ML021420136

Part D - Seabrook Station Application for Order & Conforming License Amendments to Transfer Facility Operating License NPF-86 - FPL Group 1999 Annual Report

ML021420136
Person / Time
Site:	Seabrook
Issue date:	05/17/2002
From:	Feigenbaum T, Stall J Florida Power & Light Energy Seabrook, North Atlantic Energy Service Corp
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
Download: ML021420136 (52)

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Financial Highlights S6'FPL Grovith in 'Generation-- Customer Growth, FPL Energy Porffolio I (1994-1999 annualiýed) (net MWin operation) 18,999- 4,066 16,444 CL 6 c", 3,004 1 2 1.4%

5 above 1,878

-k, 681 1,240 89 99 03 Industry L 96 97 98 99 00

• forecast based on projects currentLy under construction For the Years Ended December 31, 1999 1998  % change FINANCIAL RESULTS (millions, except per share amounts)

Operating Revenues $6,438 $6,661 (3.3)

Operating Income $920o() $1,252 (26.5)

Net Income, excluding nonrecurring items $681(2) $664 2.6 Earnings Per Share, excluding nonrecurring items (basic and assuming dilution) $3.98(2) $3.85 3.4 Cash Flow from Operating Activities $1,563 $1,743 (10.3)

Total Assets $13,441 $12,029 11.7 COMMON STOCK DATA Average Shares Outstanding (millions) 171 173 (1.2)

Dividends Per Share $2.08 $2.00 4.0 Book Value Per Share $31.47 $29.76 5.7

$61"/16-$41%

Market Price Per Share (high/low) $729 /6-$56/ 1 6 OPERATING DATA Energy Sales (millions kwh) 92,483 91,041 1.6 FPL Customer Accounts (average; thousands) 3,756 3,680 2.1 Employees (year end) 10,717 10,375 3.3 (1) Includes effects of impairment loss on Maine assets and settlement of litigation between FPL and FMPA.

(2) Excludes effects of gain on sale of Adelphia Communications Corporation stock, impairment loss on Maine assets, settlement of litigation between FPL and FMPA and the gain on the redemption of a one-third ownership interest in a cable limited partnership.

Including these items, net income and earnings per share were $697 million and $4.07, respectively.

FPL Group, Inc. 1999 0

0 We were disappointed, however, that this strong performance did not immediately translate into enhanced shareholder returns. 711e stock market in 1999 was not kind to electric power companies. The Standard & Poor's Electric Utilities Index returned a negative 19%, under performing the Standard & Poor's 500 Index by more than 40%, the largest margin in his tory, Further, FPL Group under-performed the electric utilities index by 8 percentage points. This was due largely to a $350 million per year reduction in the rates and the redemption of our ownership interest in a charged by Florida Power & Light and a write down cable television limited partnership. In addition taken on FPL Energy's power generating assets in Maine to the Maine write down, charges were taken in as a result of unexpected changes in federal regulations, connection with the settlement by Florida Power

& Light of a dispute with the Florida Municipal Record Financial Results Power Agency.

"* Net income, excluding nonrecurring items, in 1999 rose to an all-time high of $681 million, an increase Achievements of of 2.6% from the previous year. Including nonrecur Florida Power & Light ring items, net income was even higher, reaching Florida Power & Light continued to improve

$697 million, an increase of 5% over 1999. both productivity and reliability, enabling customers

"* Earnings per share, excluding nonrecurring items, to benefit from better service at lower prices increased to a record $3.98, up 34% from the year In 1999 operating and maintenance costs per before Including nonrecurring gains and charges, kiowatt-hour declined for the ninth consecutive earnings per share rose to S4.07, an increase of 57%, year, from 1,82 cents per kilowatt-hour in 1990

"* Nonrecurring gains during 1999 included the sale to 1.17 cents per kwh - a 36% reduction.

of shares in Adelphia Communications Corporation Rildllnn nrrantar :ffi :TTrir S FPL Group, Inc. 1999 Co-?

ToOrSh areoler Our continuous improvements in productivity reduced costs to the point that the Florida Public Service Commission reduced our rates in 1999. While J

we would have preferred to keep more of these sav ings for shareholders, the reduction has at least benefit ed individuals and businesses throughout our service

• Excludes nonrecurring item territory by significantly lowering the prices they pay for electricity. In addition, the rate agreement we e Plant performance remained at exceptionally high reached with the Commission and Public Counsel levels. Our fossil plant availability of 93% was offers some important incentive features, including the among the best in the nation. ability to keep the benefits of future gains in productiv o Nuclear plant availability climbed to an all-time high ity for our shareholders, as well as an allowance for of 94%. Both our Turkey Point and St. Lucie plants special depreciation of up to $100 million annually.

were among the country's top-rated nuclear sites.

o Our electric service reliability, which was already Growth at FPL Energy well above the national average, continued to FPL Energy, our improve in 1999. The average number of interrup $ mindependent power tions per FPL customer was down 19%, while $ subsidiary that operates the length of interruptions declined 7%. outside of Florida, o In customer satisfaction, FPL rated among the continued to show rapid nation's top performing utilities in a nationwide survey undertaken in part by J.D. Powers and

$ V growth in both revenue and earnings, and its 9

Associates. FPL scored especially high in such *Excludes nunrecurrin, item contributions to FPL key areas as response time and follow-through Group's net income, on customer inquiries. excluding nonrecurring items, rose from $32 million o In addition, once again our employees displayed in 1998 to S58 million in 1999 - an increase of 81%.

their skills and resolve during times of crisis, quick o In 1999 FPL Energy expanded its generating ly restoring electric service to millions of customers operations and construction projects to 13 states.

affected by Hurricanes Irene and Floyd. The Edison Its generating capacity grew by nearly 60% to Electric Institute, in presenting FPL with its more than 3,000 megawatts.

Emergency Response Reward, described our

• In Maine, FPL Energy acquired nearly 400 emergency performance as "a model for electric megawatts of hydro-powered generation, and more utilities everywhere." than 700 megawatts of fossil-fueled generation.

SBu:ldinc for the Future

" Wind-powered plants totaling 117 megawatts were The company plans to expand the network to constructed in Iowa and Texas, and construction major cities throughout Florida and expects to com began on a 1,000-megawatt natural gas-fired power plete construction of 15 metropolitan networks by plant near Paris, Texas. 2002. First year revenues of the company are expected

" FPL Energy continues to focus on the generation of to be between $30 million and $40 million, and we electricity using "clean" technologies and fuels such anticipate the business will enhance earnings near-term.

as natural gas and renewable resources, including wind, solar, and hydro energy. It is one of the Summary and Outlook nation's largest producers of electricity from wind In recent years we have added to the value of our power, and approximately 75% of its generation in company by reducing Florida Power & Light's costs, operation is derived from clean fuels. improving quality and customer service, and expand ing the operations of FPL Energy for profitable growth.

FPL FiberNet Launched As a result, we are better prepared than ever to suc On January 1, 2000, we established a new ceed in today's rapidly changing business environment subsidiary, FPL FiberNet, to sell fiber-optic capacity. and to provide attractive returns to our shareholders.

This subsidiary acquired 1,600 miles of inter-city fiber network from Florida Power & Light and is sell ing network capacity to telephone, cable television, Internet, and other telecommunications companies. James L. Broadbead Chairman and ChiefExecutive Officer Februa'*y 28, 2000 FPL Group, Inc. 1999 0

0 r

Florida Power & Light Company is among the FPL continues to build on these and other areas largest and fastest growing electric utilities in the that are critical to its future success. In addition, the United States. Building on its solid reputation for company recognizes the importance of safety and quality operations and with a goal to meet and exceed environmental stewardship as core values transcending its customers' expectations, the company over the past all its operations.

decade has succeeded in:

"* improving reliability and system performance; Delivering Value to Customers

"* reducing costs and becoming a more efficient Customers expect more from their electricity organization; provider today than ever before, and FPL is working

"* adding generation capacity to meet future growth; to exceed their expectations. This is essential to good A and business practice generally, but will be especially increasing revenues and earnings. important should the clay arrive when customers have 0.

a choice of electricity providers in Florida.

Market research indicates that in a competitive market, one of the most important factors in maintain ing customer loyalty is keeping prices low. FPL has been doing this for some time as a result of its ability to reduce costs and be more productive.

In April of last year, a revenue sharing agreement reached by FPL with the Florida Public Counsel and Exre dinnc

the Public Service Commission reduced base rates by FPL today serves nearly 600,000 more customers more than $1 billion over a fthree-year period. Residential than in 1990 with far fewer employees. Since 1990 customers received a 6% rate cut, and large industrial FPLs operations and maintenance expenses per customers' rates were reduced as much as 12%. kilowatt-hour have been reduced by 36%N This has Despite reducing customers' rates, and, thus, FPL's helped FPL to lower the price of electricity revenues, the agreement provides FPL and its share holders some crucial benefits. In addition to stabilizing rates for a three-year period, the agreement provides incentives for growing earnings, generally permitting further reductions in costs to benefit earnings.

An additional 2% reduction in rates was approved by the Florida Public Service Commaission in late 1999 and became effective January 1 of this year.

The decrease was due in large part to FPL's ability to generate more electricity at its power plants, thereby enabling the company to take advantage of the trading Accommodating Growth skills of its Energy Marketing and Trading Division Florida enjoys a thriving economy, and FPL's (EMT) to sell excess electricity to other utilities. annual customer growth rate, of more than 2% is 36%

Gains from these energy sales flow directly back higher than that of most other electric utilities. In 1999 to FPL customers through cost recovery clauses. more new customer accounts were added than at any This reduction has no impact on earnings, time since 1990, bringing the total number of customer FPL's rates are now at their lowest levels in accounts to approximately 3.8 million.

16 years and the lowest among Florida's major Projections call for continued population growth investorowned utilities. Nationally, average residential of approximately 600,000 within FPL's service area rates are 23% higher than those of FPL. Rates over the next five years. Energy usage also is expect in California, where deregulation is in effect and ed to increase, although usage per customer declined customers have a choice of energy providers, are slightly in 1999 due primarily to milder weather than 45% higher than FPL's. the prior year.

Since 1985, when the last increase in base rates went into effect, FPL's rates have declined more than 16%. Adjusted for inflation, FPL's rates are the lowest in the 75 year history of the company.

Reducing Costs; Increasing Productivity Throughout the 1990s FPL has worked to reduce costs and restructure its organization to increase the efficiency of its operations. By "working smarter" and focusing its attention on what is most important to customers, the company has achieved enormous improvements in productivity and how it does business.

0 Building fit the Future

To accommodate this growth, FPL announced expansion plans to increase its current generating capacity of about 16,500 megawatts by approximately 25% during the next decade, By 2003, FPL will add nearly 2,500 megawatts to its system through ropower ing two existing plants at Fort Myers and Sanford, and by adding additional gas fired peaking units at its Martin County plant site By utilizing natural gas as a fuel, FPL will not only significantly expand its capacity, but will reduce plant emissions as well. This will add to FPL's record as one of the cleanest power producers in the United States.

Building a Culture of Service Reducing costs while maintaining or improving the quality of service and reliability is a major challenge for any utility and one that FPL has met with remark able success.

Since launching an aggressive three-year,

$450 million program in 1997 called Reliability 2000, FPL has dramatically improved the levels of its service FPL Gioup, Inc. 1999 C 1?

After impressive results in 1998, even greater improvements were achieved in 1999, including: J

" a 25% reduction in the average amount of time customers were without power during the year, from 100 minutes to 75 minutes. This is well below the national average.

" a 7% decline in the average length of interruptions, from 65 minutes to 61 minutes, and "o a 19% reduction in the frequency of service inter ruptions for all customers, from 1.5 to 1.2 annually.

Reducing Outage Timjýice e Improving Serv (Overall length of outages/ rni Tuýtes) Reliability (Total outage time per customer/minutes) 81 137 6 100 75 1

I 1 1 1 1 L m In addition to providing greater reliability, FPL is

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utilizing the latest technologies to develop innovative new programns that enhance customer service.

As an example, consumers may now log onto FPL's Web site to have electric service connected or disconnected and to obtain useful information about how to better manage their electricity usage. A system called F-bill allows them to pay their bills electronically via the Internet. An automated phone line gives cus-Right: A new radio dispatch system now being installed enables us to provide better

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response time to customers and improve our overall service restoration capability.

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tomers specific information about why an outage Of particular importance to today's consumers occurred and when power will be restored. are customer call centers because this is where In acknowledgment of its efforts in this area, FPL customers most often communicate with companies.

was presented the 1999 Ultra Award by the industry FPL's call center representatives received particularly publication Public UtilitiesFortnightly and IBM. The high marks from customers for their ability to solve award recognized FPL for developing "the most innov problems or answer questions over the phone quickly ative application for information technology" among and courteously.

energy companies. In addition, FPL was recognized for having one of the top 10 most useful and effective World-Class Performance:

Web sites in a worldwide evaluation of 144 utility Web Reliability sites conducted by Andersen Consulting. FPL's power plants continued their outstanding In 1999 J.D. Power and Associates and Metzler & performance in 1999.

Associates initiated the first annual nationwide survey One key measure of plant performance is "avail of electric consumer satisfaction. The survey measures ability" - the percentage of time a plant is available how customers feel about the service of the nation's to produce electricity. FPL's fossil-fueled plants top 78 electric utilities in several key areas, including those that use coal, oil or natural gas as fuel to gener response to customers, care and concern, the ability to ate electricity- achieved 93% availability during 1999.

quickly and accurately answer questions, and follow This performance compares to an industry average of through to customers. 87%. FPL's fossil fleet ranks in the top 10% of similar In each of these areas, customers judged FPL to plants nationwide.

) he among the premier performers nationwide, at or near the top 25%. In Florida, FPL was rated best BeLow: Enhancements, such as replacing or upgrading underground electric facilities, improved our already high levels of electric service reliability in 1999.

overall among the major utilities and received the highest ratings in virtually every category of customer concern.

