdale, Port Everglades, Sanford, Riviera and St. Lucie) and three NextEra Energy Resources plants (Seabrook, Point Beach and an oil-fired plant in Maine).

Revisions to the National Ambient Air Quality Standards for Ozone - In March 2008, the EPA issued a final rule establishing a new standard for ground-level ozone at 75 parts per billion. States are required to (i) obtain designation of non-attainment areas by 2010, (ii) develop plans to meet the attainment standard by 2013 and (iii) begin meeting the attainment standard between 2013 and 2030 based on non-attainment severity.  Generating facilities located in areas designated as non-attainment may be required to add additional pollution control equipment.  A review of recent ozone monitoring data indicates that some or all of FPL's generating facilities may be located in or affected by non-attainment areas, or areas projected to be in non-attainment.


 
17

 
EXECUTIVE OFFICERS OF FPL GROUP (a)

Name
 
Age
 
Position
 
Effective Date
Christopher A. Bennett
 
50
 
Executive Vice President & Chief Strategy, Policy & Business Process Improvement Officer of FPL Group
 
February 15, 2008 (b)
Paul I. Cutler
 
49
 
Treasurer of FPL Group
Assistant Secretary of FPL Group
Treasurer of FPL
Assistant Secretary of FPL
 
February 19, 2003
December 10, 1997
February 18, 2003
December 10, 1997
F. Mitchell Davidson
 
46
 
Chief Executive Officer of NextEra Energy Resources
President of NextEra Energy Resources
 
July 29, 2008
December 15, 2006
K. Michael Davis
 
62
 
Controller and Chief Accounting Officer of FPL Group
Vice President, Accounting and Chief Accounting Officer of FPL
 
May 13, 1991
July 1, 1991
Lewis Hay, III
 
53
 
Chief Executive Officer of FPL Group
Chairman of FPL Group
Chairman of FPL
 
June 11, 2001
January 1, 2002
January 1, 2002
Robert L. McGrath
 
55
 
Executive Vice President, Engineering, Construction & Corporate Services of FPL Group
Executive Vice President, Engineering, Construction & Corporate Services of FPL
 
February 21, 2005 (b)
February 21, 2005 (c)
Armando J. Olivera
 
59
 
Chief Executive Officer of FPL
President of FPL
 
July 17, 2008
June 24, 2003
Armando Pimentel, Jr.
 
46
 
Chief Financial Officer of FPL Group
Executive Vice President, Finance of FPL Group
Chief Financial Officer of FPL
Executive Vice President, Finance of FPL
 
May 3, 2008
February 15, 2008 (b)
May 3, 2008
February 15, 2008 (c)
James W. Poppell, Sr.
 
58
 
Executive Vice President, Human Resources of FPL Group and FPL
Assistant Secretary of FPL Group and FPL
 
December 12, 2008
January 28, 2005
James L. Robo
 
46
 
President and Chief Operating Officer of FPL Group
 
December 15, 2006
Antonio Rodriguez
 
66
 
Executive Vice President, Power Generation Division of FPL Group
Executive Vice President, Power Generation Division of FPL
 
January 1, 2007 (b)
July 1, 1999 (c)
Charles E. Sieving
 
36
 
Executive Vice President and General Counsel of FPL Group
Executive Vice President and General Counsel of FPL
 
December 1, 2008
January 1, 2009
John A. Stall
 
54
 
President, Nuclear Division of FPL Group
Executive Vice President, Nuclear Division of FPL
 
January 1, 2009
June 4, 2001 (c)
____________________
(a)
Information is as of February 26, 2009.  Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors.  Except as noted below, each officer has held his present position for five years or more and his employment history is continuous.  Mr. Bennett was vice president, business strategy & policy of FPL Group from July 2007 to February 15, 2008.  Prior to that, Mr. Bennett was vice president of Dean & Company, a management consulting and investment firm.  Mr. Davidson was senior vice president of business management of NextEra Energy Resources from March 2005 to December 2006.  He was vice president of business management of NextEra Energy Resources from June 2004 to March 2005.  Mr. Davis was also controller of FPL from July 1991 to September 2007.  Mr. Hay was also chief executive officer of FPL from January 2002 to July 2008.  Mr. Hay was president of FPL Group from June 2001 to December 2006.  Mr. McGrath was senior vice president, engineering and construction of FPL from November 2002 to February 2005.  Mr. Pimentel was a partner of Deloitte & Touche LLP, an independent registered public accounting firm, from June 1998 to February 2008.  Mr. Poppell was vice president, human resources of FPL from November 2006 to December 2008.  He was director, employee relations of FPL from January 2005 to November 2006.  From March 2003 to January 2005, Mr. Poppell was a senior attorney of FPL.  Mr. Robo was president of NextEra Energy Resources from July 2002 to December 2006.  He was also vice president, corporate development and strategy of FPL Group from March 2002 to December 2006.  Mr. Sieving was executive vice president, general counsel and secretary of PAETEC Holding Corp., a communications services and solutions provider, from February 2007 to November 2008 and was primarily responsible for all legal and regulatory matters.  From January 2005 to February 2007, Mr. Sieving was a partner in the corporate, securities and finance practice group of Hogan & Hartson LLP, an international law firm, with which he had been associated since October 1998.  Mr. Stall was also executive vice president, nuclear division of FPL Group from January 2007 to December 2008 (b).
(b)
Title changed from vice president to executive vice president effective May 23, 2008.
(c)
Title changed from senior vice president to executive vice president effective July 17, 2008.


 
18

 

Item 1A.  Risk Factors

Risks Relating to FPL Group's and FPL's Business

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.  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.

·  
FPL Group and FPL are subject to complex laws and regulations, and to changes in laws or regulations, with respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, construction and operation of generation facilities, construction and operation of transmission and distribution facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, ROE and equity ratio limits, transmission reliability and present or prospective wholesale and retail competition.  This substantial and complex framework exposes FPL Group and FPL to increased compliance costs and potentially significant monetary penalties for non-compliance.  The FPSC has the authority to disallow recovery by FPL of any and all costs that it considers excessive or imprudently incurred.  The regulatory process generally restricts FPL's ability to grow earnings and does not provide any assurance as to achievement of earnings levels.

·  
FPL Group and FPL also are subject to extensive federal, state and local environmental statutes, rules and regulations, as well as the effect of changes in or additions to applicable statutes, rules and regulations that relate to, or in the future may relate to, for example, air quality, water quality, climate change, greenhouse gas emissions, CO2 emissions, waste management, marine and wildlife mortality, natural resources, health, safety and renewable portfolio standards that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or require additional pollution control equipment and otherwise increase costs.  There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.

·  
FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding regulation, deregulation or restructuring of the energy industry, including, for example, deregulation or restructuring of the production and sale of electricity, as well as increased focus on renewable and clean energy sources and reduction of carbon emissions.  FPL Group and its subsidiaries will need to adapt to these changes and may face increasing costs and competitive pressure in doing so.

