Edgar Filing: FLORIDA POWER & LIGHT CO

form10q03312010.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

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	FPL GROUP, INC.	59-2449419
2-27612	FLORIDA POWER & LIGHT COMPANY	59-0247775
	700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000

State or other jurisdiction of incorporation or organization: Florida

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 whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

FPL Group, Inc. Yes þ No ¨ Florida Power & Light Company Yes ¨ No ¨

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 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

The number of shares outstanding of FPL Group, Inc. common stock, as of the latest practicable date: common stock, $0.01 par value, outstanding as of March 31, 2010: 414,672,538 shares.

As of March 31, 2010, 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.

¾¾¾¾¾¾¾¾¾¾¾¾¾¾

This combined Form 10-Q 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 H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

TABLE OF CONTENTS

		Page No.

Forward-Looking Statements		2

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 5.	Other Information	55
Item 6.	Exhibits	56

Signatures		58

FPL Group, Inc., Florida Power & Light Company, FPL Group Capital Inc and NextEra Energy Resources, LLC each has subsidiaries and affiliates with names that may include FPL, NextEra Energy Resources, NextEra Energy, 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.

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, strategies, future events or performance (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, and are accompanied by, important factors included in Part II, 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, Inc.'s (FPL Group) and/or Florida Power & Light Company's (FPL) 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-Q, 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.

Website Access to U.S. Securities and Exchange Commission (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 combined Form 10-Q. The SEC maintains an internet website at www.sec.gov that contains reports, proxy statements and other information about FPL Group and FPL filed electronically with the SEC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2010			2009

OPERATING REVENUES	$	3,622		$	3,705

OPERATING EXPENSES
Fuel, purchased power and interchange		1,349			1,811
Other operations and maintenance		659			618
Depreciation and amortization		414			409
Taxes other than income taxes and other		261			284
Total operating expenses		2,683			3,122

OPERATING INCOME		939			583

OTHER INCOME (DEDUCTIONS)
Interest expense		(238	)		(211	)
Equity in earnings of equity method investees		7			7
Allowance for equity funds used during construction		7			15
Interest income		18			27
Gains on disposal of assets - net		39			7
Other than temporary impairment losses on securities held in nuclear decommissioning funds		(1	)		(53	)
Other - net		(1	)		8
Total other deductions - net		(169	)		(200	)

INCOME BEFORE INCOME TAXES		770			383

INCOME TAXES		214			19

NET INCOME	$	556		$	364

Earnings per share of common stock:
Basic	$	1.36		$	0.90
Assuming dilution	$	1.36		$	0.90

Dividends per share of common stock	$	0.5000		$	0.4725

Weighted-average number of common shares outstanding:
Basic		407.5			402.3
Assuming dilution		410.1			404.8

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in FPL Group's and FPL's Annual Report on Form 10-K for the year ended December 31, 2009 (2009 Form 10-K).

FPL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	March 31, 2010			December 31, 2009
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service and other property	$	46,586		$	46,330
Nuclear fuel		1,406			1,414
Construction work in progress		3,275			2,425
Less accumulated depreciation and amortization		(14,413	)		(14,091	)
Total property, plant and equipment - net ($1,176 related to VIEs at March 31, 2010)		36,854			36,078

CURRENT ASSETS
Cash and cash equivalents		1,215			238
Customer receivables, net of allowances of $14 and $23, respectively		1,174			1,431
Other receivables, net of allowances of $1 and $1, respectively		772			816
Materials, supplies and fossil fuel inventory		852			877
Regulatory assets:
Deferred clause and franchise expenses		86			69
Securitized storm-recovery costs		71			69
Derivatives		430			68
Other		3			3
Derivatives		611			357
Other		343			409
Total current assets		5,557			4,337

OTHER ASSETS
Special use funds		3,509			3,390
Other investments		970			935
Prepaid benefit costs		1,204			1,184
Regulatory assets:
Securitized storm-recovery costs ($381 related to a VIE at March 31, 2010)		617			644
Deferred clause expenses		23			-
Other		336			265
Other		1,872			1,625
Total other assets		8,531			8,043