These included:

"* the willingness to help reduce the price of electricity;

"* help in understanding monthly bills and available pricing options;

"* convenient service hours;

"* courteous, caring, knowledgeable, and helpful service representatives; and

" the ability to effectively communicate any changes that may affect electric service.

FPL's nuclear plants also are setting records for excellence. The 1999 availability factor of 94% is the highest ever achieved at FPL and well above the industry norm. Both of FPL's nuclear facilities Turkey Point south of Miami and St. Lucie on Hutchinson Island are recognized as being among the nation's best.

The two nuclear units at Turkey Point have been providing FPL customers with clean, economical ener gy since the early 1970s, The units at St Lucie were completed in 1976 and 1983. Both plants were origi nally licensed to operate for 40 years FPL intends to submit applications to the Nuclear Regulatory Commission to renew the license and extend the operations for both Turkey Point and St Lucie, The application for Turkey Point where the units' operating licenses expire in 2012 and 2013 is expected to be filed later this year, The application for St. Lucie is scheduled for 2002. It is anticipated that the review process will take approximately two years, Left: The Turkey Point nucear plant raceved Pwer maqoanne% annuol Power Plant Award for is worldnclss operotens 1999.

Below FPRufass~i puants 9enesned ecxAllnt performance in 199Q reaching 93%

ýavlbi[h cnnpard to an industy ovemag q 87%.

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In 1999 Turkey Point was selected by Power mag azine to receive its annual Power Plant Award. The nuclear plant was praised for its "creative management practices" and its leadership in the application of advanced equipment designs, as well as operating and maintenance techniques.

Turkey Point and St. Lucie both continue to receive exceptional ratings from the World Association of Nuclear Operators.

Superior plant performance is significant in that it helps utilities to avoid the cost of building additional electric plants. In addition, the plants' ability to pro duce maximum power provides excess generation that can be sold to other utilities.

The gains from these energy sales, handled through the utility's Energy Marketing and Trading Division (EMT), flow back directly to customers through cost recovery clauses and help lower the price of electricity.

EMT is a leading wholesale marketer and trader that utilizes state-of-the-art systems to trade gas, oil and power 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, 7 days a week. Its transac tions exceeded $1 billion during 1999, benefiting FPL customers with an estimated $62 million in savings.

Rising to the Occasion During 1999 the resources of FPL and the resolve of its employees were once again tested by major storms that swept through the utility's service area.

"* In September, Hurricane Floyd left more than half a million customers without power. Service was restored within 72 hours8.333333e-4 days <br />0.02 hours <br />1.190476e-4 weeks <br />2.7396e-5 months <br />.

"* In October, Hurricane Irene followed with even greater devastation. A combination of high winds and heavy flooding affected more than 1.7 million customers, and service was virtually restored within 48 hours5.555556e-4 days <br />0.0133 hours <br />7.936508e-5 weeks <br />1.8264e-5 months <br />.

Left: In recognition of the company's rapid response in the wake of Hurricane Irene, FPL received the Edison Electric Institute's (EEI) Emergency Response Award. FPL's performance was described by the EEI as "a model for electric utilities everywhere."

FPL Group, Inc. 1999

In response to each storm, thousands of FPL Y2K employees, contractors and crews from other utilities FPL was one of the first utilities to begin preparing for worked around the clock to restore power as quickly the new millennium, and its comprehensive Y2K prepara as possible. tions were essentially completed by June of last year.

Replacing or repairing computerized equipment Quality: a Cornerstone and systems that might have been affected by the As part of its long-standing quality culture, Florida rollover to the year 2000 was a massive project involv Power & Light utilizes a variety of quality processes to ing the work of hundreds of employees. Thanks to enhance its position as a high performance organiza their extraordinary efforts, the new century entered tion capable of continuous improvement. with no disruptions in electric service to customers.

Part of the company's quality efforts focus on establishing "best practices" - that is, to find superior ways of doing business and to spread those practices throughout the organization.

Q Building for the Future

Focus on Safety Nothing is more important in the operations of FPL Group than safety. Accordingly, the company insists that its employees treat safety and all the practices associated with it as core values never to be compromised. In 1999 the number of serious employee injuries for every 200,000 hours0 days <br />0 hours <br />0 weeks <br />0 months <br /> worked at FPL was 3.18.

Building on our Environmental Commitment FPL is committed to operating all of its facilities in harmony with Florida's sensitive eco-system to make the state a better place to live and work. In line with this commitment, FPL takes every opportunity to minimize the effects of its operations on the environment.

As a result, FPL's power plants are among the "cleanest" in the nation with fewer emissions per megawatt-hour of electricity generated than all other major electric utilities in Florida.

Over the last five years, FPL has reduced sulfur dioxide by 20%, carbon dioxide by 35% and nitrogen dioxide by 32%.

FPL also is reducing significantly the amount of hazardous waste materials such as paint and solvents.

These wastes have been reduced 89% since 1986.

In addition, FPL is taking steps to protect Florida's valuable water resources through recycling. Equipment is being installed at several power plants to reduce by 30% the amount of water taken from cities or wells for use in plant processes.

Recycling of materials such as scrap wood, cable, porcelain, and metals also is increasing. FPL recycled Ri~l~neiCI ann F

almost 20,000 tons of these and other materials in One example is the "On Call" program in which 1999, up from 11,000 tons in 1995.

By recovering ash and selling it to be recycled residential customers can allow FPL to automatically turn off certain home appliances for short periods of I

for commercial purposes such as concrete production, time during peak energy usage. This enables FPL to FPL has virtually eliminated landfill burial of ash from meet exceptionally high demands for electricity, while its fuel plants. allowing customers to receive credits on their bills.

FPL's recycling and waste reduction efforts were FPL also works with business customers to help recognized for the second year in a row in 1999 when them save money by using energy more efficiently.

the company was named one of 20 "program champi The Commercial Industrial Building Envelope program ons" nationwide by the U.S. Environmental Protection offers rebates for such items as window film, awnings, Agency in conjunction with its "WasteWise" program. shutters, high-efficiency windows, and roof and ceiling insulation.

Conservation: Encouraging the Wise Use of Electricity Building Strong Communities While adding new facilities to meet the growing FPL's involvement in the communities it serves energy needs of its customers, FPL continues to extends beyond meeting its customers' energy require emphasize energy conservation programs to encour ments to caring about other important needs such as age the "wise use of electricity." This helps reduce education, health and human services.

energy demand during peak periods and allows the In 1999 FPL invested $200,000 in scholarship utility to defer building additional new power plants funds at Florida A&M University, one of the nation's that might otherwise have to be built, saving money top institutions for African-American students. FAMU and natural resources. has been a source of outstanding talent for FPL's work force for many years and, with even closer ties to the Below: For the second consecutive year, FPL's recycling and waste reduction program school, the number of successful FAMU alumni was recognized by the U.S. Environmental Protection Agency as one of the top WasteWise program champions nationwide.

employed at FPL is expected to grow in the future.

At the middle school level, FPL sponsors the South Florida Future Cities competition. The program allows students, with coaching from teachers and engineers, to design next-generation cities. In this way students can experience the excitement and promise of engineering as a career, as well as better under standing the complexities of developing and manag ing a community.

W BuiLding for the Future

To spark interest in science education, a special program called "PL's Electrifying Experience" is being made available to public schools throughout the FPL service area. Robert Kranmpf, also known as "Mr.

Electricity," expects to visit more than 200 schools during the current school year, educating students from kindergarten through sixth grade on the basics of electricity and electrical safety.

In 1999 FPL employees pledged a record $1.8 mil lion to 26 United Way organizations located within the company's service area, This was a 12% increase over the previous year and, combined with the company s contribution, resulted in a total of $2.4 million to help fund a wide variety of local community programs for individuals and families in need.

Left: FPL Pswidoet Paul evanson signoN the start of the onnual Race for the Cure in West An, Beech, aonevent that ben2515 the Suson . Komen Sreast Cancer Foundtffon.

Beloe, "FPI<s Efierfifying £xpelence" nUvisit more than 200 etementos, scenes this year to educate ltudents on the bosens of electby and eedncorl sarefy.

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FPL Energy is the independent power generation "* optimizing profitability of current assets through subsidiary of FPL Group and the company's fastest operating improvements, energy marketing and growing business. The subsidiary grew its portfolio by trading, and site expansions; nearly 6 0% in 1999, while significantly improving the "* acquiring independent power projects, portfolios operating performance of its existing plants. Net and/or companies, as well as assets being divested income, excluding nonrecurring items, rose 81% from by electric utility companies;

$32 million in 1998 to $58 million. "* developing, building, and operating new power At the end of 1999, FPL Energy had in operation plants; and more than 3,000 megawatts of net generating capacity. "* financial and ownership restructuring.

It had plants operating in or under construction or development in 13 states, as well as South America. In pursuing its strategy for growth, FPL Energy FPL Energy emphasizes the use of clean fuels and combines its skills with those of the energy marketing generation technologies throughout its operations. and trading division and the power generation division Of its power plants in operation or under construction, of FPL.

more than half use or will use clean-burning natural Energy marketing and trading, or EMT, was formed gas as fuel. Nearly one-third of its capacity comes from in 1997 to enhance FPL Group's generating assets.

renewable resources including wind, solar, and hydro. It supports the growth of FPL Energy through fuel The company's use of natural gas and renewable procurement, excess power sales, and asset-backed resources makes it one of the cleanest power produc trading of both fuel and electricity.

ers in the United States. The power generation division provides expertise FPL Energy's strategy for income growth takes in all generation technologies and successfully utilizes into account both diversity of fuel and geography. benchmarking and best prac The strategy includes: tices to achieve operational

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excellence. It has developed an operational model by provide the lowest cost power in New England. The which it can rapidly deploy a high performance culture output is sold either through wholesale contracts or and share best practices with the workforce at newly to the New England Power Pool, or NEPOOL.

acquired or constructed assets. As part of its acquisition strategy, FP Energy looks At the 665-megawatt Doswell natural gas fueled to buy generating assets from independent power pro plant near Richmond, Virginia, staffing has been ducers, as well as those put up for auction by utilities, reduced 38%/0 since 1997, and non-fuel operations FPL Energy's development strategy concentrates on and maintenance costs are down 45%. At the same base load and peaking generation within particular time, plant availability has increased from 86% to 97%. regions. By establishing and enhancing its regional Output from the Doswell plant is sold under a long offices, FPL Energy is able to benefit from local knowl term contract that was renegotiated in late 1998, edge and achieve a more in-depth understanding resulting in more favorable terms for FPI Energy. of local regulatory and market issues FPL Energy's Since acquiring 50% ownership in two 300 operational and construction expertise, knowledge of megawatt plants in Bellingham, Massachusetts, and energy marketing and trading, and FPL Group s strong Sayreville, New Jersey, FPL Energy has increased balance sheet provide substantial advantages in its plant profitability through a variety of actions, including development activities, reducing plant personnel and lowering non fuel costs. For example, in Texas, the construction of a Almost all of the output from the plants is sold under 1,000 megawatt natural gas fired power plant near long term contracts to local utilities. the city of Paris continues ahead of schedule with Operating improvements also were achieved at the plant scheduled to begin operation by mid 2000.

the Wyman plant, one of FPL Energy's newly acquired Approximately 70% of the plants output is to be plants in Maine, including an increase in plant avail sold under one to five year contracts ability and lowering of the forced outage rate This FPL Energy completed construction during 1999 610-megawatt plant was among the more than 1,100 on two wind energy sites in Texas and Iowa totaling megawatts of generating assets acquired from Central almost 120 megawatts With net wind generation of Maine Power in April of 1999 The acquisition also more than 450 megawatts, TPL Energy is one of the included 373 megawatts of hydro-powered units that nation's largest generators of electricity from wind.

Below: Hydro capoaty wrosadded to FPL Sneisys cdean eneagy poatnsom when tup compay ocqwtted the non dsctear onsets of Central Maine Power Company lost year SHydro 9%

Right: Anmasin blue denote sie of FfP Energy poject ond offices.

Effective July 1999, Congress extended for 30 months wind eneg progy duction tax credits, In addition, 42 ..

some states now require a portion of generat ing capacity to come from renewable sources. These factors have the potential to furthfet expand the market for wind-generated power.

After acquiring a 50-megawatt power plant at Sunoco s Marcus Hook refinery near Philadelphia in 1999, FPL Energy announced plans to build and operate a 725 megawatt natural gas-fired facility at the same refinery. The company expects the plant to be opera tional by 2003.

in recent years, FPL Energy has undergone a trans formation from a passive investor in small, geographical ly and technically disparate projects to a company focused on developing and acquiring larger generating projects. FPL Energy is currently in the process of open ing offices in regions where its interest and development opportunities are greatest. Two offices - in Texas and Pennsylvania - were opened in 1999. Additional offices are expected to open by the end of 2000.

In addition to its strong existing portfolio and its ability to improve the performance and profitability of its current assets, FPL Energy has a pipeline of potential projects sufficient for continued growth. If the portfolio grows at the same rate as the past two years, it would exceed 10,000 megawatts by 2003.

Inset, Foundatons onepreporedfrr one of FPL £beegy'5 8$7Zot toll wind towei near it.r Loke Iowa.

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At the beginning of 2000, FPL Group launched a FPL FiberNet expects sales to be between $30 and new subsidiary, FPL FiberNet LLC, to sell fiber-optic $40 million in its first year of operation. The business, network capacity on a wholesale basis to telephone, which is already profitable, is expected to be an cable television, Internet service providers and other earnings enhancer near-term, but is not expected to telecommunications companies in Florida. provide significant contributions to earnings growth The subsidiary acquired its existing 1,600-mile, for several years.

long-haul, inter-city fiber network from FPL and has The fiber-optic network was originally developed begun to augment the network by building and in the late 1980s to provide internal telecommunica operating intra-city networks in major metropolitan tions services to support company operations. In 1996 areas in Florida. FPL is also a customer of the FPL began selling excess fiber-optic capacity along its subsidiary, enjoying the same reliable, low-cost network to the major telecommunications companies telecommunications services as in the past. operating in Florida. Since its launch, FPL FiberNet has FPL FiberNet's inter-city network, which has expanded its customer base to include Internet service been in operation for 12 years, travels from Miami to providers and other telecommunications companies, Jacksonville on the east coast of Florida; Lake City in who will take advantage of the expanded network.

north Florida; and Tampa south on the west coast.