·  
FPL Group's and FPL's results of operations could be affected by FPL's ability to negotiate or renegotiate franchise agreements with municipalities and counties in Florida.

The operation and maintenance of power generation, transmission and distribution facilities involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.

·  
The operation and maintenance of power generation, transmission and distribution facilities involve many risks, including, for example, start up risks, breakdown or failure of equipment, transmission and distribution lines or pipelines, the inability to properly manage or mitigate known equipment defects throughout FPL Group's and FPL's generation fleets and transmission and distribution systems, use of new or unproven technology, the dependence on a specific fuel source, failures in the supply or transportation of fuel, the impact of unusual or adverse weather conditions (including natural disasters such as hurricanes, floods and droughts), and performance below expected or contracted levels of output or efficiency.  This could result in lost revenues and/or increased expenses, including, for example, lost revenues due to prolonged outages and increased expenses due to monetary penalties or fines, replacement equipment costs or an obligation to purchase or generate replacement power at potentially higher prices to meet contractual obligations.  Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses.  Breakdown or failure of an operating facility of NextEra Energy Resources may, for example, prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or subject NextEra Energy Resources to incurring a liability for liquidated damages.

The operation and maintenance of nuclear facilities involves inherent risks, including environmental, health, regulatory, terrorism and financial risks, that could result in fines or the closure of nuclear units owned by FPL or NextEra Energy Resources, and which may present potential exposures in excess of insurance coverage.

·  
FPL and NextEra Energy Resources own, or hold undivided interests in, nuclear generation facilities in four states.  These nuclear facilities are subject to environmental, health and financial risks such as on-site storage of spent nuclear fuel, the ability to dispose of spent nuclear fuel, the ability to maintain adequate reserves for decommissioning, potential liabilities arising out of the operation of these facilities, and the threat of a possible terrorist attack.  Although FPL and NextEra Energy Resources maintain decommissioning trusts and external insurance coverage to minimize the financial exposure to these risks, it is possible that the cost of decommissioning the facilities could exceed the amount available in the decommissioning trusts, and that liability and property damages could exceed the amount of insurance coverage.


 
19

 

·  
The NRC has broad authority to impose licensing and safety-related requirements for the construction and operation and maintenance of nuclear generation facilities.  In the event of non-compliance, the NRC has the authority to impose fines or shut down a unit, or both, depending upon its assessment of the severity of the situation, until compliance is achieved.  NRC orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require FPL and NextEra Energy Resources to incur substantial operating and capital expenditures at their nuclear plants.  In addition, if a serious nuclear incident were to occur at an FPL or NextEra Energy Resources plant, it could result in substantial costs.  A major incident at a nuclear facility anywhere in the world could cause the NRC to limit or prohibit the operation or licensing of any domestic nuclear unit.

·  
In addition, potential terrorist threats and increased public scrutiny of utilities could result in increased nuclear licensing or compliance costs which are difficult or impossible to predict.

The construction of, and capital improvements to, power generation and transmission facilities involve substantial risks.  Should construction or capital improvement efforts be unsuccessful or delayed, the results of operations and financial condition of FPL Group and FPL could be adversely affected.

·  
The ability of FPL Group and FPL to complete construction of, and capital improvement projects for, their power generation and transmission facilities on schedule and within budget are contingent upon many variables that could delay completion, increase costs or otherwise adversely affect operational and financial results, including, for example, limitations related to transmission interconnection issues, escalating costs for materials and labor and environmental compliance, delays with respect to permits and other approvals, and disputes involving third parties, and are subject to substantial risks.  Should any such efforts be unsuccessful or delayed, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, loss of tax credits and/or the write-off of their investment in the project or improvement.

The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses or the payment of margin cash collateral that adversely impact the results of operations or cash flows of FPL Group and FPL.

·  
FPL Group and FPL use derivative instruments, such as swaps, options, futures and forwards, some of which are traded in the over-the-counter markets or on exchanges, to manage their commodity and financial market risks, and for FPL Group to engage in trading and marketing activities.  FPL Group could recognize financial losses as a result of volatility in the market values of these derivative instruments, or if a counterparty fails to perform or make payments under these derivative instruments and could suffer a reduction in operating cash flows as a result of the requirement to post margin cash collateral.  In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates.  As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these derivative instruments.  In addition, FPL's use of such instruments could be subject to prudence challenges and, if found imprudent, cost recovery could be disallowed by the FPSC.

·  
FPL Group provides full energy and capacity requirement services, which include load-following services and various ancillary services, primarily to distribution utilities to satisfy all or a portion of such utilities’ power supply obligations to their customers.  The supply costs for these transactions may be affected by a number of factors, such as weather conditions, fluctuating prices for energy and ancillary services, and the ability of the distribution utilities’ customers to elect to receive service from competing suppliers, which could negatively affect FPL Group’s results of operations from these transactions.

FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, including, but not limited to, the efficient development and operation of generating assets, the successful and timely completion of project restructuring activities, the price and supply of fuel and equipment, transmission constraints, competition from other generators, including those using new sources of generation, excess generation capacity and demand for power, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.

·  
There are various risks associated with FPL Group's competitive energy business.  In addition to risks discussed elsewhere, risk factors specifically affecting NextEra Energy Resources' success in competitive wholesale markets include, for example, the ability to efficiently develop and operate generating assets, the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of fuel (including transportation) and equipment, transmission constraints, the ability to utilize PTCs, competition from other and new sources of generation, excess generation capacity and shifting demand for power.  There can be significant volatility in market prices for fuel, electricity and renewable and other energy commodities, and there are other financial, counterparty and market risks that are beyond the control of NextEra Energy Resources.  NextEra Energy Resources' inability or failure to effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly impair FPL Group's future financial results.  In keeping with industry trends, a portion of NextEra Energy Resources' power generation facilities operate wholly or partially without long-term power purchase agreements.  As a result, power from these facilities is sold on the spot market or on a short-term contractual basis, which may increase the volatility of FPL Group's financial results.  In addition, NextEra Energy Resources' business depends upon power transmission and natural gas transportation facilities owned and operated by others; if transmission or transportation is disrupted or capacity is inadequate or unavailable, NextEra Energy Resources' ability to sell and deliver its wholesale power or natural gas may be limited.

 
20

 


FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry.

·  
FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power industry in general.  In addition, FPL Group may be unable to identify attractive acquisition opportunities at favorable prices and to complete and integrate them successfully and in a timely manner.

FPL Group and FPL participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth, future income and expenditures.