TOTAL ASSETS	$	50,942		$	48,458

CAPITALIZATION
Common stock	$	4		$	4
Additional paid-in capital		5,084			5,055
Retained earnings		8,091			7,739
Accumulated other comprehensive income		157			169
Total common shareholders' equity		13,336			12,967
Long-term debt ($810 related to VIEs at March 31, 2010)		16,601			16,300
Total capitalization		29,937			29,267

CURRENT LIABILITIES
Commercial paper		2,517			2,020
Notes payable		418			-
Current maturities of long-term debt		977			569
Accounts payable		937			992
Customer deposits		628			613
Accrued interest and taxes		461			466
Regulatory liabilities:
Deferred clause and franchise revenues		24			377
Pension		2			2
Derivatives		772			221
Other		1,046			1,189
Total current liabilities		7,782			6,449

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		2,413			2,418
Accumulated deferred income taxes		5,083			4,860
Regulatory liabilities:
Accrued asset removal costs		2,249			2,251
Asset retirement obligation regulatory expense difference		714			671
Pension		15			16
Other		278			244
Derivatives		369			170
Other ($697 related to a VIE at March 31, 2010)		2,102			2,112
Total other liabilities and deferred credits		13,223			12,742

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	50,942		$	48,458

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2009 Form 10-K for FPL Group and FPL.

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	556		$	364
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		414			409
Nuclear fuel amortization		72			60
Unrealized gains on marked to market energy contracts		(324	)		(75	)
Deferred income taxes		270			(18	)
Cost recovery clauses and franchise fees		(392	)		266
Change in prepaid option premiums and derivative settlements		164			47
Equity in earnings of equity method investees		(7	)		(7	)
Changes in operating assets and liabilities:
Customer receivables		257			162
Other receivables		(6	)		31
Materials, supplies and fossil fuel inventory		26			97
Other current assets		(12	)		(8	)
Other assets		(30	)		(30	)
Accounts payable		(22	)		(130	)
Customer deposits		15			13
Margin cash collateral		16			(185	)
Income taxes		(75	)		45
Interest and other taxes		16			72
Other current liabilities		(40	)		(100	)
Other liabilities		9			(3	)
Other - net		(11	)		33
Net cash provided by operating activities		896			1,043

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures of FPL		(794	)		(575	)
Independent power investments		(567	)		(422	)
Cash grants under the American Recovery and Reinvestment Act of 2009		99			-
Nuclear fuel purchases		(37	)		(70	)
Other capital expenditures		(15	)		(9	)
Sale of independent power investments		-			5
Proceeds from sale of securities in special use funds		1,900			875
Purchases of securities in special use funds		(1,937	)		(892	)
Proceeds from sale of other securities		244			17
Purchases of other securities		(253	)		(26	)
Other - net		(1	)		1
Net cash used in investing activities		(1,361	)		(1,096	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		800			1,508
Retirements of long-term debt		(102	)		(359	)
Net change in short-term debt		916			(1,220	)
Issuances of common stock		12			49
Dividends on common stock		(204	)		(191	)
Other - net		20			7
Net cash provided by (used in) financing activities		1,442			(206	)

Net increase (decrease) in cash and cash equivalents		977			(259	)
Cash and cash equivalents at beginning of period		238			535
Cash and cash equivalents at end of period	$	1,215		$	276

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued property additions	$	571		$	610

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2009 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions)

(unaudited)

	Three Months Ended March 31,
	2010			2009

OPERATING REVENUES	$	2,328		$	2,573

OPERATING EXPENSES
Fuel, purchased power and interchange		1,107			1,469
Other operations and maintenance		373			340
Depreciation and amortization		229			251
Taxes other than income taxes and other		226			251
Total operating expenses		1,935			2,311

OPERATING INCOME		393			262

OTHER INCOME (DEDUCTIONS)
Interest expense		(87	)		(77	)
Allowance for equity funds used during construction		7			15
Other - net		(1	)		(2	)
Total other deductions - net		(81	)		(64	)