Construction of an intra-city network in Miami has been completed and similar projects )ACKSONVILLE are underway in Fort Lauderdale, Tampa and West Palm Beach. FPL FiberNet expects to invest approxi DAYTONA mately $75 million toward its metropolitan network expansion in 2000 and plans to complete construction of 15 metropolitan networks in Florida by 2002.

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FPL Group, Inc. 1999

financial and operating statistics For the Years Ended December 31, 1999 1998 1997 1996 1995 1994 1989 FPL GROUP, INC. (millions)

Operating Revenues $6,438 $6,661 $6,369 $6,037 $5,592 $5,423 $5,033 Operating Expenses $5,518 $5,409 $5,141 $4,866 $4,395 $4,274 $4,124 Operating Income $920 $1,252 $1,228 $1,171 $1,197 $1,148 $909 Net Income $697() $664 $618 $579 $553 $519 $410 Total Assets $13,441 $12,029 $12,449 $12,219 $12,459 $12,618 $10,527 Long-Term Debt (excluding current maturities) $3,478 $2,347 $2,949 $3,144 $3,377 $3,864 $3,449 Preferred Stock of FPL with sinking fund requirements (excluding current maturities) $- $- $- $42 $50 $94 $164 Energy Sates (kwh) 92,483 91,041 84,642 80,889 79,756 77,096 66,018 FLORIDA POWER & LIGHT COMPANY Operating Revenues (millions) $6,057 $6,366 $6,132 $5,986 $5,530 $5,343 $4,946 Energy Sates (millions of kwh) 88,067 89,362 82,734 80,889 79,756 77,096 66,018 Customer Accounts - Average (thousands) 3,756 3,680 3,616 3,551 3,489 3,422 3,064 Peak Load, Winter (mw 60-minute)(2 ) 17,057 16,802 13,047 16,490 18,096 16,563 13,988 Peak Load, Summer (mw 60-minute) 17,615 17,897 16,613 16,064 15,813 15,179 13,425 Total Capability (summer peak, mw)"3' 18,649 18,509 18,715 18,538 18,153 18,146 16,063 Reserve Margin (summer peak, %)(3) 14 10 20 23 21 26 21 Net Energy for Load (°/o): )

Oil 25 27 18 18 19 31 23 Natural Gas 25 26 29 29 31 20 18 Nuclear 27 26 25 26 25 26 25 Net Purchased Power and Interchange 16 14 20 20 18 17 32 Coal 7 7 8 7 7 6 2 Capital Expenditures (including nuclear fuel and AFUDC) $924 $617 $551 $474 $669 $772 $783 COMMON STOCK DATA Average Shares Outstanding (millions)(') 171 173 173 174 175 178 132 Earnings Per Share of Common Stock I')) $4.07(l) $3.85 $3.57 $3.33 $3.16 $2.91 $3.12 Dividends Paid Per Share $2.08 $2.00 $1.92 $1.84 $1.76 $1.88 $2.26 Book Value Per Share (year end) $31.47 $29.76 $28.03 $26.46 $25.12 $23.82 $25.89 Market Price Per Share (year end) $42'/- $61y/ $59/- $46 $463/ý $35 , $363/

Market Price Per Share (high-Low) $61-/--41y- $727--567/ $60-42y, $48/--41 Y2 $46V/-34 $39'/-267s $363/4-29 Number of Shareholders (year end) 50,215 55,149 60,493 67,580 74,169 82,021 68,204 (1) Includes effects of gain on sale of Adelphia Communications Corporationstock, impairment loss on Maine assets, settlement of litigation between FPL and FMPA and the gain on the redemption of a one-third ownership interest in a cable limited partnership. Excluding these nonrecurringitems, net income and earningsper share would have been $681 million and $3.98, respectively.

(2) Winter season includes November-December of currentyear and January-March of following year.

(3) Represents installed capability plus purchased power. Reserve margin is based on peak load net of load management.

(4) Reflects a reduction of 8 million in 1999, 9 million in 1998, 1997 and 1996, 10 million in 1995 and 11 million in 1994 of unallocated shares held by the ESOP due to an accounting standardadopted effective January 1, 1994.

9 (5) Basic and assuming dilution.

eBuiLding for the Future

management's discussion and analysis of financial condition and results of operations RESULTS OF OPERATIONS fees. Revenues from retail base operations were S3.2 billion, The operations of Florida Power & Light (FPL) continue $3.6 billion and S3.4 billion in 1999, 1998 and 1997, respec to be the predominant contributor to FPL Group, Inc.'s (FPL tively. Revenues from cost recovery clauses and franchise fees Group) earnings. Earnings growth, however, over the past two represent a pass-through of costs and do not significantly affect years has mostly come from improved results at FPL Energy, net income. Fluctuations in these revenues are primarily driven LLC (FPL Energy). by changes in energy sales, fuel prices and capacity charges.

FPL Group's 1999 net income and earnings per share In 1999, the Florida Public Service Commission (FPSC) grew 5.0% and 5.7%, respectively. The 1999 amounts include approved a three-year agreement among FPL, the State of the net effect of several nonrecurring transactions that resulted Florida Office of Public Counsel (Public Counsel), The Florida in additional net income of $16 million, or $0.09 per share for Industrial Power Users Group (FIPUG) and The Coalition for the year. Excluding the nonrecurring items, FPL Group's net Equitable Rates (Coalition) regarding FPL's retail base rates, income was $681 million and earnings per share were $3.98, authorized regulatory return on common equity (ROE), capital 6 structure and other matters. The agreement, which became resulting in growth of 2. % and 3.4%, respectively. The com parable growth rates for 1998 were 7.4% and 7.8%, respective effective April 15, 1999, provides for a S350 million reduction ly. The nonrecurring transactions are discussed in more detail in annual revenues from retail base operations allocated to all below within the segment to which they relate. customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of FPL,- FPL's results for 1999 include the settlement of the twelve-month periods covered by the agreement, whereby litigation between FPL and Florida Municipal Power Agency revenues from retail base operations in excess of a stated (FMPA), which resulted in a fourth quarter after-tax charge of threshold will be shared on the basis of two-thirds refunded to

$42 million. The charge, included in other operations and retail customers and one-third retained by FPL. Revenues from maintenance (O&M) expenses, reflects a settlement agreement retail base operations in excess of a second threshold will be pursuant to which FPL agreed to pay FMPA a cash settlement; refunded 100% to retail customers.

FPL agreed to reduce the demand charge on an existing The thresholds are as follows:

power purchase agreement; and FPL and FMPA agreed to (millions) enter into a new power purchase agreement giving FMPA the Twelve Months Ended April 14, 2000 2001 2002 right to purchase limited amounts of power in the furure at a Threshold to refund 667/3% to customers $3,400 $3,450 $3,500 specified price. This agreement settled a dispute with FMPA Threshold to refund that had been pending for nearly ten years. 100% to customers $3,556 $3,606 $3,656 FPL's net income for 1999, excluding the FMPA charge, was up slightly from 1998. Lower depreciation, customer Offsetting the annual revenue reduction will be lower growth and lower O&MV expenses offset the effect of the rate special depreciation. The agreement allows for special depreci reduction, implemented in April 1999, and a decline in electrici ation of up to $100 million, at FPL's discretion, in each year ty used by retail customers. FPL's net income growth in 1998 of the three-year agreement period to be applied to nuclear compared to 1997 was primarily associated with an increase in and/or fossil generating assets. Under this new depreciation total kilowatt-hour (kwh) sales and lower interest charges, part program, FPL recorded approximately S70 million of special ly offset by higher depreciation and O&M expenses. depreciation in 1999. The new depreciation program replaced FPL's operating revenues consist primarily of revenues a revenue-based special amortization program whereby from retail base operations, cost recovery clauses and franchise special amortization in the amount of $63 million, S378 million FPL Group, Inc. 1999

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$is c £nt10uedo 2H and $199 million was recorded in 1999, 1998 and 1997, announced to date in Florida. However, only two submissions respectively.

In addition, the agreement lowered FPL's authorized to seek a determination of need totaling approximately 1,000 megawatts (mw) have been presented to the FPSC. In March

)

regulatory ROE range to 10% - 12%. During the term of the 1999, the FPSC approved one of the petitions for a power agreement, the achieved ROE may from time to time be out plant to be constructed within FPL's service territory. FPL, side the authorized range, and the revenue sharing mechanism along with other Florida utilities, has appealed the decision described above is specified to be the appropriate and exclu to the Florida Supreme Court. Since there is no deregulation sive mechanism to address that circumstance. FPL reported an proposal currently under consideration in Florida, FPL is ROE of 12.1%, 12.6% and 12.3% in 1999, 1998 and 1997, unable to predict the impact of a change to a more respectively. See Note 1 - Revenues and Rates. competitive environment or when such a change might The decline in revenues from retail base operations during occur. See Note 1 - Regulation.

1999 was to a large extent due to the negative impact of the agreement that reduced retail base revenues by approximately FPL Energy - FPL Energy's 1999 and 1998 operating results

$300 million. A 2.8% decline in usage per retail customer main benefited from a 60% and 51% increase, respectively, in the ly due to milder weather conditions than the prior year was generating capacity of FPL Energy's power plant portfolio.

almost entirely offset by an increase in the number of customer Operating results also benefited from improved results of a accounts. The number of customer accounts grew 2% to gas-fired power plant in the Mid-Adantic region, mainly due to approximately 3.8 million in 1999. the financial restructuring of the project, renegotiation of fuel The increase in retail base revenues in 1998 from 1997 and power sales contracts, lower non-fuel O&M expenses and reflects a 4.8% increase in usage per retail customer from improved plant availability. The improvement in FPL Energy's warmer weather combined with a 1.8% increase in the number of customer accounts.

1999 operating results were partly offset by higher administra tive expenses to accommodate future growth. The generating J FPL's O&M expenses in 1999 benefited from continued capacity growth since 1997 is primarily the result of the acqui cost control efforts. This was partially offset by higher overhaul sition of the Maine assets (1,117 mw), natural gas projects costs at fossil plants. O&M expenses increased in 1998 as a (300 mw) in the Northeast region and several wind projects result of additional costs associated with improving the service (291 mw) in the Central and West regions.

reliability of FPL's distribution system, partially offset by lower In 1999, FPL Energy's operating results include the effect nuclear maintenance costs and energy conservation cost of a $176 million ($104 million after-tax) impairment loss. See recovery clause (conservation clause) expenses. Conservation Note 9. FPL Energy's 1998 operating results reflect the cost of clause expenses are essentially a pass-through and do not terminating an interest rate swap agreement, partly offset by affect net income. the receipt of a settlement relating to a contract dispute.

Lower interest charges in 1999 and 1998 reflect lower Deregulation of the electric utility market presents both average debt balances and the full amortization in 1998 of opportunities and risks for FPL Energy. Opportunities exist for deferred costs associated with reacquired debt. the selective acquisition of generation assets that are being The electric utility industry is facing increasing competitive divested under deregulation plans and for the construction and pressure. FPL currently faces competition from other suppliers operation of efficient plants that can sell power in competitive of electrical energy to wholesale customers and from alterna markets. Substantially all of the energy produced in 1999 by tive energy sources and self-generation for other customer FPL Energy's independent power projects was sold through groups, primarily industrial customers. In 1999, operating power sales agreements with utilities that expire in 2000-24.

revenues from wholesale and industrial customers combined As competitive wholesale markets become more accessible represented approximately 4% of FPL's total operating to other generators, obtaining power sales agreements will 9 revenues. A number of potential merchant plants have been become a progressively more competitive process. FPL Energy SBuilding for the Future

expects that as its existing power sales agreements expire, power project. Capital expenditures of FPL for the 2000-02 more of the energy produced will be sold through shorter-term period are expected to be approximately 83.1 billion, contracts and into competitive wholesale markets. including 51.3 billion in 2000. FPL Group Capital and its Competitive wholesale markets in the United States contin subsidiaries have guaranteed approximately 8680 million ue to evolve and vary by geographic region. Revenues from of purchased power agreement obligations, debt service electricity sales in these markets will vary based on the prices payments and other payments subject to certain contingencies.

obtainable for energy, capacity and other ancillary services. See Note 12 - Commitments.

Some of the factors affecting success in these markets include Debt maturities of FPL Group's subsidiaries will require the ability to operate generating assets efficiently, the price and cash outflows of approximately $595 million through 2004, supply of fuel, transmission constraints, competition from new including $125 million in 2000. It is anticipated that cash sources of generation, demand growth and exposure to legal requirements for capital expenditures, energy-related and regulatory changes. investments and debt maturities in 2000 will be satisfied with internally generated funds and debt issuances. Any internally Corporate and Other - In 1999, net income for the corpo generated funds not required for capital expenditures and rate and other segment reflects a $149 million ($96 million current maturities may be used to reduce outstanding debt or after-tax) gain on the sale of an investment in Adelphia repurchase common stock, or for investment. Any temporary Communications Corporation common stock, a $108 million cash needs will be met by short-term bank borrowings. In

($66 million after-tax) gain recorded by FPL Group Capital Inc 1999, FPL Group Capital redeemed S125 million in debentures.

(FPL Group Capital) on the redemption of its one-third equity which resulted in a loss on reacquired debt of approximately interest in a cable limited partnership, costs associated with $8 million and issued $1.4 billion in debentures, primarily to closing a retail marketing business and the favorable resolution finance FPL Energy's generating capacity growth. In 1999, FPL of a prior year state tax matter. In 1998, net income for the had 8230 million in first mortgage bonds mature and issued corporate and other segment reflects a loss from the sale of $225 million in first mortgage bonds, primarily to redeem 8216 Turner Foods Corporation's assets, the cost of terminating an million first mortgage bonds with a 2% higher interest rate.

agreement designed to fix interest rates and adjustments Bank lines of credit currently available to FPL Group and its relating to prior years' tax matters, including the resolution subsidiaries aggregate $2.4 billion.

of an audit issue with the Internal Revenue Service. During 1999, FPL Group repurchased 2.2 million shares of common stock under the 10 million share repurchase Year 2000 - FPL Group did not experience any significant program. As of December 31, 1999, FPL Group is authorized year 2000-related problems. The total cost of addressing year to repurchase an additional 6.2 million shares under 2000 issues was approximately $37 million. this program.