·  
FPL Group and FPL participate in markets that are susceptible to uncertain economic conditions, which complicate estimates of revenue growth.  Because components of budgeting and forecasting are dependent upon estimates of revenue growth in the markets FPL Group and FPL serve, the uncertainty makes estimates of future income and expenditures more difficult.  As a result, FPL Group and FPL may make significant investments and expenditures but never realize the anticipated benefits, which could adversely affect results of operations.  The future direction of the overall economy also may have a significant effect on the overall performance and financial condition of FPL Group and FPL.

Customer growth and customer usage in FPL's service area affect FPL Group's and FPL's results of operations.

·  
FPL Group's and FPL's results of operations are affected by the growth in customer accounts in FPL's service area and by customer usage.  Customer growth can be affected by population growth.  Customer growth and customer usage can be affected by economic factors in Florida and elsewhere, including, for example, job and income growth, housing starts and new home prices.  Customer growth and customer usage directly influence the demand for electricity and the need for additional power generation and power delivery facilities at FPL.

Weather affects FPL Group's and FPL's results of operations, as can the impact of severe weather.  Weather conditions directly influence the demand for electricity and natural gas, affect the price of energy commodities, and can affect the production of electricity at power generating facilities.

·  
FPL Group's and FPL's results of operations are affected by changes in the weather.  Weather conditions directly influence the demand for electricity and natural gas, affect the price of energy commodities, and can affect the production of electricity at power generating facilities, including, but not limited to, wind, solar and hydro-powered facilities.  FPL Group's and FPL's results of operations can be affected by the impact of severe weather which can be destructive, causing outages and/or property damage, may affect fuel supply, and could require additional costs to be incurred.  At FPL, recovery of these costs is subject to FPSC approval.

Adverse capital and credit market conditions may adversely affect FPL Group's and FPL's ability to meet liquidity needs, access capital and operate and grow their businesses, and increase the cost of capital.  Disruptions, uncertainty or volatility in the financial markets can also adversely impact the results of operations and financial condition of FPL Group and FPL, as well as exert downward pressure on the market price of FPL Group's common stock.

·  
Having access to the credit and capital markets, at a reasonable cost, is necessary for FPL Group and FPL to fund their operations, including their capital requirements. Those markets have provided FPL Group and FPL with the liquidity to operate and grow their businesses that is not otherwise provided from operating cash flows.  Disruptions, uncertainty or volatility in those markets can increase FPL Group's and FPL's cost of capital.  If FPL Group and FPL are unable to access the credit and capital markets on terms that are reasonable, they may have to delay raising capital, issue shorter-term securities and/or bear an unfavorable cost of capital, which, in turn, could adversely impact their ability to grow their businesses, decrease earnings, significantly reduce financial flexibility and/or limit FPL Group's ability to sustain its current common stock dividend level.

·  
The market price and trading volume of FPL Group's common stock could be subject to significant fluctuations due to, among other things, general stock market conditions and changes in market sentiment regarding FPL Group and its subsidiaries' operations, business, growth prospects and financing strategies.

FPL Group’s, FPL Group Capital’s and FPL’s inability to maintain their current credit ratings may adversely affect FPL Group’s and FPL’s liquidity, limit the ability of FPL Group and FPL to grow their businesses, and would likely increase interest costs.

·  
FPL Group and FPL rely on access to capital and credit markets as significant sources of liquidity for capital requirements not satisfied by operating cash flows.  The inability of FPL Group, FPL Group Capital and FPL to maintain their current credit ratings could affect their ability to raise capital or obtain credit on favorable terms, which, in turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely increase their interest costs.


 
21

 

FPL Group and FPL are subject to credit and performance risk from third parties under supply and service contracts.

·  
FPL Group and FPL rely on contracts with vendors for the supply of equipment, materials, fuel and other goods and services required for the construction and operation of, and for capital improvements to, their facilities, as well as for business operations.  If vendors fail to fulfill their contractual obligations, FPL Group and FPL may need to make arrangements with other suppliers, which could result in higher costs, untimely completion of power generation facilities and other projects, and/or a disruption to their operations.

FPL Group and FPL are subject to costs and other potentially adverse effects of legal and regulatory proceedings, as well as regulatory compliance and changes in or additions to applicable tax laws, rates or policies, rates of inflation, accounting standards, securities laws, corporate governance requirements and labor and employment laws.

·  
FPL Group and FPL are subject to costs and other potentially adverse effects of legal and regulatory proceedings, settlements, investigations and claims, as well as regulatory compliance and the effect of new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws, corporate governance requirements and labor and employment laws.

·  
FPL and NextEra Energy Resources, as owners and operators of bulk power transmission systems and/or critical assets within various regions throughout the United States, are subject to mandatory reliability standards promulgated by the North American Electric Reliability Corporation and enforced by the FERC.  These standards, which previously were being applied on a voluntary basis, became mandatory in June 2007.  Noncompliance with these mandatory reliability standards could result in sanctions, including substantial monetary penalties, which likely would not be recoverable from customers.

Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt FPL Group's and FPL's business may impact the operations of FPL Group and FPL in unpredictable ways.

·  
FPL Group and FPL are subject to direct and indirect effects of terrorist threats and activities, as well as cyber attacks and disruptive activities of individuals and/or groups.  Infrastructure facilities and systems, including, for example, generation, transmission and distribution facilities, physical assets and information systems, in general, have been identified as potential targets.  The effects of these threats and activities include, but are not limited to, the inability to generate, purchase or transmit power, the delay in development and construction of new generating facilities, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the United States, and the increased cost and adequacy of security and insurance.

The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be adversely affected by international, national, state or local events and company-specific events.

·  
FPL Group's and FPL's ability to obtain insurance, and the cost of and coverage provided by such insurance, could be adversely affected by international, national, state or local events as well as company-specific events.

FPL Group and FPL are subject to employee workforce factors that could adversely affect the businesses and financial condition of FPL Group and FPL.

·  
FPL Group and FPL are subject to employee workforce factors, including, for example, loss or retirement of key executives, availability of qualified personnel, inflationary pressures on payroll and benefits costs and collective bargaining agreements with union employees and work stoppage that could adversely affect the businesses and financial condition of FPL Group and FPL.

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


Item 1B.  Unresolved Staff Comments

None


 
22

 

Item 2.  Properties

FPL Group and its subsidiaries maintain properties which are adequate for their operations.  At December 31, 2008, the electric generating, transmission, distribution and general facilities of FPL represented approximately 45%, 13%, 38% and 4%, respectively, of FPL's gross investment in electric utility plant in service.