INCOME BEFORE INCOME TAXES		312			198

INCOME TAXES		121			71

NET INCOME	$	191		$	127

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2009 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	March 31, 2010			December 31, 2009
ELECTRIC UTILITY PLANT
Plant in service	$	28,819		$	28,677
Nuclear fuel		719			756
Construction work in progress		1,958			1,549
Less accumulated depreciation and amortization		(10,692	)		(10,578	)
Electric utility plant - net		20,804			20,404

CURRENT ASSETS
Cash and cash equivalents		590			83
Customer receivables, net of allowances of $12 and $21, respectively		646			838
Other receivables, net of allowances of $1 and $1, respectively		149			182
Materials, supplies and fossil fuel inventory		517			529
Regulatory assets:
Deferred clause and franchise expenses		86			69
Securitized storm-recovery costs		71			69
Derivatives		430			68
Other		135			123
Total current assets		2,624			1,961

OTHER ASSETS
Special use funds		2,485			2,408
Prepaid benefit costs		1,031			1,017
Regulatory assets:
Securitized storm-recovery costs ($381 related to a VIE at March 31, 2010)		617			644
Deferred clause expenses		23			-
Other		285			214
Other		184			164
Total other assets		4,625			4,447

TOTAL ASSETS	$	28,053		$	26,812

CAPITALIZATION
Common stock	$	1,373		$	1,373
Additional paid-in capital		4,393			4,393
Retained earnings		2,861			2,670
Total common shareholder's equity		8,627			8,436
Long-term debt ($507 related to a VIE at March 31, 2010)		6,275			5,794
Total capitalization		14,902			14,230

CURRENT LIABILITIES
Commercial paper		994			818
Notes payable		250			-
Current maturities of long-term debt		43			42
Accounts payable		544			539
Customer deposits		621			607
Accrued interest and taxes		298			303
Regulatory liabilities - deferred clause and franchise revenues		24			377
Derivatives		441			77
Other		495			659
Total current liabilities		3,710			3,422

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		1,856			1,833
Accumulated deferred income taxes		3,633			3,509
Regulatory liabilities:
Accrued asset removal costs		2,249			2,251
Asset retirement obligation regulatory expense difference		714			671
Other		278			244
Other		711			652
Total other liabilities and deferred credits		9,441			9,160

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	28,053		$	26,812

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2009 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Three Months Ended March 31,
	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	191		$	127
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		229			251
Nuclear fuel amortization		36			32
Deferred income taxes		123			183
Cost recovery clauses and franchise fees		(392	)		266
Change in prepaid option premiums and derivative settlements		-			(1	)
Changes in operating assets and liabilities:
Customer receivables		192			93
Other receivables		18			55
Materials, supplies and fossil fuel inventory		12			29
Other current assets		(14	)		(16	)
Other assets		(27	)		(16	)
Accounts payable		2			(70	)
Customer deposits		14			14
Margin cash collateral		(5	)		-
Income taxes		(68	)		(320	)
Interest and other taxes		53			65
Other current liabilities		(25	)		(61	)
Other liabilities		21			6
Other - net		29			(7	)
Net cash provided by operating activities		389			630

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(794	)		(575	)
Cash grants under the American Recovery and Reinvestment Act of 2009		44			-
Nuclear fuel purchases		(7	)		(43	)
Proceeds from sale of securities in special use funds		1,608			516
Purchases of securities in special use funds		(1,639	)		(524	)
Other - net		1			-
Net cash used in investing activities		(787	)		(626	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		499			493
Retirements of long-term debt		(22	)		(20	)
Net change in short-term debt		426			(312	)
Dividends		-			(200	)
Other - net		2			11
Net cash provided by (used in) financing activities		905			(28	)

Net increase (decrease) in cash and cash equivalents		507			(24	)
Cash and cash equivalents at beginning of period		83			120
Cash and cash equivalents at end of period	$	590		$	96

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Accrued property additions	$	285		$	303

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2009 Form 10-K for FPL Group and FPL.

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the 2009 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.

1. Employee Retirement Benefits

FPL Group sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries and has a supplemental executive retirement plan (SERP), which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees (collectively, pension benefits). In addition to pension benefits, FPL Group sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements.