FPL self-insures for damage to certain transmission and LIQUIDITY AND CAPITAL RESOURCES distribution properties and maintains a funded storm reserve to FPL Group's capital requirements consist of expenditures to reduce the financial impact of storm losses. The balance of the meet increased electricity usage and customer growth of FPL storm fund reserve at December 31, 1999 and 1998 was S216 and investment opportunities at FPL Energy. In 1999, FPL million and $259 million, respectively. During 1999, storm find Group's capital expenditures reflect FPL Energy's investment reserves were reduced to recover the costs associated with in generating assets in Maine and the cost of constructing a three storms. Bank lines of credit of $300 million, included in natural gas power plant in Texas, as well as FPL's power plant the S2.4 billion above, are also available if needed to provide expansion activities. As of December 31, 1999, FPL Energy has cash for storm restoration costs. The FPSC has indicated that it made commitments totaling approximately $72 million, primari would consider future storm losses in excess of the funded ly in connection with the development of an independent reserve for possible recovery from customers.

FPL Group, Inc. 1999

11 11)

"I r7 6ro1-5ace qtinued FPL's charter and mortgage contain provisions which, include S291 million and $72 million, respectively, of under certain conditions, restrict the payment of dividends investments that are carried at estimated fair value or cost, )

and the issuance of additional unsecured debt, first mortgage wxhich approximates fair value.

bonds and preferred stock. Given FPL's current financial The following are estimates of the fair value of FPL condition and level of earnings, expected financing activities Group's long-term debt:

and dividends are not affected by these limitations.

(millions) 1999 1998 Carrying Fair Carrying Fair NEW ACCOUNTING RULE Value Value Value Value In June 1998, the Financial Accounting Standards Board Long-term debt(') $3,603 $3,518"b) $2,706 $2,7971" issued Financial Accounting Standards No. (FAS) 133, (a) Includes current maturities.

"Accounting for Derivative Instruments and Hedging Activities." (b) Based on quoted market prices for these The statement establishes accounting and reporting standards or similar issues.

requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be record \larket risk associated xvith all of these securities is ed in the balance sheet as either an asset or liability measured estimated as the potential gain in fair value of net liabilities at its fair value. The statement requires that changes in the resulting from a hypothetical 10% increase in interest rates derivative's fair value be recognized currently in earnings and amsounts to S97 million and $68 million at December 31, unless specific hedge accounting criteria are met. FPL Group is 1999 and 1998, respectively.

curTently assessing the effect, if any, on its financial statements of implementing FAS 133. FPL Group will be required to adopt Equity price risk - Included in the special use funds of FPL FAS 133 beginning in 2001. are marketable equity securities carried at their market value of approximately $573 million and $556 million at December 31, )

MARKET RISK SENSITIVITY 1999 and 1998, respectively. A hypothetical 10% decrease in Substantially all financial instruments and positions held the prices quoted by stock exchanges would result in a S56 by FPL Group described below are held for purposes other million reduction in fair value and corresponding adjustment to than trading. the related liability accounts based on current regulatory treat ment at both December 31, 1999 and 1998.

Interest rate risk - The special use funds of FPL include restricted funds set aside to cover the cost of storm damage Other risks - Under current cost-based regulation, FPL's cost and for the decommissioning of FPL's nuclear power plants. of ftel is recovered through the fuel and purchased power cost A portion of these funds is invested in fixed income debt secu recovery clause (fuel clause), with no effect on earnings. FPL's rities carried at their market value of approximately S847 mil Energy Marketing & Trading Division buys and sells wholesale lion and 5650 million at December 31, 1999 and 1998, respec energy commodities, such as natural gas, oil and electric tively. Adjustments to market value result in a corresponding power. The division procures natural gas and oil for FPL's and adjustment to the related liability accounts based on current FPL Energy's use in power generation and sells excess electric regulatory treatment. Because the funds set aside for storm power. Substantially all of the result of the FPL activities are damage could be needed at any time, the related investments passed through to customners in the fuel or capacity clauses.

are generally more liquid and, therefore, are less sensitive to FPli Energy's results of these activities are recognized in changes in interest rates. The nuclear decommissioning funds, income by FPL Energy. The level of activity is expected to in contrast, are generally invested in longer-term securities, as grow as FPL and FPL Energy seek to manage the risk associat decommissioning activities are not expected to begin until at ed with fluctuating commodity prices and increase the value of least 2012. At December 31. 1999 and 1998, other investments their power generation assets. At December 31, 1999, there xxwere no material open positions in these activities.

O Buitding for the Future

MANAGEMENT'S REPORT internal auditors and the independent auditors to make The management of FPL Group is responsible for the inquiries as to the manner in which the responsibilities of each integrity and objectivity of the financial information and repre are being discharged. The independent auditors and the inter sentations contained in the consolidated financial statements nal audit staff have free access to the Committee without man and other sections of this Annual Report. The consolidated agement's presence to discuss auditing, internal accounting financial statements, which in part are based on informed control and financial reporting matters.

judgments and estimates made by management, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis. INDEPENDENT AUDITORS' REPORT To aid in carrying out this responsibility, management To the Board of Directors and Shareholders, FPL Group, Inc.:

maintains a system of internal accounting control, which is We have audited the accompanying consolidated balance established after weighing the cost of such controls against sheets of FPL Group, Inc. and subsidiaries as of December 31, the benefits derived. The overall system of internal accounting 1999 and 1998, and the related consolidated statements of control, in the opinion of management, provides reasonable income, shareholders' equity, and cash flows for each of the assurance that the assets of FPL Group and its subsidiaries are three years in the period ended December 31, 1999. These safeguarded and transactions are executed in accordance with financial statements are the responsibility of the company's management's authorization and are properly recorded for the management. Our responsibility is to express an opinion on preparation of financial statements. In addition, management these financial statements based on our audits.

believes the overall system of internal accounting control pro We conducted our audits in accordance with generally vides reasonable assurance that material errors or irregularities accepted auditing standards. Those standards require that would be prevented or detected on a timely basis by employ we plan and perform the audit to obtain reasonable assurance ees in the normal course of their duties. Due to the inherent about whether the financial statements are free of material limitations of the effectiveness of any system of internal misstatement. An audit includes examining, on a test basis, accounting control, management cannot provide absolute evidence supporting the amounts and disclosures in the assurance that the objectives of internal accounting control will financial statements. An audit also includes assessing the be met. The system of internal accounting control is supported accounting principles used and significant estimates made by written policies and guidelines, the selection and training of by management, as well as evaluating the overall financial qualified employees, an organizational structure that provides statement presentation. We believe that our audits provide an appropriate division of responsibility and a program of a reasonable basis for our opinion.

internal auditing. To further enhance the internal accounting In our opinion, such consolidated financial statements pre control environment, management has prepared and distrib sent fairly, in all material respects, the financial position of FPL uted to all employees a Code of Conduct which states manage Group, Inc. and subsidiaries at December 31, 1999 and 1998, ment's policy on conflict of interest and ethical conduct. and the results of their operations and their cash flows for each FPL Group's independent auditors, Deloitte & Touche LLP, of the three years in the period ended December 31, 1999 in are engaged to express an opinion on FPL Group's financial conformity with generally accepted accounting principles.

statements. Their report is based on procedures believed by them to provide a reasonable basis to support such an opinion.

The Board of Directors pursues its oversight responsibility for Deloitte & Touche LLP Certified Public Accountants financial reporting and accounting through its Audit Miami, Florida Committee. This Committee, which is comprised entirely of February 11, 2000 outside directors, meets periodically with management, the FPL Group, Inc. 1999

consolidated balance sheets (millions) FPL Group, Inc.

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December 31, 1999 1998 PROPERTY, PLANT AND EQUIPMENT Electric utiLity pLant in service and other property $18,474 $17,592 Nuclear fuel under capital lease - net 157 146 Construction work in progress 923 214 Less accumulated depreciation and amortization (10,290) (9,397)

Total property, plant and equipment - net 9,264 8,555 CURRENT ASSETS Cash and cash equivalents 361 187 Customer receivables, net of allowances of $7 and $8 482 559 Materials, supplies and fossil fuel inventory - at average cost 343 282 Deferred clause expenses 54 82 Other 133 156 Total current assets 1,373 1,266 OTHER ASSETS Special use funds of FPL 1,352 1,206 Other investments 611 391 Other 841 611 Total other assets 2,804 2,208 TOTAL ASSETS $13,441 $12,029 a BuiLding for the Future

consolidated balance sheets (millions) FPL Group, Inc.

December 31, 1999 1998 CAPITALIZATION Common shareholders' equity $ 5,370 $ 5,126 Preferred stock of FPL without sinking fund requirements 226 226 Long-term debt 3,478 2,347 Total capitalization 9,074 7,699 CURRENT LIABILITIES Short-term debt 339 110 Current maturities of long-term debt 125 359 Accounts payable 407 338 Customers' deposits 284 282 Accrued interest and taxes 182 191 Deferred clause revenues 116 89 Other 417 272 Total current liabilities 1,870 1,641 OTHER LIABILITIES AND DEFERRED CREDITS Accumulated deferred income taxes 1,079 1,255 Deferred regulatory credit - income taxes 126 148 Unamortized investment tax credits 184 205 Storm and property insurance reserve 216 259 Other 892 822 Total other liabilities and deferred credits 2,497 2,689 Commitments and Contingencies TOTAL CAPITALIZATION AND LIABILITIES $13,441 $12,029 The accompanying Notes to Consolidated FinancialStatements are on integral part of these statements.

FPL Group, Inc. 1999

>1 consoLidated statements of income (millions, except per share amounts) FPL Group, Inc.

)

Years Ended December 31, 1999 1998 1997 OPERATING REVENUES $6,438 $6,661 $6,369 OPERATING EXPENSES Fuel, purchased power and interchange 2,365 2,244 2,255 Other operations and maintenance 1,322 1,284 1,231 Depreciation and amortization 1,040 1,284 1,061 Impairment loss on Maine assets 176 Taxes other than income taxes 615 597 594 Total operating expenses 5,518 5,409 5,141 OPERATING INCOME 920 1,252 1,228 OTHER INCOME (DEDUCTIONS)

Interest charges (222) (322) (291)

Preferred stock dividends - FPL (15) (15) (19)

Divestiture of cable investments 257 Other - net 80 28 4 Total other income (deductions) - net 100 (309) (306) 9 INCOME BEFORE INCOME TAXES 1,020 943 922 INCOME TAXES 323 279 304 NET INCOME $ 697 $ 664 $ 618 Earnings per share of common stock (basic and assuming dilution) $4.07 $3.85 $3.57 Dividends per share of common stock $2.08 $2.00 $1.92 Average number of common shares outstanding 171 173 173 The accompanying Notes to Consolidated FinancialStatements are an integral port of these statements.

Building for the Future

consolidated statements of cash flows (millions) FPL Group, Inc.

Years Ended December 31, 1999 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 697 $ 664 $ 618 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,040 1,284 1,061 Decrease in deferred income taxes and related regulatory credit (198) (237) (30)

Other - net 24 32 (52)

Net cash provided by operating activities 1,563 1,743 1,597 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL (861) (617) (551)

Independent power investments (1,540) (521) (291)

Distributions and loan repayments from partnerships and joint ventures 132 304 53 Proceeds from the sale of assets 198 135 43 Other - net (101) (96) (51)

Net cash used in investing activities (2,172) (795) (797)

CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 1,609 343 42 Retirement of Long-term debt (584) (727) (717)

Increase (decrease) in short-term debt 229 (24) 113 Repurchase of common stock (116) (62) (48)

Dividends on common stock (355) (345) (332)

Net cash provided by (used in) financing activities 783 (815) (942)

Net increase (decrease) in cash and cash equivalents 174 133 (142)

Cash and cash equivalents at beginning of year 187 54 196 Cash and cash equivalents at end of year $ 361 $ 187 $ 54 Supplemental Disclosures of Cash Flow Information Cash paid for interest $ 221 $ 308 $ 287 Cash paid for income taxes $ 573 $ 463 $ 434 Supplemental Schedule of Noncash Investing and Finandng Activities Additions to capital [ease obligations $ 86 $ 34 $ 81 Debt assumed for property additions $ -- $ -- $ 420 The accompanying Notes to Consolidated FinancialStatements ore on integral port of these statements.

FPL Group, Inc. 1999

consolidated statements of shareholders' equity (millions) FPL Group, Inc.

Accumulated J

Common Stock"'a Additional Other Common Aggregate Paid-In Unearned Comprehensive Retained Shareholders' Shares Par Value CapitaL Compensation Income (Loss) Earnings Equity Balances, December 31, 1996 183 $ 2 $3,345 $(272) $-- $1,518 Net income - . - 618 Repurchase of common stock (1) - (48) - -

Dividends on common stock - . - (332)

Earned compensation under ESOP - - 6 8 -

Other comprehensive income - - - 1 Other - - (1) -

Balances, December 31, 1997 182(b) 2 3,302 (264) 1 1,804 Net income - - - - 664 Repurchase of common stock (1) - (62) -

Dividends on common stock - - - - (345)

Earned compensation under ESOP - - 13 12 -

Other comprehensive income - - -

Other - - (1) - -

Balances, December 31, 1998 181(b) 2 3,252 (252) 1 2,123 $5,126 Net income - - - - - 697 Repurchase of common stock (2) - (116) - -

Dividends on common stock - . - - (355)

Earned compensation under ESOP Other comprehensive loss 12 14 -

(2)

)

Other - - - (6) -

Balances, December 31, 1999 179(b) $ 2 $3,148 $(244) $ (1) $2,465 $5,370 (o) $0.01 par value, authorized - 300,000,000 shares; outstanding 178,554,735 and 180,712,435 at December 31, 1999 and 1998, respectively.