Generating Facilities.  At December 31, 2008, FPL Group had the following generating facilities:

FPL Facilities
 
Location
 
No.
of Units
 
Fuel
 
Net Capability
(mw) (a)
Nuclear
                     
St. Lucie
 
Hutchinson Island, FL
 
2
   
Nuclear
   
1,553
(b)
Turkey Point
 
Florida City, FL
 
2
   
Nuclear
   
1,386
 
                       
Steam turbines
                     
Cape Canaveral
 
Cocoa, FL
 
2
   
Oil/Gas
   
792
 
Cutler
 
Miami, FL
 
2
   
Gas
   
204
 
Manatee
 
Parrish, FL
 
2
   
Oil/Gas
   
1,624
 
Martin
 
Indiantown, FL
 
2
   
Oil/Gas
   
1,652
 
Port Everglades
 
Port Everglades, FL
 
4
   
Oil/Gas
   
1,205
 
Riviera
 
Riviera Beach, FL
 
2
   
Oil/Gas
   
565
 
St. Johns River Power Park
 
Jacksonville, FL
 
2
   
Coal/Petroleum Coke
   
254
(c)
Sanford
 
Lake Monroe, FL
 
1
   
Oil/Gas
   
138
 
Scherer
 
Monroe County, GA
 
1
   
Coal
   
646
(d)
Turkey Point
 
Florida City, FL
 
2
   
Oil/Gas
   
788
 
                       
Combined-cycle
                     
Fort Myers
 
Fort Myers, FL
 
1
   
Gas
   
1,440
 
Lauderdale
 
Dania, FL
 
2
   
Gas/Oil
   
884
 
Manatee
 
Parrish, FL
 
1
   
Gas
   
1,111
 
Martin
 
Indiantown, FL
 
1
   
Gas/Oil
   
1,105
 
Martin
 
Indiantown, FL
 
2
   
Gas
   
944
 
Putnam
 
Palatka, FL
 
2
   
Gas/Oil
   
498
 
Sanford
 
Lake Monroe, FL
 
2
   
Gas
   
1,912
 
Turkey Point
 
Florida City, FL
 
1
   
Gas/Oil
   
1,148
 
                       
Simple-cycle combustion turbines
                     
Fort Myers
 
Fort Myers, FL
 
1
   
Gas/Oil
   
318
 
                       
Gas turbines/diesels
                     
Fort Myers
 
Fort Myers, FL
 
12
   
Oil
   
648
 
Lauderdale
 
Dania, FL
 
24
   
Oil/Gas
   
840
 
Port Everglades
 
Port Everglades, FL
 
12
   
Oil/Gas
   
420
 
Turkey Point
 
Florida City, FL
 
5
   
Oil
   
12
 
TOTAL
                 
22,087
(e)
____________________
(a)
Represents FPL's net ownership interest in plant capacity.
(b)
Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2.
(c)
Represents FPL's 20% ownership interest in each of SJRPP Units Nos. 1 and 2, which are jointly owned with JEA.
(d)
Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with JEA.
(e)
Substantially all of FPL's properties are subject to the lien of FPL's mortgage.

23

 
NextEra Energy Resources Facilities
 
Location
 
No.
of Units
 
Fuel
 
Net
Capability
(mw) (a)
Wind
                   
Ashtabula Wind
 
Barnes County, ND
 
99
 
Wind
   
148
 
Cabazon (b)
 
Riverside County, CA
 
53
 
Wind
   
40
 
Callahan Divide (b)
 
Taylor County, TX
 
76
 
Wind
   
114
 
Capricorn Ridge
 
Sterling & Coke Counties, TX
 
208
 
Wind
   
364
 
Capricorn Ridge Expansion
 
Sterling & Coke Counties, TX
 
199
 
Wind
   
298
 
Cerro Gordo (b)
 
Cerro Gordo County, IA
 
55
 
Wind
   
41
 
Crystal Lake I (b)
 
Hancock County, IA
 
100
 
Wind
   
150
 
Crystal Lake II
 
Winnebago County, IA
 
76
 
Wind
   
190
 
Delaware Mountain
 
Culberson County, TX
 
38
 
Wind
   
28
 
Diablo Wind (b)
 
Alameda County, CA
 
31
 
Wind
   
21
 
Endeavor Wind
 
Osceola County, IA
 
40
 
Wind
   
100
 
Endeavor Wind II
 
Osceola County, IA
 
20
 
Wind
   
50
 
Gray County
 
Gray County, KS
 
170
 
Wind
   
112
 
Green Mountain (b)
 
Somerset County, PA
 
8
 
Wind
   
10
 
Green Power
 
Riverside County, CA
 
22
 
Wind
   
17
 
Green Ridge Power (b)
 
Alameda & Contra Costa Counties, CA
 
1,463
 
Wind
   
159
 
Hancock County (b)
 
Hancock County, IA
 
148
 
Wind
   
98
 
High Winds (b)
 
Solano County, CA
 
90
 
Wind
   
162
 
Horse Hollow Wind (b)
 
Taylor County, TX
 
142
 
Wind
   
213
 
Horse Hollow Wind II (b)
 
Taylor & Nolan Counties, TX
 
130
 
Wind
   
299
 
Horse Hollow Wind III (b)
 
Nolan County, TX
 
149
 
Wind
   
224
 
Indian Mesa
 
Pecos County, TX
 
125
 
Wind
   
83
 
King Mountain (b)
 
Upton County, TX
 
214
 
Wind
   
278
 
Lake Benton II (b)
 
Pipestone County, MN
 
138
 
Wind
   
104
 
Langdon Wind (b)
 
Cavalier County, ND
 
79
 
Wind
   
118
 
Langdon Wind II (b)
 
Cavalier County, ND
 
27
 
Wind
   
41
 
Logan Wind (c)
 
Logan County, CO
 
134
 
Wind
   
201
 
Meyersdale (b)
 
Somerset County, PA
 
20
 
Wind
   
30
 
Mill Run (b)
 
Fayette County, PA
 
10
 
Wind
   
15
 
Montfort (b)
 
Iowa County, WI
 
20
 
Wind
   
30
 
Mount Copper (b)
 
Murdochville, Quebec, Canada
 
30
 
Wind
   
54
 
Mountaineer (b)
 
Preston & Tucker Counties, WV
 
44
 
Wind
   
66
 
Mower County Wind (c)
 
Mower County, MN
 
43
 
Wind
   
99
 
New Mexico Wind (b)
 
Quay & Debaca Counties, NM
 
136
 
Wind
   
204
 
North Dakota Wind (b)
 
LaMoure County, ND
 
41
 
Wind
   
62
 
Oklahoma / Sooner Wind (b)
 
Harper & Woodward Counties, OK
 
68
 
Wind
   
102
 
Oliver County Wind I (c)
 
Oliver County, ND
 
22
 
Wind
   
51
 
Oliver County Wind II (c)
 
Oliver County, ND
 
32
 
Wind
   
48
 
Peetz Table Wind (c)
 
Logan County, CO
 
133
 
Wind
   
199
 
Pubnico Point (b)
 
Yarmouth, Nova Scotia, Canada
 
17
 
Wind
   
31
 
Red Canyon Wind Energy (b)
 
Borden, Garza & Scurry Counties, TX
 
56
 
Wind
   
84
 
Sky River (b)
 