The components of net periodic benefit (income) cost for the plans are as follows:

	Pension Benefits						Other Benefits
	Three Months Ended March 31,						Three Months Ended March 31,
	2010			2009			2010			2009
	(millions)

Service cost	$	15		$	13		$	1		$	2
Interest cost		26			27			6			6
Expected return on plan assets		(60	)		(60	)		(1	)		(1	)
Amortization of transition obligation		-			-			1			1
Amortization of prior service benefit		(1	)		(1	)		-			-
Amortization of gains		-			(5	)		-			-
Net periodic benefit (income) cost at FPL Group	$	(20	)	$	(26	)	$	7		$	8
Net periodic benefit (income) cost at FPL	$	(14	)	$	(18	)	$	6		$	6

2. Derivative Instruments

FPL Group and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with long-term debt, and to optimize the value of NextEra Energy Resources, LLC's (NextEra Energy Resources) power generation assets.

With respect to commodities related to FPL Group's competitive energy business, NextEra Energy Resources employs rigorous risk management procedures in order to optimize the value of its power generation assets, provide full energy and capacity requirements services primarily to distribution utilities, and engage in power and gas marketing and trading activities to take advantage of expected future favorable price movements and changes in the expected volatility of prices in the energy markets. These risk management activities involve the use of derivative instruments executed within prescribed limits to manage the risk associated with fluctuating commodity prices. Transactions in derivative instruments are executed on recognized exchanges or via the over-the-counter markets, depending on the most favorable credit terms and market execution factors. For NextEra Energy Resources' power generation assets, derivative instruments are used to hedge the commodity price risk associated with the fuel requirements of the assets, where applicable, as well as to hedge the expected energy output of these assets for the portion of the output that is not covered by long-term power purchase agreements (PPA). These hedges protect NextEra Energy Resources against adverse changes in the wholesale forward commodity markets associated with its generation assets. With regard to full energy and capacity requirements services, NextEra Energy Resources is required to vary the quantity of energy and related services based on the load demands of the customer served by the distribution utility. For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and protect against unfavorable changes in the forward energy markets. Additionally, NextEra Energy Resources takes positions in the energy markets based on differences between actual forward market levels and management's view of fundamental market conditions. NextEra Energy Resources uses derivative instruments to realize value from these market dislocations, subject to strict risk management limits around market, operational and credit exposure.

Derivative instruments, when required to be marked to market, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in the derivatives' fair value 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 and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause). For FPL Group's non-rate regulated operations, predominantly NextEra Energy Resources, unless hedge accounting is applied, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized on a net basis in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate.

While most of NextEra Energy Resources' derivatives are entered into for the purpose of managing commodity price risk, and to reduce the impact of volatility in interest rates stemming from changes in variable interest rates on outstanding debt, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk. Additionally, for hedges of commodity price risk, physical delivery for forecasted commodity transactions must be probable. FPL Group believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income. Generally, FPL Group assesses a hedging instrument's effectiveness by using regression analysis for commodity contracts, and nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item for interest rate swaps and foreign currency derivative instruments. Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income (OCI) and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. See Note 6. The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period.

In January 2010, FPL Group discontinued hedge accounting for its cash flow hedges related to commodity derivative instruments. FPL Group continues to apply hedge accounting to certain interest rate and foreign currency hedges. At March 31, 2010, FPL Group's accumulated other comprehensive income (AOCI) included amounts related to the discontinued commodity cash flow hedges which have expiration dates through December 2012. Additionally, at March 31, 2010, FPL Group had interest rate cash flow hedges with expiration dates through May 2024 and a foreign currency cash flow hedge that expires in December 2011.