(b) Outstanding ond unallocoted shares held by the Employee Stock Ownership Plan Trust totaled 8 million, 9 million and 9 million at December 31, 1999, 1998 and 1997, respectively.

The accompanying Notes to Consolidated FinancialStatements are an integral part of these statements.

SBuiLding for the Future

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(millions) notes to consoLidated financiaL December 31, 1999 1998 statements Assets (included in other assets):

Years Ended December 31, 1999, 1998 and 1997 Unamortized debt reacquisition costs $ 12 Deferred Department of Energy assessment $ 39 $ 44

1.

SUMMARY

OF SIGNIFICANT ACCOUNTING AND Liabilities:

REPORTING POLICIES Deferred regulatory credit - income taxes $126 $148 Basis of Presentation - FPL Group, Inc.'s (FPL Group) Unamortized investment tax credits $184 $205 operations are conducted primarily through Florida Power & Storm and property insurance reserve Light Company (FPL) and FPL Energy, LLC (FPL Energy), (see Note 12 - Insurance) $216 $259 formerly FPL Energy, Inc. FPL, a rate-regulated public utility, supplies electric service to approximately 3.8 million cus The amounts presented above exclude clause-related tomers throughout most of the east and lower west coasts of regulatory assets and liabilities that are recovered or refunded Florida. FPL Energy invests in independent power projects over twelve-month periods. These amounts are included in through both controlled and consolidated entities and non current assets and liabilities in the consolidated balance sheets.

controlling ownership interests in joint ventures accounted for Further, other aspects of the business, such as generation under the equity method. assets and long-term power purchase commitments, would The consolidated financial statements of FPL Group need to be reviewed to assess their recoverability in a include the accounts of their respective majority-owned and changed regulatory environment. Since there is no deregula controlled subsidiaries. All significant intercompany balances tion proposal currently under consideration in Florida, FPL is and transactions have been eliminated in consolidation. unable to predict the impact of a change to a more competi Certain amounts included in prior years' consolidated financial tive environment or when such a change might occur.

statements have been reclassified to conform to the current Almost half of the states, other than Florida, have enacted year's presentation. The preparation of financial statements legislation or have state commissions that issued orders requires the use of estimates and assumptions that affect the designed to deregulate the production and sale of electricity.

-- reported amounts of assets, liabilities, revenues and expenses By allowing customers to choose their electricity supplier, and the disclosure of contingent assets and liabilities. Actual deregulation is expected to result in a shift from cost-based results could differ from those estimates. rates to market-based rates for energy production and other services provided to retail customers. Similar initiatives are also Regulation - FPL is subject to regulation by the Florida being pursued on the federal level. Although the legislation Public Service Commission (FPSC) and the Federal Energy and initiatives vary substantially, common areas of focus Regulatory Commission (FERC). Its rates are designed to include when market-based pricing will be available for recover the cost of providing electric service to its customers wholesale and retail customers, what existing prudently including a reasonable rate of return on invested capital. As a incurred costs in excess of the market-based price will be result of this cost-based regulation, FPL follows the accounting recoverable and whether generation assets should be separat practices set forth in Statement of Financial Accounting ed from transmission, distribution and other assets. It is gener Standards No. (FAS) 71, "Accounting for the Effects of Certain ally believed transmission and distribution activities would Types of Regulation." FAS 71 indicates that regulators can cre remain regulated.

ate assets and impose liabilities that would not be recorded by In December 1999, the FERC issued its final order on unregulated entities. Regulatory assets and liabilities represent regional transmission organizations or RTOs. RTOs, under a probable future revenues that will be recovered from variety of structures, provide for the independent operation or refunded to customers through the ratemaking process. of transmission systems for a given geographic area. The The continued applicability of FAS 71 is assessed at each final order establishes guidelines for public utilities to use reporting period. in considering and/or developing plans to initiate operations In the event that FPL's generating operations are no of RTOs. The order requires all public utilities to file with longer subject to the provisions of FAS 71, portions of the the FERC by October 15, 2000, a proposal for an RTO existing regulatory assets and liabilities that relate to genera with certain minimum characteristics and functions to be tion would be written off unless regulators specify an alterna operational by December 15, 2001, or alternatively, a tive means of recovery or refund. The principal regulatory description of efforts to participate in an RTO, any existing assets and liabilities are as follows: obstacles to RTO participation and any plans to work FPL Group, Inc. 1999

_4jZ ¸¸¸¸ ii i toward RTO participation. FPL is evaluating various alterna includes provisions which limit depreciation rates, and accru tives for compliance with the order. als for nuclear decommissioning and fossil dismantlement costs, to cunrently approved levels and limit amounts recover _)

Revenues and Rates - FPL's retail and wholesale utility rate able tinder the environmental compliance cost recovery clause schedules are approved by the FPSC and the FERC, respec during the term of the agreement.

tively. FPL records unbilled base revenues for the estimated The agreement states that Public Counsel, FIPUG and amount of energy delivered to customers but not yet billed. Coalition will neither seek nor support any additional base Unbilled base revenues are included in customer receivables rate reductions during the three-year term of the agreement and amounted to S130 million and S152 million at December unless such reduction is initiated by FPL. Further, FPL agreed 31, 1999 and 1998, respectively. Substantially all of the energy to not petition for any base rate increases that would take produced by FPL Energy's independent power projects is sold effect during the term of the agreement.

through long-term power sales agreements with utilities and FPL's revenues include amounts resulting from cost recov revenue is recorded on an as-billed basis. er' clauses, certain revenue taxes and franchise fees. Cost In 1999, the FPSC approved a three-year agreement recovery clauses, which are designed to permit full recovery among FPL, the State of Florida Office of Public Counsel of certain costs and provide a return on certain assets utilized (Public Counsel), The Florida Industrial Power Users Group by these programs, include substantially all fuel, purchased (FIPUG) and The Coalition for Equitable Rates (Coalition) power and interchange expenses, conservation- and environ regarding FPL's retail base rates, authorized regulatory return mental-related expenses and certain revenue taxes. Revenues on common equity (ROE), capital structure and other matters. from cost recovery clauses are recorded when billed; FPL The agreement, which became effective April 15, 1999, pro achieves matching of costs and related revenues by deferring vides for a $350 million reduction in annual revenues from the net under or over recovery. Any uinder recovered costs or retail base operations allocated to all customers on a cents over recovered revenues are collected from or returned to per-kilowatt-hour basis. Additionally, the agreement sets forth customers in subsequent periods.

a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from Electric Plant, Depreciation and Amortization - The cost retail base operations in excess of a stated threshold will be of additions to units of utility property of FPL and FPL Energy shared on the basis of two-thirds refunded to retail customers is added to electric utility plant. In accordance with regulatory and one-third retained by FPL. Revenues from retail base accounting, the cost of FPL's units of utility property retired, operations in excess of a second threshold will be refrnded less net salvage, is charged to accumulated depreciation.

100% to retail customers. Maintenance and repairs of property as well as replacements The thresholds are as follows: and renewals of items determined to be less than units of utili (millions) ty property are charged to other operations and maintenance TweLve Months Ended April 14, 2000 2001 (O&M) expenses. At December 31, 1999. the generating, transmission, distribution and general facilities of FPL repre Threshold to refund 66 '/3%

to customers $3,400 $3,450 sented approximately 45%, 13%, 35% and 7%, respectively, of Threshold to refund 100% FPL's gross investment in electric utility plant in service.

to customers $3,556 $3,606 Substantially all electric utility plant of FPL is subject to the lien of a mortgage securing FPL's first mortgage bonds.

In addition, the agreement lowered FPL's authorized regu Depreciation of electric property is primarily provided on latory ROE range to 10% - 12%. During the term of the agree a straight-line average remaining life basis. F1PL includes in ment, the achieved ROE may from time to time be outside the depreciation expense a provision for fossil plant dismantle authorized range, and the revenue sharing mechanism ment and nuclear plant decommissioning. For substantially all described above is specified to be the appropriate and exclu of FPL's property, depreciation and fossil fuel plant dismantle sive mechanism to address that circumstance. For purposes of ment studies are performed and filed with the FPSC at least calculating ROE, the agreement establishes a cap on FPL's every four years. In April 1999, the FPSC granted final adjusted equity ratio of 55.83%. The adjusted equity ratio approval of FPL's most recent depreciation studies, which reflects a discounted amount for off-balance sheet obligations were effective January 1, 1998. Fossil fuel plant dismantlement tinder certain long-term purchased power contracts. Finally, studies were filed in September 1998 and were effective the agreement established a new special depreciation program (see Electric Plant, Depreciation and Amortization) and January 1, 1999. The weighted annual composite depreciation rate for FPL's electric plant in service was approximately 4.3%

)

§ BuiLding for the Future

for 1999, 4.4o for 1998 and 4.3% for 1997, excluding the studies are performed at least every five years and are submit effects of decommissioning and dismantlement. Further, these ted to the FPSC for approval. In October 1998, FPL filed rates exclude the special and plant-related deferred cost amor updated nuclear decommissioning studies with the FPSC.

tization discussed below. These studies assume prompt dismantlement for the Turkey The agreement that reduced FPL's base rates (see Point Units Nos. 3 and 4 with decommissioning activities com Revenues and Rates) also allows for special depreciation of up mencing in 2012 and 2013, respectively. Current plans call for to $100 million, at FPL's discretion, in each year of the three St. Lucie Unit No. 1 to be mothballed beginning in 2016 with year agreement period to be applied to nuclear and/or fossil decommissioning activities to be integrated with the prompt generating assets. Under this new depreciation program, FPL dismantlement of St. Lucie Unit No. 2 beginning in 2023.

recorded approximately $70 million of special depreciation in These studies also assume that FPL will be storing spent fuel 1999. The new depreciation program replaced a revenue-based on site pending removal to a U.S. Government facility. The special amortization program whereby FPL recorded as depre studies, which are pending FPSC approval, indicate FPL's por ciation and amortization expense a fixed amount of $9 million tion of the ultimate costs of decommissioning its four nuclear in 1999 and $30 million in 1998 and 1997 for nuclear assets. units, including costs associated with spent fuel storage, to be FPL also recorded under this program variable amortization $7.3 billion. Decommissioning expense accruals included in based on the actual level of retail base revenues compared to depreciation and amortization expense, were $85 million in a fixed amount. The variable amounts recorded in 1999, 1998 each of the years 1999, 1998 and 1997. FPL's portion of the and 1997 were $54 million, $348 million and $169 million, ultimate cost of decommissioning its four units, expressed in respectively. The 1998 and 1997 variable amounts include, as 1999 dollars, is currently estimated to aggregate $1.7 billion. At depreciation and amortization expense, $161 million and S169 December 31, 1999 and 1998, the accumulated provision for million, respectively, for amortization of regulatory assets. The nuclear decommissioning totaled approximately $1.4 billion remaining variable amounts were applied against nuclear and and $1.2 billion, respectively, and is included in accumulated fossil production assets. Additionally, FPL completed amortiza depreciation. See Electric Plant, Depreciation and tion of certain plant-related deferred costs by recording $24 Amortization.

million and S22 million, in 1998 and 1997, respectively. These Similarly, FPL accrues the cost of dismantling its fossil fuel costs are considered recoverable costs and are monitored plants over the expected service life of each unit. Fossil dis through the monthly reporting process with the FPSC. mantlement expense was $17 million in each of the years 1999, 1998 and 1997, and is included in depreciation and Nuclear Fuel - FPL leases nuclear fuel for all four of its amortization expense. FPL's portion of the ultimate cost to dis nuclear units. Nuclear fuel lease expense was $83 million, $83 mantle its fossil units is $482 million. At December 31, 1999 million and $85 million in 1999, 1998 and 1997, respectively. and 1998, the accumulated provision for fossil dismantlement Included in this expense was an interest component of totaled $232 million and $185 million, respectively, and is

$8 million, $9 million and S9 million in 1999, 1998 and 1997, included in accumulated depreciation. The dismantlement respectively. Nuclear fuel lease payments and a charge for studies filed in 1998 indicated an estimated reserve deficiency spent nuclear fuel disposal are charged to fuel expense on a of $38 million, which was recovered through the special unit of production method. These costs are recovered through amortization program. See Electric Plant, Depreciation the fuel and purchased power cost recovery clause (fuel and Amortization.

clause). Under certain circumstances of lease termination, FPL Restricted trust funds for the payment of future expendi is required to purchase all nuclear fuel in whatever form at a tures to decommission FPL's nuclear units are included in spe purchase price designed to allow the lessor to recover its net cial use funds. Securities held in the decommissioning fund investment cost in the fuel, which totaled $157 million at are carried at market value with market adjustments resulting December 31, 1999. For ratemaking, these leases are classified in a corresponding adjustment to the accumulated provision as operating leases. For financial reporting, the capital lease for nuclear decommissioning. See Note 3 - Special Use obligation is recorded at the amount due in the event of lease Funds. Contributions to the funds are based on current period termination. decommissioning expense. Additionally, fund earnings, net of taxes are reinvested in the funds. The tax effects of amounts Decommissioning and Dismantlement of Generating not yet recognized for tax purposes are included in accumu Plant - FPL accrues nuclear decommissioning costs over the lated deferred income taxes.

expected service life of each unit. Nuclear decommissioning FPL Group, Inc. 1999

Accrual for Major Maintenance Costs - Consistent with Cash Equivalents - Cash equivalents consist of short-term, regulatory treatment, FPL's estimated nuclear maintenance highly liquid investments with original maturities of three costs for each nuclear unit's next planned outage are accrued months or less. )

over the period from the end of the last outage to the end of the next planned outage. The accrual for nuclear maintenance Retirement of Long-Term Debt - The excess of FPL's reac costs at December 31, 1999 and 1998 totaled S42 million and quisition cost over the book value of long-term debt is