Kern County, CA
 
342
 
Wind
   
77
 
Somerset Wind Power (b)
 
Somerset County, PA
 
6
 
Wind
   
9
 
South Dakota Wind (b)
 
Hyde County, SD
 
27
 
Wind
   
41
 
Southwest Mesa (b)
 
Upton & Crockett Counties, TX
 
106
 
Wind
   
74
 
Stateline (b)
 
Umatilla County, OR and Walla Walla County, WA
 
454
 
Wind
   
300
 
Story County Wind
 
Story County, IA
 
100
 
Wind
   
150
 
Vansycle (b)
 
Umatilla County, OR
 
38
 
Wind
   
25
 
Victory Garden (b)
 
Kern County, CA
 
96
 
Wind
   
22
 
Waymart (b)
 
Wayne County, PA
 
43
 
Wind
   
65
 
Weatherford Wind (b)
 
Custer & Washita Counties, OK
 
98
 
Wind
   
147
 
Wilton Wind (b)
 
Burleigh County, ND
 
33
 
Wind
   
49
 
Windpower Partners 1991–92
 
Alameda & Contra Costa Counties, CA
 
279
 
Wind
   
28
 
Windpower Partners 1992
 
Alameda & Contra Costa Counties, CA
 
300
 
Wind
   
30
 
Windpower Partners 1993
 
Riverside County, CA
 
115
 
Wind
   
41
 
Windpower Partners 1993
 
Lincoln County, MN
 
73
 
Wind
   
26
 
Windpower Partners 1994
 
Culberson County, TX
 
107
 
Wind
   
39
 
Wolf Ridge Wind
 
Cooke County, TX
 
75
 
Wind
   
112
 
Woodward Mountain
 
Upton & Pecos Counties, TX
 
242
 
Wind
   
160
 
Wyoming Wind (b)
 
Uinta County, WY
 
80
 
Wind
   
144
 
Investments in joint ventures (d)
 
Various
 
969
 
(d)
   
98
 
Total Wind
               
6,375
 

24

 
NextEra Energy Resources Facilities
 
Location
 
No.
of Units
 
Fuel
 
Net
Capability
(mw) (a)
Contracted
                   
Bayswater (b)
 
Far Rockaway, NY
 
2
 
Gas
   
56
 
Calhoun
 
Eastaboga, AL
 
4
 
Gas
   
668
 
Cherokee (b)
 
Gaffney, SC
 
2
 
Gas/Oil
   
98
 
Doswell (b)
 
Ashland, VA
 
6
 
Gas/Oil
   
708
 
Duane Arnold
 
Palo, IA
 
1
 
Nuclear
   
424
(e)
Jamaica Bay (b)
 
Far Rockaway, NY
 
2
 
Oil/Gas
   
54
 
Point Beach
 
Two Rivers, WI
 
2
 
Nuclear
   
1,023
 
Port of Stockton
 
Stockton, CA
 
1
 
Coal/Petroleum Coke
   
44
 
Investments in joint ventures:
                   
SEGS III–IX
 
Kramer Junction and Harper Lake, CA
 
7
 
Solar
   
148
 
Other
 
Various
 
9
 
(f)
   
314
 
Total Contracted
               
3,537
 
                     
Merchant
                   
Blythe Energy
 
Blythe, CA
 
3
 
Gas
   
507
 
Doswell – Expansion (b)
 
Ashland, VA
 
1
 
Gas/Oil
   
171
 
Forney
 
Forney, TX
 
8
 
Gas
   
1,789
 
Lamar Power Partners
 
Paris, TX
 
6
 
Gas
   
1,000
 
Maine – Cape, Wyman
 
Various – ME
 
6
 
Oil
   
744
(g)
Maine (b)
 
Various – ME
 
81
 
Hydro
   
359
 
Marcus Hook 50
 
Marcus Hook, PA
 
1
 
Gas
   
50
 
Marcus Hook 750 (b)
 
Marcus Hook, PA
 
4
 
Gas
   
744
 
RISEP
 
Johnston, RI
 
3
 
Gas
   
550
 
Seabrook
 
Seabrook, NH
 
1
 
Nuclear
   
1,098
(h)
Investment in joint venture
 
Frackville, PA
 
1
 
Waste coal
   
4
 
Total Merchant
               
7,016
 
TOTAL
               
16,928
 
____________________
(a)
Represents NextEra Energy Resources' net ownership interest in plant capacity.
(b)
These consolidated generating facilities are encumbered by liens against their assets securing various financings.
(c)
NextEra Energy Resources owns these wind facilities together with third party investors with differential membership interests.  See Note 11 – Sale of Differential Membership Interests.
(d)
Represents plants with no more than 50% ownership using wind technology.  Certain facilities, totaling 57 mw, are encumbered by liens against their assets securing a financing.
(e)
Excludes Central Iowa Power Cooperative and Cornbelt Power Cooperative's combined share of 30%.
(f)
Represents plants with no more than 50% ownership using fuels and technologies such as natural gas, waste-to-energy and coal.
(g)
Excludes seven other energy-related partners' combined share of 24%.
(h)
Excludes Massachusetts Municipal Wholesale Electric Company's, Taunton Municipal Lighting Plant's and Hudson Light & Power Department's combined share of 11.77%.

Transmission and Distribution.  At December 31, 2008, FPL owned and operated the following electric transmission and distribution lines:

Nominal
Voltage
 
Overhead Lines
Pole Miles
 
Trench and Submarine
Cables Miles
                   
500
kv
   
1,106
 (a)
   
-
 
230
kv
   
2,997
     
25
 
138
kv
   
1,619
     
50
 
115
kv
   
733
     
-
 
69
kv
   
164
     
14
 
Less than 69 kv
   
41,668
     
24,981
 
Total
   
48,287
     
25,070
 
____________________
(a)
Includes approximately 75 miles owned jointly with JEA.

In addition, at December 31, 2008, FPL owned and operated 581 substations, one of which is jointly owned.  See Note 8.

Character of Ownership.  Substantially all of FPL's properties are subject to the lien of FPL's mortgage, which secures most debt securities issued by FPL.  The majority of FPL Group's principal properties are held by FPL in fee and are free from other encumbrances, subject to minor exceptions, none of which is of such a nature as to substantially impair the usefulness to FPL of such properties.  Some of FPL's electric lines are located on land not owned in fee but are covered by necessary consents of governmental authorities or rights obtained from owners of private property.  The majority of NextEra Energy Resources' generating facilities are held in fee and a number of those facilities are encumbered by liens against their assets securing various financings.  Additionally, some of NextEra Energy Resources' wind turbines are located on land leased from owners of private property.  See Generating Facilities and Note 1 – Electric Plant, Depreciation and Amortization.