FPL Group's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:

	FPL Group						FPL
	March 31, 2010			December 31, 2009			March 31, 2010			December 31, 2009
	(millions)

Current derivative assets(a)	$	611		$	357		$	11	(b)	$	10	(b)
Noncurrent other assets(c)		563			329			4			4
Current derivative liabilities(d)		(772	)		(221	)		(441	)		(77	)
Noncurrent derivative liabilities(e)		(369	)		(170	)		(47	)(f)		(1	)(f)
Total mark-to-market derivative instrument assets (liabilities)	$	33		$	295		$	(473	)	$	(64	)

¾¾¾¾¾¾¾¾¾¾

(a)	At March 31, 2010 and December 31, 2009, FPL Group's balances reflect the netting of $55 million and $4 million (none at FPL), respectively, in margin cash collateral received from counterparties.
(b)	Included in current other assets on FPL's condensed consolidated balance sheets.
(c)	At March 31, 2010 and December 31, 2009, FPL Group's balances reflect the netting of $2 million and $1 million (none at FPL), respectively, in margin cash collateral received from counterparties.
(d)	At March 31, 2010 and December 31, 2009, FPL Group's balances reflect the netting of $79 million and $75 million (none at FPL), respectively, in margin cash collateral provided to counterparties.
(e)	At March 31, 2010, FPL Group's balance reflects the netting of $70 million (none at FPL), in margin cash collateral provided to counterparties.
(f)	Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

At March 31, 2010 and December 31, 2009, FPL Group had approximately $26 million and $18 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets. These amounts are included in other current liabilities in the condensed consolidated balance sheets. Additionally, at March 31, 2010 and December 31, 2009, FPL Group had approximately $54 million and $95 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities. These amounts are included in other current assets in the condensed consolidated balance sheets.

As discussed above, FPL Group uses derivative instruments to, among other things, manage its commodity price risk, interest rate risk and foreign currency exchange rate risk. The table above presents FPL Group’s and FPL’s net derivative positions at March 31, 2010 and December 31, 2009, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral. However, disclosure rules require that the following tables be presented on a gross basis.

The fair values of FPL Group's derivatives designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting arrangements and would not be contractually settled on a gross basis.

	March 31, 2010				December 31, 2009
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	-	$	-	$	54	$	1
Current derivative liabilities		-		-		45		4
Noncurrent other assets		-		-		44		2
Noncurrent derivative liabilities		-		-		8		13
Interest rate swaps:
Current derivative liabilities		-		51		-		51
Noncurrent other assets		48		-		61		-
Noncurrent derivative liabilities		-		31		-		27
Foreign currency swap:
Noncurrent other assets		2		-		5		-
Total	$	50	$	82	$	217	$	98

Gains (losses) related to FPL Group's cash flow hedges are recorded on FPL Group's condensed consolidated financial statements (none at FPL) as follows:

	Three Months Ended March 31, 2010												Three Months Ended March 31, 2009
	Commodity Contracts			Interest Rate Swaps			Foreign Currency Swap			Total			Commodity Contracts			Interest Rate Swaps			Total
	(millions)

Gains (losses) recognized in OCI	$	20		$	(34	)	$	(4	)	$	(18	)	$	152		$	(5	)	$	147
Gains (losses) reclassified from AOCI	$	36	(a)	$	(17	)(b)	$	(2	)(c)	$	17		$	24	(a)	$	(9	)(b)	$	15
Gains (losses) recognized in income(d)	$	1	(a)	$	-		$	-		$	1		$	11	(a)	$	-		$	11

¾¾¾¾¾¾¾¾¾¾

(a)	Included in operating revenues.
(b)	Included in interest expense.
(c)	$1 million loss is included in interest expense, and the balance is included in other - net.
(d)	Represents the ineffective portion of the hedging instrument.

For the three months ended March 31, 2010 and 2009, respectively, FPL Group recorded a gain (loss) of less than $(1) million and $1 million, respectively, on a fair value hedge which is reflected in interest expense in the condensed consolidated statements of income and resulted in a corresponding reduction of, and increase in, the related debt.

The fair values of FPL Group's and FPL's derivatives not designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting arrangements and would not be contractually settled on a gross basis.