$31 million, respectively. Any difference between the estimat deferred and amortized to expense ratably over the remaining ed and actual costs are included in O&M expenses when life of the original issue, which is consistent with its treatment known. in the ratemaking process. Through this amortization and FPL Energy's estimated major maintenance costs for each amounts recorded under the special amortization program, the unit's next planned outage are accrued over the period from remaining balance of this regulatory asset was fully amortized the end of the last outage to the end of the next planned in 1998. Retirements of debt, after the special amortization outage. The accrual for FPL Energy's major maintenance program terminated on April 14, 1999, resulted in additional costs at December 31, 1999 and 1998 totaled $33 million reacquisition costs. See Regulation. FPL Group Capital Inc and S2 million, respectively. Any difference between the (FPL Group Capital) expenses this cost in the period incurred.

estimated and actual costs are included in O&M expenses when known. Income Taxes - Deferred income taxes are provided on all significant temporary differences between the financial state Construction Activity - In accordance with an FPSC rule, ment and tax bases of assets and liabilities. The deferred regu FPL is not permitted to capitalize interest or a return on com latory credit - income taxes of FPL represents the revenue mon equity during construction, except for projects that cost equivalent of the difference in accumulated deferred income in excess of 1/2% of the plant in service balance and will taxes computed under FAS 109, "Accounting for Income require more than one year to complete. The FPSC allows Taxes," as compared to regulatory accounting rules. This construction projects below that threshold as an element of amount is being amortized in accordance with the regulatory rate base. FPL Group's unregulated operations capitalize treatment over the estimated lives of the assets or liabilities interest on construction projects. which resulted in the initial recognition of the deferred tax I amount. Investment tax credits (ITC) for FPL are deferred and Storm and Property Insurance Reserve Fund (storm amortized to income over the approximate lives of the related fund) - The storm fund provides coverage toward storm property in accordance with the regulatory treatment. The spe damage costs and possible retrospective premium assessments cial amortization program included amortization of regulatory stemming from a nuclear incident under the various insurance assets related to income taxes of $59 million in 1997.

programs covering FPL's nuclear generating plants. Securities held in the fund are carried at market value with market Accounting for Derivative Instruments and Hedging adjustments resulting in a corresponding adjustment to the Activities - In June 1998, the Financial Accounting Standards storm and property insurance reserve. See Note 3 - Special Board issued FAS 133, "Accounting for Derivative Instruments Use Funds and Note 12 - Insurance. Fund earnings, net of and Hedging Activities." The statement establishes accounting taxes, are reinvested in the fund. The tax effects of amounts and reporting standards requiring that every derivative instru not yet recognized for tax purposes are included in accumu ment (including certain derivative instruments embedded in lated deferred income taxes. other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement Other Investments - Included in other investments in the requires that changes in the derivative's fair value be recog consolidated balance sheets is FPL Group's participation in nized currently in earnings unless specific hedge accounting leveraged leases of S154 million at both December 31, 1999 criteria are met. FPL Group is currently assessing the effect, if and 1998. Additionally, other investments include notes receiv any, on its financial statements of implementing FAS 133. FPL able and non-controlling non-majority owned interests in part Group will be required to adopt FAS 133 beginning in 2001.

nerships and joint ventures, essentially all of which are accounted for under the equity method. See Note 3.

OBuidding for the Future

NN'

2. EMPLOYEE RETIREMENT BENEFITS FPL Group and its subsidiaries sponsor a noncontributory defined benefit pension plan and defined benefit postretirement plans for health care and life insurance benefits (other benefits) for substantially all employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations and fair value of assets over the two-year period ending September 30, 1999 and a statement of the funded status of both years:

(millions)

Pension Benefits Other Benefits 1999 1998 1999 1998 Change in benefit obligation:

Obligation at October 1 of prior year $1,173 $1,146 $ 345 $ 324 Service cost 46 45 6 5 Interest cost 71 75 21 21 Participant contributions - - 2 1 Plan amendments - 8 -

Actuarial (gains) losses - net (38) 34 (24) 10 Acquisitions 4 - 2 Benefit payments (78) (135) (17) (16)

Obligation at September 30 1,178 1,173 335 345 Change in plan assets:

Fair value of plan assets at October 1 of prior year 2,329 2,287 115 125 Actual return on plan assets 310 184 12 7 Participant contributions - - 2 1 Benefit payments and expenses (84) (142) (18) (18)

Fair value of plan assets at September 30 2,555 2,329 111 115 Funded Status:

Funded status at September 30 1,377 1,156 (224) (230)

Unrecognized prior service cost (89) (100) -

Unrecognized transition (asset) obligation (117) (140) 45 49 Unrecognized (gain) loss (900) (736) 7 34 Prepaid (accrued) benefit cost $ 271 $ 180 $(172) $(147)

The following table provides the components of net periodic benefit cost for the plans for the years ended December 31, 1999, 1998 and 1997:

(millions)

Pension Benefits Other Benefits 1999 1998 1997 1999 1998 1997 Service cost $ 46 $ 45 $ 38 $ 6 $ 6 $ 6 Interest cost 71 75 76 21 21 21 Expected return on plan assets (156) (149) (135) (7) (8) (7)

Amortization of transition (asset) obligation (23) (23) (23) 3 3 3 Amortization of prior service cost (8) (8) 1 - -

Amortization of losses (gains) (22) (21) (26) 1 1 Net periodic (benefit) cost (92) (81) (69) 24 23 23 Effect of Maine acquisition - - - 2 -

Effect of special retirement program - - 18 - -

Net periodic (benefit) cost $ (92) $ (81) $ (51) $26 $23 $23 FPL Group, Inc. 1999

The weighted-average discount rate used in determining the benefit obligations was 6.5% and 6.0% for 1999 and 1998, respectively. The assumed level of increase in future compensation levels was 5.5% for all years. The expected long-term rate of return on plan assets was 7.75% for all years.

Based on the current discount rates and current health care costs, the projected 2000 trend assumptions used to measure the expected cost of benefits covered by the plans are 6.2% and 5.6%, for persons prior to age 65 and over age 65, respectively. The rate is assumed to decrease over the next 3 years to the ultimate trend rate of 5% for all age groups and remain at that level thereafter.

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A 1%

increase or decrease in assumed health care cost trend rates would have a corresponding effect on the service and interest cost components and the accumulated obligation of other benefits of approximately $1 million and $13 million, respectively.

3. FINANCIAL INSTRUMENTS The carrying amounts of cash equivalents and short-term debt approximate their fair values. At December 31, 1999 and 1998, other investments include $291 million and $72 million, respectively, of investments that are carried at estimated fair value or cost, which approximates fair value. The following estimates of the fair value of financial instruments have been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values.

(millions)

December 31, 1999 1998 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt"' $3,603 $3 ,5 1 8(b) $2,706 $2,797(')

(a) Includes current maturities.

(b) Based on quoted market prices for these or similarissues.

Special Use Funds - The special use funds consist of storm fund assets totaling $131 million and S160 million, and decommis sioning fund assets totaling $1.220 billion and $1.046 billion at December 31, 1999 and 1998, respectively. Securities held in the special use funds are carried at estimated fair value. The nuclear decommissioning fund consists of approximately 40% equity securities and 60% municipal, government, corporate and mortgage- and other asset-backed debt securities with a weighted average maturity of approximately ten years. The storm fund primarily consists of municipal debt securities with a weighted average maturity of approximately four years. The cost of securities sold is determined on the specific identification method.

The funds had approximate realized gains of $32 million and approximate realized losses of $22 million in 1999, $24 million and $4 million in 1998 and $3 million and $2 million in 1997, respectively. The funds had unrealized gains of approximately S286 million and S210 million at December 31, 1999 and 1998, respectively; the unrealized losses at those dates were approxi mately $17 million and $2 million. The proceeds from the sale of securities in 1999, 1998 and 1997 were approximately $2.7 billion, S1.2 billion and $800 million, respectively.

4. COMMON STOCK Comnon Stock Dividend Restrictions - FPL Group's charter does not limit the dividends that may be paid on its common stock. As a practical matter, the ability of FPL Group to pay dividends on its common stock is dependent upon dividends paid to it by its subsidiaries, primarily FPL. FPL's charter and a mortgage securing FPL's first mortgage bonds contain provisions that, under certain conditions, restrict the payment of dividends and other distributions to FPL Group. These restrictions do not current ly limit FPL's ability to pay dividends to FPL Group. In 1999, 1998 and 1997, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.

Employee Stock Ownership Plan (ESOP) - The employee thrift plans of FPL Group include a leveraged ESOP feature. Shares of common stock held by the Trust for the thrift plans (Trust) are used to provide all or a portion of the employers' matching contributions. Dividends received on all shares, along with cash contributions from the employers, are used to pay principal and I Building for the Future

interest on an ESOP loan held by FPL Group Capital. Dividends on shares allocated to employee accounts and used by the Trust for debt service are replaced with an equivalent amount of shares of common stock at prevailing market prices.

ESOP-related compensation expense of approximately $21 million in 1999 and $19 million in each of the years 1998 and 1997 was recognized based on the fair value of shares allocated to employee accounts during the period. Interest income on the ESOP loan is eliminated in consolidation. ESOP-related unearned compensation included as a reduction of shareholders' equity at December 31, 1999 was approximately $233 million, representing 8 million unallocated shares at the original issue price of $29 per share. The fair value of the ESOP-related unearned compensation account using the closing price of FPL Group stock as of December 31, 1999 was approximately $344 million.

Long-Term Incentive Plan - As of December 31, 1999, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries under FPL Group's long-term incentive plan. Restricted stock is issued at market value at the date of grant, typically vests within four years and is subject to, among other things, restrictions on transferability. Performance share awards are typically payable at the end of a three- or four-year performance period and are subject to risk of forfeiture if the specified performance criteria is not met within the restriction period. The changes in share awards under the incentive plan are as follows:

Restricted Performance Stock Shares(d) Options~a)

Balances, December 31, 1996 166,300 311,527 Granted 71,0001b" 212,011(cl _

Paid/released - (70,008)

Forfeited (17,750) (10,942)

Balances, December 31, 1997 219,550 442,588 Granted 19,500(') 178,518c)

Paid/released (80,920)

Forfeited (22,250) (29,566)

Balances, December 31, 1998 216,800 510,620 210,100(b) 294,662(') 1,300,000(d)

Granted Paid/released (78,640)

Forfeited (13,500) (80,027) (200,000)

Balances, December 31, 1999 413,400 646,615 1,100,000-'*

(a) Performance shores and options resulted in approximately253,000, 128, 000 and 132, 000 assumed incremental shares of common stock outstandingfor purposes of computing diluted earnings per share in 1999, 1998 and 1997, respectively. These incremental shares did not change basic earnings per share.

(b) The weighted-average grant date fair value of restricted stock granted in 1999, 1998 and 1997 was $53.21, $61.89 and $55.25, respectively.

(c) The weighted-average grant date fair value of performance shares granted in 1999, 1998 and 1997 was $61.19, $59.19 and $45.63, respectively.

(d) The weighted-average grant date fair value of options granted in 1999 was $51.59. The exercise price of each option granted in 1999 equaled the market price of FPL Group stock on the date of grant.

(e) Exercise pricesfor options outstanding as of December 31, 1999, ranged from $51.16 to $54.38 with a weighted-average exercise price of $51.59 and a weighted-overage remaining contractuallife of 8.6 years. As of December 31, 1999, there were no exercisable options. Of the options outstanding as of December 31, 1999, 225,000 vest in 2000, 475,000 in 2001, 200,000 in 2002 and 200,000 in 2003.

FAS 123, "Accounting for Stock-Based Compensation," encourages a fair value based method of accounting for stock-based compensation. FPL Group, however, uses the intrinsic value based method of accounting as permitted by the statement. Stock based compensation expense was approximately $13 million, $10 million and $8 million in 1999, 1998 and 1997, respectively.

Compensation expense for restricted stock and performance shares is the same under the fair value and the intrinsic value based methods. Had compensation expense for the options been determined as prescribed by the fair value based method, FPL Group's net income and earnings per share would have been $696 million and $4.06, respectively.

The fair value of the options granted in 1999 were estimated on the date of the grant using the Black-Scholes option-pricing model with a 3.81% weighted-average expected dividend yield, 17.88%0 weighted-average expected volatility, 5.46% weighted average risk-free interest rate and a weighted-average expected term of 9.3 years.

SOther - Each share of common stock has been granted a Preferred Share Purchase Right (Right), at a price of S120, subject to adjustment, in the event of certain attempted business combinations. The Rights will cause substantial dilution to a person or group attempting to acquire FPL Group on terms not approved by FPL Group's board of directors.

FPL Group, Inc. 1999

5. PREF*-RRED STOCK FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, SO.01 par value. None of these shares is outstanding. FPL Group has reserved 3 million shares for issuance upon exercise of preferred share purchase rights

)

which expire in June 2006. Preferred stock of FPL consists of the following:,

December 31, 1999 (millions)

Shares Redemption December 31, Outstanding Price 1999 1998 Cumulative, $100 Par Value, without sinking fund requirements, authorized 15,822,500 shares:

4z/2% Series 100,000 $101.00 $ 10 $ 10 4/20% Series A 50,000

$101.00 5 5 47/2% Series B 50,000 $101.00 5 5 41/2% Series C 62,500

$103.00 6 6 4.32% Series D 50,000

$103.50 5 5 4.35% Series E 50,000 $102.00 5 5 6.98% Series S 750,000 $103.49(') 75 75 7.05% Series T 500,000 $103.52(') 50 50 6.75% Series U 650,000 $103.37(') 65 65 Total preferred stock of FPL 2,262,500 $226 $226 (a) FPL's charterauthorizes the issuance of 5 million shares of subordinatedpreferred stock, no par value.

None of these shares is outstanding. There were no issuances or redemptions of preferred stock in 1999, 1998 and 1997.

(b) Not callable prior to 2003.