 
25

 
 
Item 3.  Legal Proceedings

FPL Group and FPL are parties to various legal and regulatory proceedings in the ordinary course of their respective businesses.  For information regarding legal and regulatory proceedings that could have a material effect on FPL Group or FPL, see Note 15 – Legal and Regulatory Proceedings.  Such descriptions are incorporated herein by reference.

Item 4.  Submission of Matters to a Vote of Security Holders

None


PART II

Item 5.  Market for Registrants' Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Data.  All of FPL's common stock is owned by FPL Group.  FPL Group's common stock is traded on the New York Stock Exchange under the symbol "FPL."  The high and low sales prices for the common stock of FPL Group as reported in the consolidated transaction reporting system of the New York Stock Exchange and the cash dividends per share declared for each quarter during the past two years are as follows:

   
2008
 
2007
Quarter
 
High
 
Low
 
Cash Dividends
 
High
 
Low
 
Cash Dividends
                                 
First
 
$
73.75
 
$
57.21
 
$
0.445
   
$
63.07
 
$
53.72
 
$
0.41
 
Second
 
$
68.98
 
$
62.75
 
$
0.445
   
$
66.52
 
$
56.18
 
$
0.41
 
Third
 
$
68.76
 
$
49.74
 
$
0.445
   
$
64.20
 
$
54.61
 
$
0.41
 
Fourth
 
$
51.87
 
$
33.81
 
$
0.445
   
$
72.77
 
$
60.26
 
$
0.41
 

The amount and timing of dividends payable on FPL Group's common stock are within the sole discretion of FPL Group's Board of Directors.  The Board of Directors reviews the dividend rate at least annually (generally in February) to determine its appropriateness in light of FPL Group's financial position and results of operations, legislative and regulatory developments affecting the electric utility industry in general and FPL in particular, competitive conditions and any other factors the board deems relevant.  The ability of FPL Group to pay dividends on its common stock is dependent upon, among other things, dividends paid to it by its subsidiaries.  There are no restrictions in effect that currently limit FPL's ability to pay dividends to FPL Group.  In February 2009, FPL Group announced that it would increase its quarterly dividend on its common stock from $0.445 to $0.4725 per share.  See Management's Discussion - Liquidity and Capital Resources – Covenants with respect to dividend restrictions and Note 12 - Common Stock Dividend Restrictions regarding dividends paid by FPL to FPL Group.

As of the close of business on January 31, 2009, there were 28,774 holders of record of FPL Group's common stock.

Issuer Purchases of Equity Securities.  Information regarding purchases made by FPL Group of its common stock is as follows:

Period
 
Total Number
of Shares
Purchased (a)
 
Average
Price Paid
Per Share (a)
 
Total Number of
Shares Purchased as Part of a
Publicly Announced Program
 
Maximum Number of
Shares that May Yet be
Purchased Under the Program (b)
                 
10/1/08 – 10/31/08
   
106
     
$
48.40
     
-
   
20,000,000
11/1/08 – 11/30/08
   
52,205
     
$
46.94
     
-
   
20,000,000
12/1/08 – 12/31/08
   
1,774
     
$
50.33
     
-
   
20,000,000
Total
   
54,085
               
-
     
____________________
(a)
Represents shares of common stock withheld from employees to pay certain withholding taxes upon the vesting of stock awards granted to such employees under the LTIP.
(b)
In February 2005, FPL Group's Board of Directors authorized a common stock repurchase plan of up to 20 million shares of common stock over an unspecified period, which authorization was ratified and confirmed by the Board of Directors in December 2005.


 
26

 

Item 6.  Selected Financial Data

 
Years Ended December 31,
 
 
2008
 
2007
 
2006
 
2005
 
2004
 
SELECTED DATA OF FPL GROUP (millions, except per share amounts):
                             
Operating revenues
$
16,410
 
$
15,263
 
$
15,710
 
$
11,846
 
$
10,522
 
Net income
$
1,639
(a)
$
1,312
(a)
$
1,281
(b)
$
901
(c)
$
896
(d)
Earnings per share of common stock – basic
$
4.10
(a)
$
3.30
(a)
$
3.25
(b)
$
2.37
(c)
$
2.50
(d)
Earnings per share of common stock – assuming dilution
$
4.07
(a)
$
3.27
(a)
$
3.23
(b)
$
2.34
(c)
$
2.48
(d)
Dividends paid per share of common stock
$
1.78
 
$
1.64
 
$
1.50
 
$
1.42
 
$
1.30
 
Total assets
$
44,821
 
$
40,123
 
$
35,822
 
$
32,599
 
$
28,324
 
Long-term debt, excluding current maturities
$
13,833
 
$
11,280
 
$
9,591
 
$
8,039
 
$
8,027
 
                               
SELECTED DATA OF FPL (millions):
                             
Operating revenues
$
11,649
 
$
11,622
 
$
11,988
 
$
9,528
 
$
8,734
 
Net income available to FPL Group
$
789
 
$
836
 
$
802
 
$
748
 
$
749
 
Total assets
$
26,175
 
$
24,044
 
$
22,970
 
$
22,347
 
$
19,114
 
Long-term debt, excluding current maturities
$
5,311
 
$
4,976
 
$
4,214
 
$
3,271
 
$
2,813
 
Energy sales (kwh)
 
105,406
   
108,636
   
107,513
   
105,648
   
103,635
 
Energy sales:
                             
Residential
 
50.5
%
 
50.8
%
 
50.8
%
 
51.4
%
 
50.7
%
Commercial
 
43.2
   
42.3
   
41.4
   
41.1
   
40.6
 
Industrial
 
3.4
   
3.5
   
3.8
   
3.7
   
3.8
 
Interchange power sales
 
1.6
   
1.8
   
2.1
   
2.0
   
2.9
 
Other (e)
 
1.3
   
1.6
   
1.9
   
1.8
   
2.0
 
Total
 
100
%
 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Approximate 60-minute peak load (mw): (f)
                             
Summer season
 
21,060
   
21,962
   
21,819
   
22,361
   
20,545
 
Winter season
 
20,031
   
18,055
   
17,260
   
19,683
   
18,108
 
Average number of customer accounts (thousands):
                             
Residential
 
3,992
   
3,981
   
3,906
   
3,828
   
3,745
 
Commercial
 
501
   
493
   
479
   
470
   
458
 
Industrial
 
13
   
19
   
21
   
20
   
19
 
Other
 
4
   
4
   
4
   
4
   
3
 
Total
 
4,510
   
4,497
   
4,410
   
4,322
   
4,225
 
Average price billed to customers (cents per kwh)
 
10.96
   
10.63
   
11.14
   
8.88
   
8.36
 
____________________
(a)
Includes net unrealized mark-to-market gains or losses associated with non-qualifying hedges and other than temporary impairment losses.
(b)
Includes expenses related to a terminated merger, net unrealized mark-to-market gains associated with non-qualifying hedges, impairment charges and an Indonesian project gain.
(c)
Includes net unrealized mark-to-market gains or losses associated with non-qualifying hedges.
(d)
Includes impairment and restructuring charges and net unrealized mark-to-market losses associated with non-qualifying hedges.
(e)
Includes the net change in unbilled sales.
(f)
Winter season includes November and December of the current year and January to March of the following year (for 2008, through February 26, 2009).

Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with the Notes to Consolidated Financial Statements contained herein.  In the discussion of Results of Operations below, all comparisons are with the corresponding items in the prior year.

Overview

FPL Group is one of the nation's largest providers of electricity-related services.  It has two principal operating subsidiaries, FPL and NextEra Energy Resources.  FPL serves more than 8.7 million people throughout most of the east and lower west coasts of Florida.  NextEra Energy Resources, FPL Group's competitive energy subsidiary, produces electricity primarily using natural gas, wind and nuclear resources.  Together, FPL's and NextEra Energy Resources' generating assets represented approximately 39,000 mw of capacity at December 31, 2008.  See Item 2 - Generating Facilities.  Another of FPL Group's operating subsidiaries, FPL FiberNet, provides fiber-optic services to FPL, telecommunications companies and other customers throughout Florida.


 
27

 

FPL obtains its operating revenues primarily through the sale of electricity to retail customers at rates established as part of the 2005 rate agreement and through cost recovery clause mechanisms.  See Note 1 – Revenues and Rates.  Over the last ten years, FPL's average annual customer growth has been 2.1%.  However, beginning in 2007, FPL has experienced a slowdown in retail customer growth and a decline in non-weather related usage per retail customer.  Retail customer growth in 2008 was 0.3%, although during the fourth quarter of 2008 FPL experienced a decline in customer accounts of 0.2%.  FPL believes that the economic slowdown, the downturn in the housing market and the credit crisis that have affected the country and the state of Florida have contributed to the slowdown in customer growth and to the decline in non-weather related usage per retail customer.  In 2008, FPL experienced an increase in inactive accounts (accounts with installed meters without corresponding customer names) and in low-usage customers (customers using less than 200 kwh per month), which have contributed to the decline in retail customer growth and non-weather related usage per retail customer.  In November 2008, FPL notified the FPSC that it intends to initiate a base rate proceeding in March 2009.  In the notification, FPL stated that it expects to request an $800 million to $950 million annual increase in base rates beginning on January 1, 2010 and an additional annual base rate increase beginning on January 1, 2011.  These amounts exclude the effects of depreciation, which depend in part on the results of a detailed depreciation study that FPL is currently finalizing.  Further, FPL expects to request that the FPSC continue to allow FPL to use the mechanism for recovery of the revenue requirements of any new power plant approved pursuant to the Siting Act that was established in FPL's 2005 rate agreement.  Hearings on the base rate proceeding are expected during the third quarter of 2009 and a final decision is expected by the end of 2009.  The final decision may approve rates that are different from those that FPL will request.  FPL's business strategy is to provide customers clean, reliable energy at rates among the lowest in the state and nation.

NextEra Energy Resources is in the competitive energy business with the majority of its operating revenues derived from wholesale electricity sales.  Its business strategy is to maximize the value of its current portfolio, expand its U.S. market-leading wind position and build its portfolio through asset acquisitions.  NextEra Energy Resources plans to add a total of 7,000 mw to 9,000 mw of new wind generation over the 2008 to 2012 period, of which approximately 1,300 mw were added in 2008.  NextEra Energy Resources expects to add approximately 1,100 mw in 2009, of which approximately 480 mw are either under construction or have obtained applicable internal approvals for construction.  In addition, NextEra Energy Resources intends to pursue opportunities for new solar generating facilities.  The wind and solar expansions are subject to, among other things, continued public policy support, which includes, but is not limited to, support for the construction and availability of sufficient transmission facilities and capacity, and access to reasonable capital and credit markets.  If capital and credit market conditions change, this could alter spending plans at NextEra Energy Resources.

NextEra Energy Resources' market is diversified by region as well as by fuel source.  NextEra Energy Resources sells a large percentage of its expected output to hedge against price volatility.  Consequently, if NextEra Energy Resources' plants do not perform as expected, NextEra Energy Resources could be required to purchase power at potentially higher market prices to meet its contractual obligations.  NextEra Energy Resources' energy marketing and trading business is focused on managing commodity price risk and extracting maximum value from its assets.

FPL Group and its subsidiaries segregate into two categories unrealized mark-to-market gains and losses on energy derivative transactions which are used to manage commodity price risk.  The first category, referred to as trading activities, represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts.  The second category, referred to as non-qualifying hedges, represents the net unrealized effect of derivative transactions entered into as economic hedges (but which do not qualify for hedge accounting under FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended) and the ineffective portion of transactions accounted for as cash flow hedges.  In addition, at FPL substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel clause or the capacity clause.

FPL Group's management uses earnings excluding certain items (adjusted earnings) internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and as inputs in determining whether performance targets are met for performance-based compensation under FPL Group's employee incentive compensation plans.  FPL Group also uses adjusted earnings when communicating its earnings outlook to investors.  Adjusted earnings exclude the unrealized mark-to-market effect of non-qualifying hedges and other than temporary impairment (OTTI) losses on securities held in NextEra Energy Resources' nuclear decommissioning funds, net of the reversal of previously recognized OTTI losses on securities sold and losses on securities where price recovery was deemed unlikely (collectively, OTTI reversals) and, in 2006 also excluded merger-related costs.  FPL Group's management believes adjusted earnings provide a more meaningful representation of the company's fundamental earnings power.  Although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing.


 
28

 

In February 2009, the Recovery Act was signed into law.  It includes approximately $787 billion in tax incentives and new spending, a portion of which relates to renewable energy, energy efficiency and energy reliability.  The Recovery Act includes, among other things, provisions that allow companies building wind facilities the option to choose between three investment cost recovery mechanisms: (i) PTCs which were extended for wind facilities through 2012, (ii) investment tax credits of 30% of the cost for qualifying wind facilities placed in service prior to 2013, or (iii) an election to receive a cash grant of 30% of the cost of qualifying wind facilities placed in service in 2009 or 2010, or if construction began prior to December 31, 2010 and the wind facility is placed in service prior to 2013.  An election to receive a cash grant of 30%, in lieu of the 30% investment tax credit allowable under present law, also applies to the cost of qualifying solar facilities placed in service in either 2009 or 2010, or if construction began prior to December 31, 2010 and the solar facility is placed in service prior to 2017.  In addition, 50% bonus depreciation was extended on most types of property placed in service in 2009, and certain property placed in service in 2010.  FPL Group and FPL are in the process of evaluating the effect of the Recovery Act on their businesses.