	March 31, 2010										December 31, 2009
	FPL Group				FPL						FPL Group				FPL
	Derivative Assets		Derivative Liabilities		Derivative Assets			Derivative Liabilities			Derivative Assets		Derivative Liabilities		Derivative Assets			Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	1,052	$	386	$	11	(a)	$	-		$	611	$	303	$	11	(a)	$	1	(a)
Current derivative liabilities		2,297		3,097		12			453			1,002		1,288		18			95
Noncurrent other assets		641		126		4			-			921		699		4			-
Noncurrent derivative liabilities		1,448		1,849		-			47	(b)		128		260		-			1	(b)
Foreign currency swap:
Noncurrent derivative liabilities		-		7		-			-			-		6		-			-
Total	$	5,438	$	5,465	$	27		$	500		$	2,662	$	2,556	$	33		$	97

¾¾¾¾¾¾¾¾¾¾

(a)	Included in current other assets on FPL's condensed consolidated balance sheets.
(b)	Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

Gains (losses) related to FPL Group's derivatives not designated as hedging instruments are recorded on FPL Group's condensed consolidated statements of income (none at FPL) as follows:

	Three Months Ended March 31,
	2010			2009
	(millions)
Commodity contracts:
Operating revenues	$	269	(a)	$	112	(a)
Fuel, purchased power and interchange		68			27
Foreign currency swap:
Other - net		(2	)		(12	)
Total	$	335		$	127

¾¾¾¾¾¾¾¾¾¾

(a)	In addition, for the three months ended March 31, 2010 and 2009, FPL recorded approximately $454 million and $525 million, respectively, of losses related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.

The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in FPL Group's and FPL's condensed consolidated financial statements. The table includes significant volumes of transactions that have minimal exposure to commodity price changes because they are variably priced agreements. The table does not present a complete picture of FPL Group's and FPL's overall net economic exposure because FPL Group and FPL do not use derivative instruments to hedge all of their commodity exposures. At March 31, 2010, FPL Group and FPL had derivative commodity contracts for the following net notional volumes:

Commodity Type	FPL Group			FPL
	(millions)

Power	(39	)	mwh(a)	-
Natural gas	766		mmbtu(b)	860	mmbtu(b)
Oil	1		barrels	2	barrels

¾¾¾¾¾¾¾¾¾¾

(a)	Megawatt-hours
(b)	One million British thermal units

At March 31, 2010, FPL Group had fifteen interest rate swaps with a notional amount totaling approximately $2.3 billion and two foreign currency swaps with a notional amount totaling approximately $290 million.

Certain of FPL Group's and FPL's derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating from specified credit rating agencies and certain financial ratios, as well as credit-related cross-default and material adverse change triggers. At March 31, 2010, the aggregate fair value of FPL Group's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $2.4 billion ($0.5 billion for FPL).

If the credit-risk-related contingent features underlying these agreements and other wholesale commodity contracts were triggered, FPL Group or FPL could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions. Certain contracts contain multiple types of credit-related triggers. To the extent these contracts contain a credit ratings downgrade trigger, the maximum exposure is included in the following credit ratings collateral posting requirements. If FPL Group Capital Inc’s (FPL Group Capital) or FPL’s credit ratings were downgraded to BBB (a two level downgrade for FPL and a one level downgrade for FPL Group Capital from the current lowest applicable rating), FPL Group would be required to post collateral such that the total posted collateral would be approximately $625 million ($265 million at FPL). If FPL Group Capital’s and FPL’s credit ratings were downgraded to below investment grade, FPL Group would be required to post additional collateral such that the total posted collateral would be approximately $2.2 billion ($0.9 billion at FPL). Some contracts at FPL Group, including some FPL contracts, do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or have credit-related cross-default triggers. In the event these provisions were triggered, FPL Group could be required to post additional collateral of up to approximately $500 million ($100 million at FPL).

Collateral may be posted in the form of cash or credit support. At March 31, 2010, FPL Group had posted approximately $330 million ($45 million at FPL) in the form of letters of credit in the normal course of business which could be applied toward the collateral requirements described above. FPL and FPL Group Capital have bank revolving lines of credit in excess of the collateral requirements described above that would be available to support, among other things, derivative activities. Under the terms of the bank revolving lines of credit, maintenance of a specific credit rating is not a condition to drawing on these credit facilities, although there are other conditions to drawing on these credit facilities.