6. DEBT Long-term debt consists of the following:

(millions) December 31,

)

1999 1998 FPL:

First mortgage bonds:

Maturing through 2004 - 58/0% to 67/8% $ 350 $ 580 Maturing 2008 through 2016 - 5ý%/o to 77*/% 650 641 Maturing 2023 through 2026 - 7% to 7V/4% 516 516 Medium-term notes - maturing 2003 - 5.79% 70 70 Pollution control and industrial development series maturing 2020 through 2027 - 6.7% to 7.5% 150 150 Pollution control, solid waste disposal and industrial development revenue bonds maturing 2020 through 2029 - variable, 3.4% and 3.6% average annual interest rate, respectively 483 483 Unamortized discount - net (15) (19)

Total Long-term debt of FPL 2,204 2,421 Less current maturities 125 230 Long-term debt of FPL, excluding current maturities 2,079 2,191 FPL Group Capital:

Debentures:

Maturing through 2004 - 6780/a 175 Maturing 2006 through 2013 - 7Y/8%to 77o°/a(') 1,225 125 Other long-term debt - 3.40 to 7.645% due various dates to 2018 5 162 Unamortized discount (6) (2)

Total long-term debt of FPL Group Capital 1,399 285 Less current maturities 129 Long-term debt of FPL Group Capital, excluding current maturities 1,399 156 Total long-term debt $3,478 $2,347 (a) In December 1999, FPL Group Capital issued $400 million principal amount of 7/a% debentures, maturing in 2009.

Buifing for the Future

Minimum annual maturities of long-term debt are approx The income tax effects of temporary differences giving imately $125 million, $170 million and $300 million for 2000, rise to consolidated deferred income tax liabilities and assets

- 2003 and 2004, respectively. No amounts are due in 2001 are as follows:

and 2002.

Short-term debt at December 31, 1999 consists of com (millions)

December 31, 1999 1998 mercial paper borrowings with a year end weighted-average Deferred tax liabilities:

interest rate of 5.60%. Available lines of credit aggregated Property-related $1,377 $1,493 approximately $2.4 billion at December 31, 1999, all of which Investment-related 373 460 were based on firm commitments. Other 312 255 Total deferred tax liabilities 2,062 2,208

7. INCOME TAXES Deferred tax assets and valuation allowance:

The components of income taxes are as follows: Asset writedowns and capital Loss carryforward 170 102 (millions) Unamortized ITC and deferred Years Ended December 31, 1999 1998 1997 regulatory credit - income taxes 119 136 Federal: Storm and decommissioning reserves 245 258 Current $ 511 $ 467 $308 Other 472 473 Deferred (196) (215) (34) Valuation allowance (23) (16)

ITC and other - net (29) (27) (22) Net deferred tax assets 983 953 Total federal 286 225 252 Accumulated deferred income taxes $1,079 $1,255 State:

Current 55 72 52 The carryforward period for a capital loss from the dispo Deferred (18) (18) sition in a prior year of an FPL Group Capital subsidiary Total state 37 54 52 expired at the end of 1996. The amount of the deductible loss Total income taxes $ 323 $ 279 $304 from this disposition was limited by IRS rules. FPL Group is challenging the IRS loss limitation and the IRS is disputing cer A reconciliation between the effective income tax rates tain other positions taken by FPL Group. Tax benefits, if any, and the applicable statutory rates is as follows: associated with these matters will be reported in future peri ods when resolved.

Years Ended December 31, 1999 1998 1997 Statutory federal income tax rate 35.0% 35.0% 35.0%

Increases (reductions) resulting from: 8. JOINTLY-OWNED ELECTRIC UTILITY PLANT State income taxes - net of federal income tax benefit 2.4 3.7 3.7 FPL owns approximately 85% of St. Lucie Unit No. 2, 20%

Amortization of ITC (2.1) (2.5) (2.4) of the St. Johns River Power Park units and coal terminal and Amortization of deferred regulatory approximately 76% of Scherer Unit No. 4. At December 31, credit - income taxes (1.3) (1.8) (1.8) 1999, FPL's gross investment in these units was S1.174 billion, Adjustments of prior years'

$328 million and $571 million, respectively; accumulated tax matters (2.7) (6.3)(a) (2.7)

Preferred stock dividends - FPL 0.5 0.5 0.7 depreciation was $710 million, $155 million and $266 million, Other - net (0.2) 1.0 0.5 respectively.

3 Effective income tax rate 1.6 % 29.6% 33.0% FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1999, (a) Includes the resolution of an audit issue with there was no significant balance of construction work in the Internal Revenue Sendce (IRS). progress on these facilities. See Note 12 - Litigation.

9. ACQUISITION OF MAINE ASSETS During the second quarter of 1999, FPL Energy completed the purchase of Central Maine Power Company's (CMP) non nuclear generating assets, primarily fossil and hydro power FPL Group, Inc. 1999

plants, for $866 million. The purchase price was based on an chase limited amounts of power in the future at a specified agreement, subject to regulatory approvals, reached with CMP in January 1998. In October 1998, the FERC struck down price. FMPA agreed to dismiss the lawsuit with prejudice, and both parties agreed to exchange mutual releases. The settle

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transmission rules that had been in effect in New England ment reduced FPL's 1999 net income by $42 million.

since the 1970s. FPL Energy filed a lawsuit in November 1998 requesting a declaratory judgment that CMP could not meet the essential terms of the purchase agreement and, as a result, 12. COMMITMENTS AND CONTINGENCIES FPL Energy should not be required to complete the transac Commitments - FPL has made commitments in connection tion. FPL Energy believed these FERC rulings regarding trans with a portion of its projected capital expenditures. Capital mission constituted a material adverse effect under the pur expenditures for the construction or acquisition of additional chase agreement because of the significant decline in the facilities and equipment to meet customer demand are esti value of the assets caused by the rulings. The request for mated to be approximately $3.1 billion for 2000 through 2002.

declaratory judgment was denied in March 1999 and the Included in this three-year forecast are capital expenditures for acquisition was completed on April 7, 1999. The acquisition 2000 of approximately $1.3 billion. As of December 31, 1999.

was accounted for under the purchase method of accounting FPL Energy has made commitments totaling approximately and the results of operating the Maine plants have been $72 million, primarily in connection wxith the development of included in the consolidated financial statements since the an independent power project. FPL Group and its subsidiaries, acquisition date. other than FPL, have guaranteed approximately $680 million The FERC rulings regarding transmission, as well as the of purchased power agreement obligations, debt service pay announcement of new entrants into the market and changes ments and other payments subject to certain contingencies.

in fuel prices since January 1998, resulted in FPL Energy recording a $176 million pre-tax impairment loss to write Insurance - Liability for accidents at nuclear power plants is down the fossil assets to their fair value, which was deter governed by the Price-Anderson Act, which limits the liability mined based on a discounted cash flow analysis. The impair of nuclear reactor oxxners to the armount of the insurance ment loss reduced FPL Group's 1999 results of operations and available from private sources and under an industry retro earnings per share by $104 million and $0.61 per share, spective payment plan. In accordance with this Act, FPL main )

respectively. tains $200 million of private liability insurance, which is the Most of the remainder of the purchase price was allocat maximum obtainable, and participates in a secondarx financial ed to the hydro operations. The hydro plants and related protection system under which it is subject to retrospective goodwill are being amortized on a straight-line basis over the assessments of uip to $363 million per incident at any nuclear 40-year term of the hydro plant operating licenses.

utility reactor in the United States, payable at a rate not to exceed $43 million per incident per year.

FPL participates in nuclear insurance mutual companies

10. DIVESTITURE OF CABLE INVESTMENTS that provide $2.75 billion of limited insurance coverage for In January 1999, an FPL Group Capital subsidiary sold property damage, decontamination and premature clecommis 3.5 million common shares of Adelphia Communications sioning risks at its nuclear plants. The proceeds from such Corporation (Adelphia) stock and in October 1999 had its insurance, however, must first be used for reactor stabilization one-third ownership interest in a cable limited partnership and site decontamination before they can be used for plant redeemed, resulting in after-tax gains of approximately S96 repair. FPL also participates in an insurance program that pro million and $66 million, respectively. Both investments had vides limited coverage for replacement power costs if a been accounted for on the equity method. nuclear plant is out of service because of an accident. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $50 mil

11. SETTLEMENT OF LITIGATION lion in retrospective premiums.

In October 1999, FPL and the Florida Municipal Power In the event of a catastrophic loss at one of FPL's nuclear Agency (FMPA) entered into a settlement agreement pursuant plants, the amount of insurance available may not be ade to which FPL agreed to pay FMPA a cash settlement; FPL quate to cover property damage and other expenses incurred.

agreed to reduce the demand charge on an existing power Uninsured losses, to the extent not recovered through rates, purchase agreement; and FPL and FMPA agreed to enter into a would be borne by FPL and could have a material adverse new power purchase agreement giving FMPA the right to pur- effect on FPL Group's financial condition.

O Building for the Future

FPL self-insures the majority of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third-party insurers. As approved by the FPSC, FPL maintains a funded storm and property insurance reserve,

• -> which totaled approximately S216 million at December 31, 1999, for T&D property storm damage or assessments under the nuclear insurance program. During 1999, storm fund reserves were reduced to recover the costs associated with three storms.

Recovery from customers of any losses in excess of the storm and property insurance reserve will require the approval of the FPSC. FPL's available lines of credit include $300 million to provide additional liquidity in the event of a T&D property loss.

Contracts - FPL has entered into long-term purchased power and fuel contracts. Take-or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of The Southern Company (Southern Companies) provide approximately 1,300 megawatts (mw) of power through mid-2010 and 383 mw thereafter through 2021. FPL also has various firm pay-for-performance contracts to purchase approximately 900 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. FPL has long-term con tracts for the transportation and supply of natural gas, coal and oil with various expiration dates through 2021. FPL Energy has long-term contracts for the transportation and storage of natural gas with expiration dates ranging from 2005 through 2017, and a 24-month contract commencing in mid-2000 for the supply of natural gas.

The required capacity and minimum payments through 2004 under these contracts are estimated to be as follows:

(millions) 2000 2001 2002 2003 2004 FPL:

Capacity payments:

JEA and Southern Companies $210 $210 $210 $200 $200 Qualifying facilities"' $370 $380 $400 $410 $425 Minimum payments, at projected prices:

Natural gas, including transportation $205 $235 $255 $255 $260 Coal $ 50 $ 45 $ 45 $ 20 $ 10 Oil $165 $165 $ 10 $- $

FPL Energy:

Natural gas, including transportation and storage $ 20 $ 20 $ 20 $ 15 $ 15 (a) Includes approximately $42 million, $44 million, $47 million, $49 million and $50 million, respectively, for capacity payments associated with two contracts that are currently in dispute. These capacity payments are subject to the outcome of the related litigation. See Litigation.

Charges under these contracts were as follows:

(millions) 1999 Charges 1998 Charges 1997 Charges Energy/ Energy/ Energy/

Capacity Fuel Capacity Fuel Capacity Fuel FPL:

JEA and Southern Companies $1861'" $1321b) $192(") $1381" $201a1 $15 3(b)

Qualifying facilities $319(') $121(b) $299(c) $108(b) $296(") $128(b)

Natural gas, including transportation $ - $373(b) $- $280"b) $ - $413(b)

Coal $ - $ 43(b) $ - $ 50(b) $ - $ 52(b)

Oil $- $1151b)

FPL Energy:

Natural gas transportation and storage $ - $ 16 $ $ 18 $- $ 16 (a) Recovered through base rates and the capacity cost recovery clause (capacity clause).

(b) Recovered through the fuel and purchasedpower cost recovery clause.

(c) Recovered through the capacity clause.

FPL Group, Inc. 1999 I

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Litigation - In 1997, FPL filed a complaint against the own unspecified damages and other relief. FPL has moved to ers of two qualifying facilities (plant owners) seeking an order declaring that FPL's obligations tinder the power purchase dismiss all counts of this complaint.

In 1999, the Attorney General of the United States, on

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agreements with the qualifying facilities were rendered of no behalf of the U.S. Environmental Protection Agency (EPA) force and effect because the power plants failed to accomplish brought an action against Georgia Power Company and other commercial operation before January 1, 1997, as required by subsidiaries of The Southern Company for injunctive relief and the agreements. In 1997, the plant owners filed for bankruptcy the assessment of civil penalties for certain violations of the under Chapter XI of the U.S. Bankruptcy Code and entered Clean Air Act. Among other things, the EPA alleges Georgia into an agreement with the holders of more than 70% of the Power Company constructed and is continuing to operate bonds that partially financed the construction of the plants. Scherer Unit No. 4, in which FPL owns a 76% interest, without This agreement gives the holders of a majority of the principal obtaining proper permitting, and without complying with per amount of the bonds (the majority bondholders) the right to formance and technology standards as required by the Clean control, fund and manage any litigation against FPL and the Air Act. The suit seeks injunctive relief requiring the installa right to settle with FPL on any terms such majority bondhold tion of such technology and civil penalties of up to $25,000 ers approve, provided that certain agreements are not affected per day for each violation from August 7, 1977 through and certain conditions are met. In 1998, the plant owners January 30, 1997, and $27,000 per day for each violation (through the attorneys for the majority bondholders) filed an thereafter. Georgia Power has filed an answer to the complaint answer denying the allegations in FPL's complaint and assert asserting that it has complied with all requirements of the ing counterclaims for approximately $2 billion, consisting of Clean Air Act, denying the plaintiffs allegations of liability, all capacity payments that could have been made over the 30 denying that the plaintiff is entitled to any of the relief that it year term of the power purchase agreements and three times seeks and raising various other defenses.

their actual damages for alleged violations of Florida antitrust FPL Group believes that it has meritorious defenses to the laws by FPL, FPL Group and FPL Group Capital, plus attor litigation and is vigorously defending the Suits. Accordingly, neys' fees. The trial court dismissed all of the partnerships' the liabilities, if any, arising from the proceedings are not antitrust claims. In 1999, the partnerships' motion for summary anticipated to have a material adverse effect on its financial judgment was denied; they have appealed. statements. )

A contract with Cedar Bay Generating Company, L.P.