Results of Operations

Summary – Presented below is a summary of net income (loss) by reportable segment (see Note 16):

 
Years Ended December 31,
 
 
2008
 
2007
 
2006
 
 
(millions)
 
                   
FPL
  $ 789     $ 836     $ 802  
NextEra Energy Resources
    915       540       610  
Corporate and Other
    (65 )     (64 )     (131 )
FPL Group Consolidated
  $ 1,639     $ 1,312     $ 1,281  

The decrease in 2008 in FPL's results reflects lower retail customer usage, higher depreciation and interest expenses and provisions taken in 2008 for regulatory matters, partly offset by a retail base rate increase associated with Turkey Point Unit No. 5 commencing commercial operation, lower O&M expenses and higher other revenues and AFUDC - equity.  FPL's 2007 improved results benefited from a retail base rate increase associated with Turkey Point Unit No. 5 and retail customer growth, partly offset by higher O&M and depreciation and amortization expenses recovered through base rates, a slight decline in retail customer usage and lower interest income on underrecovered fuel and storm costs.  Disallowed storm costs, net of certain interest, reduced 2006 net income by approximately $27 million.

NextEra Energy Resources’ 2008 and 2007 results reflect additional earnings from the existing portfolio, from new investments and from full energy and capacity requirements services and trading, partially offset by higher expenses to support the growth in the business.  NextEra Energy Resources' results in 2007 also reflect higher interest expense and the absence of an approximately $97 million gain ($63 million after-tax) recorded in 2006 resulting from a court judgment relating to an Indonesian project that was suspended in 1998.  In addition, FPL Group's and NextEra Energy Resources’ net income for 2008 and 2006 reflects net unrealized after-tax gains from non-qualifying hedges of $170 million and $92 million, respectively, while 2007 net income reflects net unrealized after-tax losses from such hedges of $86 million.  The change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains/losses as the underlying transactions are realized.  As a general rule, a gain (loss) in the non-qualifying hedge category is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under generally accepted accounting principles.  In 2008, 2007 and 2006, NextEra Energy Resources recorded $82 million, $6 million and $1 million, respectively, of after-tax OTTI losses on securities held in NextEra Energy Resources' nuclear decommissioning funds.  In 2008, NextEra Energy Resources had approximately $6 million after-tax of OTTI reversals; there were no such OTTI reversals in 2007 or 2006.

Results for Corporate and Other in 2008 reflect higher interest expense offset by additional consolidating income tax adjustments.  Results for Corporate and Other in 2007 reflect lower interest costs and higher interest income, partly offset by lower federal and state tax benefits.  Results for Corporate and Other in 2006 reflect a $98 million ($60 million after-tax) impairment charge related to FPL FiberNet's metro market assets as a result of significant changes in the business climate in which FPL FiberNet operates and $14 million of after-tax merger costs associated with the proposed merger between FPL Group and Constellation Energy Group, Inc. (Constellation Energy), which was terminated in October 2006.  See Note 5 – Corporate and Other for FPL FiberNet impairment charges and Note 16 for segment information.

FPL Group's effective income tax rate for all periods presented reflects PTCs for wind projects at NextEra Energy Resources.  PTCs can significantly affect FPL Group's effective income tax rate depending on the amount of pretax income and wind generation.  See Note 1 – Income Taxes, Note 6 and Note 11 – Sale of Differential Membership Interests.


 
29

 

FPL – FPL's net income for 2008, 2007 and 2006 was $789 million, $836 million and $802 million, respectively, a decrease in 2008 of $47 million and an increase in 2007 of $34 million.  The decrease in 2008 reflects lower retail customer usage, higher depreciation and interest expenses and provisions taken in 2008 for regulatory matters, partly offset by a retail base rate increase associated with Turkey Point Unit No. 5 commencing commercial operation, lower O&M expenses and higher other revenues and AFUDC - equity.  FPL's 2007 results benefited from a retail base rate increase associated with Turkey Point Unit No. 5 and retail customer growth.  These factors were partly offset by higher O&M and depreciation and amortization expenses recovered through base rates, a slight decline in usage per retail customer and lower interest income on underrecovered fuel and storm costs.  Disallowed storm costs, net of interest income recorded on 2005 storm restoration costs approved for recovery by the FPSC, reduced FPL's 2006 net income by approximately $27 million.  In 2006, when considering FPL's petition to recover 2005 storm costs, the FPSC applied a different standard for recovery of 2005 costs than was used for recovery of the 2004 storm costs.  This resulted in certain adjustments and disallowances of storm costs that FPL sought to recover.

FPL's current retail base rates were approved by the FPSC in 2005 and are expected to be in effect through December 31, 2009.  The 2005 rate agreement provides that retail base rates will not increase during the term of the agreement except to allow recovery of the revenue requirements of any power plant approved pursuant to the Siting Act that achieves commercial operation during the term of the 2005 rate agreement.  Retail base rates increased in 2007 when Turkey Point Unit No. 5 commenced commercial operation on May 1, 2007.  FPL expects that retail base revenues will increase approximately $65 million in 2009 when retail base rates are changed pursuant to the 2005 rate agreement to reflect the placement in service of two West County Energy Center units, which is expected to occur by the third quarter of 2009 and fourth quarter of 2009.  The 2005 rate agreement has a revenue sharing mechanism, whereby revenues from retail base operations in excess of certain thresholds will be shared with customers on the basis of two-thirds refunded to customers and one-third retained by FPL.  Revenues from retail base operations in excess of a second, higher threshold (cap) will be refunded 100% to customers.  The revenue sharing threshold and cap are adjusted each year.  For the years ended December 31, 2008, 2007 and 2006, revenues from retail base operations did not exceed the thresholds for those years and FPL does not expect 2009 revenues to exceed the thresholds.  See Note 1 – Revenues and Rates for information on the calculation of the threshold and cap and for information on FPL's regulatory ROE.

In November 2008, FPL notified the FPSC that it intends to initiate a base rate proceeding in March 2009.  In the notification, FPL stated that it expects to request an $800 million to $950 million annual increase in base rates beginning on January 1, 2010 and an additional annual base rate increase beginning on January 1, 2011.  These amounts exclude the effects of depreciation, which depend in part on the results of a detailed depreciation study that FPL is currently finalizing.  Further, FPL expects to request that the FPSC continue to allow FPL to use the mechanism for recovery of the revenue requirements of any new power plant approved pursuant to the Siting Act that was established in FPL's 2005 rate agreement.  Hearings on the base rate proceeding are expected during the third quarter of 2009 and a final decision is expected by the end of 2009.  The final decision may approve rates that are different from those that FPL will request.

FPL's operating revenues consisted of the following:

<
   
Years Ended December 31,
 
   
2008
   
2007
   
2006
 
         
(millions)
       
                   
Retail base
  $ 3,738     $ 3,796     $ 3,657  
Fuel cost recovery