Additionally, some contracts contain certain adequate assurance provisions where a counterparty may demand additional collateral based on subjective events and/or conditions. Due to the subjective nature of these provisions, FPL Group and FPL are unable to determine an exact value for these items and they are not included in any of the quantitative disclosures above.

3. Fair Value Measurements

FPL Group and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. FPL Group's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.

Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. FPL Group and FPL primarily hold investments in money market funds. The fair value of these funds is calculated using current market prices.

Special Use Funds and Other Investments - FPL Group and FPL hold primarily debt and equity securities directly as well as equity securities indirectly through commingled funds. Substantially all equity securities are valued by the custodian at their quoted market prices. Commingled funds, which are similar to mutual funds, are maintained by banks or investment companies and hold certain investments in accordance with a stated set of objectives. The fair value of commingled funds is primarily derived from the quoted prices in active markets of the underlying securities. Because the fund shares are offered to a limited group of investors, they are not considered to be traded in an active market. For debt securities, the custodian obtains multiple prices and price types from pricing vendors whenever possible, which enables cross-provider validations. A primary price source is identified by the custodian based on asset type, class or issue of each security.

Derivative Instruments - FPL Group and FPL measure the fair value of commodity contracts on a daily basis using prices observed on commodities exchanges and in the over-the-counter markets, or through the use of industry-standard valuation techniques, such as option modeling or discounted cash flows techniques, incorporating both observable and unobservable valuation inputs. The resulting measurements are the best estimate of fair value as represented by the transfer of the asset or liability through an orderly transaction in the marketplace at the measurement date. Non-performance risk is also considered in the determination of fair value for all derivative assets and liabilities, including the consideration of a credit valuation adjustment.

Exchange-traded derivative assets and liabilities are valued directly using unadjusted quoted prices. For exchange-traded derivative assets and liabilities where the principal market is deemed to be inactive based on average daily volumes and open interest, the measurement is established using settlement prices from the exchanges, and therefore considered to be valued using significant other observable inputs.

FPL Group and FPL also enter into over-the-counter commodity contract derivatives. The majority of these contracts are transacted at liquid trading points, and the prices for these contracts are verified using quoted prices in active markets from exchanges, brokers or pricing services for similar contracts. In instances where the reference exchange markets are deemed to be inactive or do not have a similar contract that trades on an exchange, the derivative assets and liabilities may be valued using significant other observable inputs and potentially significant unobservable inputs. In such instances, the valuation for these contracts is established using techniques including extrapolation from or interpolation between actively traded contracts, or estimated basis adjustments from liquid trading points.

FPL Group, through NextEra Energy Resources, also enters into load serving contracts, which, in many cases, qualify as derivatives and are measured at fair value. These contracts typically have one or more inputs that are not observable and are significant to the valuation of the contract. In addition, certain exchange and non-exchange traded derivative options at FPL Group have one or more significant inputs that are not observable, and are valued using industry-standard option models.

In all cases where FPL Group and FPL use significant unobservable inputs for the valuation of a commodity contract, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes, but is not limited to, assumptions about market liquidity, volatility and contract duration.

FPL Group uses interest rate and foreign currency swaps to mitigate and adjust interest rate and foreign currency exposure related to certain debt issuances. FPL Group estimates the fair value of these derivatives using a discounted cash flows valuation technique based on the net amount of estimated future cash inflows and outflows related to the swap agreements. Non-performance risk is also considered in the determination of fair value for all derivative assets and liabilities, including the consideration of a credit valuation adjustment.