(Cedar Bay), a qualifying facility, provides FPL with the right to dispatch the Cedar Bay facility "in any manner it deems 13. SUBSEQUENT EVENT appropriate." Despite this contractual right, Cedar Bay initiated FPL FiberNet, LLC (FPL FiberNet) was formed in January an action in 1997 in the circuit court challenging, among other 2000 to enhance the value of FPL Group's fiber-optic network things, the manner in which the facility had been dispatched assets that were originally built to support FPL operations.

by FPL. Although the court granted summary judgment to FPL FPL's existing fiber-optic net assets with a net book value of with regard to Cedar Bay's claim that FPL's dispatch decisions approximately $100 million were transferred to FPL FiberNet violated the express terms of the contract, it permitted a jury in January 2000. FPL FiberNet will sell wholesale fiber-optic to hear Cedar Bay's claim that such dispatch decisions violated network capacity to FPL and other new and existing cus an implied duty of good faith and fair dealing. The jury tomers, primarily telephone, cable television, internet and awarded Cedar Bay approximately $13 million on this claim. other telecommunications companies.

Thereafter, the court entered a declaration that FPL was, in the future, to dispatch the Cedar Bay facility in accordance with certain specified parameters. FPL expects to recover the

14. SEGMENT INFORMATION amount of this judgment through the capacity clause.

FPL has appealed both the jury award and the court's FPL Group's reportable segments include FPL, a declaration. In 1999, after FPL filed its notice of appeal in the regulated utility, and FPL Energy, an unregulated energy Cedar Bay action, a lender, on behalf of itself and a group generating subsidiary. Corporate and other represents other of other Cedar Bay lenders, filed an action against FPL in the business activities, other segments that are not separately circuit court alleging breach of contract, breach of an implied reportable and eliminating entries. For all years presented duty of good faith and fair dealing, fraud, tortious interference approximately 98% of FPL Group's operating revenues were with contract and several other claims regarding the manner derived from the sale of electricity in the United States. As in which FPL has dispatched the Cedar Bay facility. It seeks of December 31, 1999 and 1998, less than 1%of long-lived assets were located in foreign countries.

W BuiLding for the Future

FPL Group's segment information is as follows:

(millions) 1999 1998 I.997 Corp. Corp. Corp.

FPL and FPL and FPL and 1 Other FPL Energy(' Other Total FPL Energy(') Other Total FPL Energy") Total Operating revenues $ 6,057 $ 323 $ 58 $ 6,438 $ 6,366 $ 234 $ 61 $ 6,661 $ 6,132 $189 $ 48 $ 6,369 Interest expense $ 164 $ 44 $ 14 $ 222 $ 196 $ 84 $ 42 $ 322 $ 227 $ 49 $ 15 $ 291 Depreciation and amortization $ 989 $ 34 $ 17 $ 1,040 $ 1,249 $ 31 $ 4 $ 1,284 $ 1,034 $ 22 $ 55 1,061 Equity in earnings of equity method investees $ - $ 50 $- $ 50 5 -

$ 39 $ - $ 39 $ - $ 12 $ 2 $ 14 Income tax expense (benefit)"b' $ 324 $ (42) $ 41 $ 323 $ 349 $ 24 $(94)$ 279 $ 321 $ 5 $(22)$ 304 Net income (Loss)(cl $ 576 $ (46) $167 $ 697 $ 616 $ 32 $ 16 $ 664 $ 608 $ 9 $ 1 $ 618 Significant noncash items $ 86 $ - $- $ 86 $ 34 $ -

$- $ 34 $ 81 $420 $ - $ 501 Capital expenditures and investments $ 924 $1,540 $ 15 $ 2,479 $ 617 $ 521 $ 16 $ 946 $ 551 $291 $ - $ 842 Total assets $11,231 $2,212 $ (2) $13,441 $10,748 $1,092 $189 $12,029 $11,172 $912 $365 $12,449 Investment in equity method investees $ -- $ 166 $- $ 166 $ -- $ 165 $- $ 165 5 --

$ 74 $ 2 $ 76 (a) In 1999 and 1998, FPL Energy's interest expense was based on an assumed capital structure of 50% debt for operatingprojects and 100% debt for projects under construction. FPL Energy's 1998 interest expense also includes the cost of terminating an interest rate swap agreement. FPL Energy's 1997 interest expense was related to its outstanding debt, which exceeded the assumed capital structure.

(b) FPL Group allocates income taxes to FPL Energy on a "separate return method" as if it were a tax paying entity.

(c) The following nonrecurringitems affected 1999 net income: FPL settled litigation (see Note 11); FPL Energy recorded an impairment loss (see Note 9); and Corporate and Other divested its cable investments (see Note 10).

15. SUMMARIZED FINANCIAL INFORMATION OF FPL GROUP CAPITAL FPL Group Capital's debentures, when outstanding, are guaranteed by FPL Group and included in FPL Group's consolidated balance sheets. Summarized financial information of FPL Group Capital is as follows:

(millions) 1999 1998 1997 (millions) 1999 1998 Operating revenues $380 $295 $237 Current assets $ 640 $ 317 Operating expenses $533 $225 $186 Noncurrent assets $2,627 $1,445 Gain on divestiture of Current Liabilities $ 414 $ 310 cable investments $257 $ - $ Noncurrent liabilities $1,840 $ 703 Net income $138 $ 68 $ 27

16. QUARTERLY DATA (UNAUDITED)

Condensed consolidated quarterly financial information for 1999 and 1998 is as follows:

(millions, except per share amounts) 1999 1998 March 31(') June 30(') Sept. 30(') Dec. 31(') March 31V)> June 30( "Sept.30(') Dec. 31(')

Operating revenues $1,412 $1,614 $1,892 $1,520 $1,338 $1,692 $1,999 $1,632 Operating income $ 208 $ 135(b) $ 470 $ 107(c) $ 218 $ 317 $ 528 $ 189 Net income $ 209(') $ 77(b) $ 291 $ 120W(0)'e $ 108 $ 176 $ 287 $ 93(g)

Earnings per share(t $ 1.221" $ 0.45(b) $ 1.70 $ 0.71(c)(e) $ 0.63 $ 1.02 $ 1.66 $ 0.54(g)

Dividends per share $ 0.52 $ 0.52 $ 0.52 $ 0.52 $ 0.50 $ 0.50 $ 0.50 $ 0.50 11 High-Low common stock sales prices 5

$61/ A6-50'1/

11

$601/2-52'/8 $56 ** 6-49'/ $52'/-41% $65 3A/-561A6 $65/8-5 8"/A1 $70-59 A6 $72'46-601/

(a) In the opinion of FPL Group, all adjustments, which consist of normal recurringaccruals necessary to present a fairstatement of the amounts shown for such periods, have been made. Results of operationsfor an interim period may not give a true indication of resultsfor the year.

(b) Includes impairment loss on Maine assets.

(c) Includes the settlement of litigation between FPL and FMPA.

(d) Includes gain on the sale of an investment in Adelphia common stock.

(e) Includes gain on the redemption of a one-third ownership interest in a cable limited partnership.

(f) Basic and assuming dilution. The sum of the quarterly amounts may not equal the total for the year due to rounding.

(g) Includes a loss on the sale of Turner Foods Corporation and the cost of terminatingan agreement designed to fix interest rates, partly offset by the favorable resolution of an audit issue with the IRS.

FPL Group, Inc. 1999

Copn'Of r Directors Armando J. Olivera H. Jesse Arnelle B. E Dolan FPL Group, Inc.

Of Counsel, Womble, Retired Chairman and James L. Broadhead Chairman and Senior Vice President Power Systems Carlyle, Sandridge & Rice (law firm) Directorsince Chief Executive Officer, Textron, Inc. (diversified 9

Chief Executive Officer Thomas F Plunkett 1990. Member audit company) Directorsince President committee, compensation 1992. Chairman Dennis P Coyle NuclearDivision committee. acquisitions committee.

General Counsel Member audit committee, and Secretar,' Sherry S. Barrat Antonio Rodriguez compensation committee.

President and Chief Senior Vice President executive committee.

K. Michael Davis Executive Officer Controller Power Generation Division of Northern Trust Bank Willard D. Dover of California, N.A. Principal Niles, Dobbins, Lewis Hay, III FPL Energy, LtC (commercial bank) Meeks, Raleigh & Dover Vice PresidentFinance Senior Officers Directorsince 1998. (law firm) Directorsince and Chief Financial James L. Broadhead Mentber audit committee, 1989. Member audit Officer Chairman finance committee. committee, acquisitions committee, benefits Michael WYackira Robert M. Beall, II James P Higgins committee.

President Chairman and Chief Vice President Executive Officer Alexander W Dreyfoos,Jr.

Tax Roberto Denis Beall's, Inc. (department Owner and Chief Executive Vice President stores) Directorsince 1989. Officer, The Dreyfoos Lawrence J. Kelleher Market Services Member acquisitions Group/Photo Electronics Vice President committee, benefits (investment management Human Resources William A. Fries committee, compensation company) Directorsince Vice President committee. 1997. Member audit com Mary Lou Kromer Power Generation Projects mittee,finance committee.

Vice President James L. Broadhead Corporate Chairman and Paul J. Evanson Communications Kenneth P.Hoffman Chief Executive Officer President, Florida Power Vice President FPL Group, Inc. & Light Company Robert L. McGrath Business Management Directorsince 1989. Directorsince 1995.

Treasurer Chairman executive James A. Keener Drew Lewis committee.

Vice President Retired Chairman and Florida Power & Light J. Hyatt Brown Chief Executive Officer, Company Operations West Chairman, President and Union Pacific Corporation Senior Officers Chief Executive Officer (diversified company)

James L. Broadhead Dilek L. Samil Vice President Poe & Brown, Inc. Directorsince 1992.

Chairman and Finance (insurance broker) Member acquisitions Chief Executit 'e Officer Directorsince 1989. committee, compensation Glenn E. Smith Chairman compensation committee, finance Paul J. Evanson Senior Vice President committee. M4ember committee.

President Development benefits committee, Frederic V Malek executive committee.

Dennis P Coyle Chairman, Thayer Capital General Counsel John W Stanton Armando M. Codina Partners (merchant bank) and Secretary Vice President Chairman and Chief Directorsince 1987.

OperationsEast Executive Officer Chairman benefits Lewis Hay, III Codina Group, Inc. comimittee. Member Senior Vice President (real estate firm) Director acquisitionscommittee, Financeand since 1994. Member executive committee, Chief FinancialOfficer benefits committee, finance committee.

compensation committee.

Paul R.Tregurtha Lawrence J. Kelleher Marshall M. Criser Chairman and Chief Senior Vice President Of Counsel, McGuire, Executive Officer, Mormac Human Resources Woods, Battle & Boothe, Marine Group, Inc.

and CoiporateServices L.L.P. (law firm) Director (maritime shipping since 1989. Chairman company) Directorsince audit committee. Member 1989. Chairmanfinance executive committee, committee. Member finance committee. compensation committee, executive committee.

O BuiLding for the Future

Invsto Infomaio Corporate Offices Other shareholder communications to: Analyst Inquiries FPL Group, Inc. Shareholder Services

Contact:

"*-< 700 Universe Blvd.

(800) 222-4511 Investor Relations P.O. Box 14000 (561) 694-4694 (561) 694-4697 Juno Beach, FL 33408-0420 (561) 694-4620 (Fax) (561) 694-4620 (Fax)

(561) 694-4000 Duplicate Mailings News Media Inquiries Exchange Listings Financial reports must be mailed to

Contact:

Common Stock each account unless you instruct us Corporate Communications New York Stock Exchange otherwise. If you wish to discontinue P.O. Box 029100 Ticker Symbol: FPL multiple mailings to your address, Miami, FL 33102-9100 please call EquiServe. (305) 552-3888 Options (305) 552-2144 (Fax)

Philadelphia Stock Exchange Direct Deposit of Dividends Cash dividends may be deposited Certified Public Accountants Newspaper Listing directly to personal accounts at Deloitte & Touche LLP Common Stock: FPL Gp financial institutions. Call EquiServe 200 S. Biscayne Boulevard, Suite 400 for authorization forms. Miami, FL 33131-2310 Registrar, Transfer, and Paying Agents Dividend Reinvestment Plan Form 10-K FPL Group Common Stock FPL Group offers a low-cost plan The Form 10-K annual report for and FPL PreferredStock for holders of common stock and 1999 as filed with the Securities and EquiServe FPL preferred stock to reinvest their Exchange Commission is available P.O. Box 8040 dividends or make optional cash without charge by writing to payments for the purchase of FPL Group, Shareholder Services.

Boston, MA 02266-8040 additional common stock.

(888) 218-4392 Enrollment materials may be Annual Meeting FloridaPower & Light Co. obtained by calling EquiServe. May 15, 2000, 10 a.m.

First Mortgage Bonds PGA National Resort Bankers Trust Company News and Financial 400 Avenue of the Champions Security Holder Relations Information Palm Beach Gardens, FL For the latest news and financial P.O. Box 305050 information about FPL Group, call Nashville, TN 37230-5050 (800) 735-7777 our Shareholder Direct toll-free line:

(888) 375-1329. Callers may listen to recorded announcements and Shareholder Inquiries request information via fax or Communications concerning transfer requirements, lost certificates, mail. Company information is dividend checks, address changes, also available on the Internet:

http://www.fplgroup.com stock accounts and the dividend reinvestment plan should be directed to EquiServe: (888) 218-4392 Proposed 2000 Common Stock Dividend Dates* Optional Cash Payment Dates Declaration Ex-Dividend Record Payment Qtr./Yr. Acceptance begins Must be received by February 14 February 23 February 25 March 15 2nd/00 May 15 June 9 May 15 May 24 May 26 June 15 3rd/00 August 15 September 8 August 14 August 23 August 25 September 15 4th/00 November 15 December 8 November 13 November 21 November 24 December 15 1st/01 February 15 March 8 willprevail.

"Declarationof dividends and dates shown are subject to the discretion of the board of directors of FPL Group. Dates shown are based on the assumption that past patterns FPL Group, Inc. 1999

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