FPL Group's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:

	March 31, 2010
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)			Netting(a)				Total
	(millions)
Assets:
Cash equivalents:
FPL Group - equity securities		$	-		$	650			$	-	$	-		$		650
FPL - equity securities		$	-		$	321			$	-	$	-		$		321
Special use funds:
FPL Group:
Equity securities		$	695		$	1,081	(b)		$	-	$	-		$		1,776
U.S. Government and municipal bonds		$	518		$	132			$	-	$	-		$		650
Corporate debt securities		$	-		$	422			$	-	$	-		$		422
Mortgage-backed securities		$	-		$	557			$	-	$	-		$		557
Other debt securities		$	-		$	45			$	-	$	-		$		45
FPL:
Equity securities		$	135		$	925	(b)		$	-	$	-		$		1,060
U.S. Government and municipal bonds		$	461		$	114			$	-	$	-		$		575
Corporate debt securities		$	-		$	323			$	-	$	-		$		323
Mortgage-backed securities		$	-		$	443			$	-	$	-		$		443
Other debt securities		$	-		$	28			$	-	$	-		$		28
Other investments:
FPL Group:
Equity securities		$	3		$	3			$	-	$	-		$		6
U.S. Government and municipal bonds		$	17		$	-			$	-	$	-		$		17
Corporate debt securities		$	-		$	44			$	-	$	-		$		44
Mortgage-backed securities		$	-		$	57			$	-	$	-		$		57
Other		$	5		$	16			$	-	$	-		$		21
Derivatives:
FPL Group:
Commodity contracts		$	2,372		$	1,836			$	1,230	$	(4,314	)	$		1,124	(c)
Interest rate swaps		$	-		$	48			$	-	$	-		$		48	(c)
Foreign currency swaps		$	-		$	2			$	-	$	-		$		2	(c)
FPL - commodity contracts		$	-		$	15			$	13	$	(13	)	$		15	(c)
Liabilities:
Derivatives:
FPL Group:
Commodity contracts		$	2,455		$	2,323			$	681	$	(4,407	)	$		1,052	(c)
Interest rate swaps		$	-		$	82			$	-	$	-		$		82	(c)
Foreign currency swaps		$	-		$	7			$	-	$	-		$		7	(c)
FPL - commodity contracts		$	-		$	498			$	3	$	(13	)	$		488	(c)

¾¾¾¾¾¾¾¾¾¾

(a)	Includes the effect of the contractual ability to settle contracts under master netting arrangements and margin cash collateral payments and receipts.
(b)	At FPL Group, approximately $978 million ($886 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by FPL Group or FPL.
(c)	See Note 2 for a reconciliation of net derivatives to FPL Group's and FPL's condensed consolidated balance sheets.

	December 31, 2009
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)			Netting(a)				Total
	(millions)
Assets:
Cash equivalents:
FPL Group - equity securities		$	-		$	79			$	-	$	-		$		79
FPL - equity securities		$	-		$	43			$	-	$	-		$		43
Special use funds:
FPL Group:
Equity securities		$	657		$	1,048	(b)		$	-	$	-		$		1,705
U.S. Government and municipal bonds		$	275		$	299			$	-	$	-		$		574
Corporate debt securities		$	-		$	452			$	-	$	-		$		452
Mortgage-backed securities		$	-		$	618			$	-	$	-		$		618
Other debt securities		$	-		$	41			$	-	$	-		$		41
FPL:
Equity securities		$	104		$	920	(b)		$	-	$	-		$		1,024
U.S. Government and municipal bonds		$	230		$	278			$	-	$	-		$		508
Corporate debt securities		$	-		$	346			$	-	$	-		$		346
Mortgage-backed securities		$	-		$	503			$	-	$	-		$		503
Other debt securities		$	-		$	27			$	-	$	-		$		27
Other investments:
FPL Group:
Equity securities		$	3		$	4			$	-	$	-		$		7
U.S. Government and municipal bonds		$	-		$	38			$	-	$	-		$		38
Corporate debt securities		$	-		$	35			$	-	$	-		$		35
Mortgage-backed securities		$	-		$	31			$	-	$	-		$		31
Other		$	4		$	-			$	-	$	-		$		4
Derivatives:
FPL Group		$	988		$	1,089			$	801	$	(2,192	)	$		686	(c)
FPL		$	-		$	20			$	13	$	(19	)	$		14	(c)
Liabilities:
Derivatives:
FPL Group		$	1,110		$	1,106			$	437	$	(2,262	)	$		391	(c)
FPL		$	-		$	95			$	2	$	(19	)	$