ML021420308
| ML021420308 | |
| 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: ML021420308 (48) | |
Text
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FPL Group Highlights (Dollars in millions, except per share amounts) 4 For the Years Ended December 31, 1997 1996 % Change Financial Results Operating Revenues ............ $6,369 $6,037 5.5 Operating Income ...... .. $1,228 $1,171 4.9 Net Incom e . . . . . . . . . . . . . . . $618 $579 6.7 Earnings Per Share (basic and assuming dilution) $3.57 $3.33 7.2 Cash Flow from Operating Activities $1,597 $1,592 0.3 Total Assets ... ............... $12,449 $12,219 1 .9 Common Stock Data Average Shares Outstanding (millions)...... 173 174 (0.6)
Dividends Per Share ..... ............ $1.92 $1.84 4.3 Book Value Per Share ........... $28.03 $26.46 5.9 Market Price Per Share (high-low) ...... $60 - 425/8 $481/-411/2 Operating Data Energy Sales (millions kwh)* . .... ........... 82 ,734 80,889 2.3 Customer Accounts (average; thousands)* . ...... 31,616 3,551 1.8 Employees (year end)
- Florida Power & Light Company
.... . . . . . 10),039 10,250 (2.4)
I FPL Group is one of the country's largest providers of electricity related services. Its principal subsidiary, Florida Power & Light Company, serves more than seven million people along the eastern SPaI, Beach seaboard and the southern portion of Florida.
Louderdole Other operations include FPL Energy, a leader in producing electricity from clean and renewable FloridaPower & Light Company fuels. FPL Energy has projects in 11 states and abroad. Service Territory C
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FPL Group Aiu ill uture Nineteen-ninety-seven was an excellent year for FPL Group.
We strengthened our core business, FloridaPower & Light Company, significantly expanded our role id in the power business outside James L. Broadhead of Florida,and achieved record financialresults.As a consequence, we are increasinglybeing recognized as a premier company, and our shareholders continue to be rewarded with superior returns.
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RECORD FINANCIAL RESULTS 1990, the annualized total return customer focus, and increasing its Net income reached a record to our shareholders has been speed and flexibility. Second, invest
$618 million, and earnings per 17.1%, well in excess of the 12.5% outside of FPL's service territory share increased 7.2% from return reported by the Index. in opportunities created by the
$3.33 to $3.57. For the fourth changing business environment.
consecutive year, we achieved CHANGING ELECTRIC These opportunities favor efficient strong positive cash flow. This UTILITY INDUSTRY power producers, especially those enabled us to retire more than The 1990s has been a time with demonstrated skills in envi
$560 million of debt and pre of change and uncertainty for the ronmentally-favored technologies.
ferred stock, repurchase more electric power business. Federal Our successes in both these than a million shares of common legislation has created new rules strategic areas continued in 1997.
stock, and invest more than governing the generation and
$840 million in new growth transmission of electricity, and ACHIEVEMENTS OF opportunities, both in Florida several states have begun to FLORIDA POWER & LIGHT and elsewhere. restructure their traditional By most measures, Florida The common stock of vertically-integrated utilities. Power & Light achieved strong FPL Group continued to be an Throughout this period operating performance in 1997.
excellent investment with a total we have consistently followed return (dividends plus stock price a two-part strategy to enhance M Operating and maintenance appreciation) substantially better shareholder value. First, ensure costs per kilowatt-hour declined than the Dow Jones Electric the continued success of Florida for the seventh consecutive year.
Utilities Index. Since we began Power & Light by reducing its Since 1990, we have reduced restructuring our company in costs, improving its quality and these expenses by 30%.
Expenses down 30% since '90
$3.57
$3.16" 202%
lodustry* FPL Group Earnings Per Share Operating and Total Return (basicand assumingdilution; Maintenance Expenses 1990-97
- includes $0.45 charge) (*Dow Jones Electric Utilities Index)
Rorida Power & Light Company (cents per kilowatt-hour) 3
M Our successes in control to levels our customers have ling costs enabled us to maintain electric rates well below the come to expect. We have made reliability a top priority and 14 national average. FPL's rates expect substantial improvements are now 11% below their level in 1998 and beyond.
in 1985.
0 We expanded our conserva 0 Availability of our fossil tion and load management plants reached an all-time programs, which now provide record of 93%, well above us the ability to reduce peak the industry average. electric demand by nearly 2,500 megawatts, or the equivalent 0 Nuclear plant availability of five large generating units.
was 85%, significantly higher than the industry average and 0 FPL entered into a new an extraordinary performance contract with the International in light of four refueling outages Brotherhood of Electrical Workers and a complex steam generator extending through 2000. This replacement at St. Lucie Unit 1. allows us to provide competitive wages and benefits, while improv 0 Our employees at St. Lucie achieved notable improvements ing work flexibility and efficiency.
'Il in nuclear plant operation, GROWTH OUTSIDE regulatory performance, and cost OF FLORIDA control. At the same time, the Our operations outside Florida plant's two nuclear units com represent the most rapidly grow bined to set a record of 147 days ing part of our business. To of continuous operation. This oversee our expanding domestic performance was especially and international participation in gratifying since, as I mentioned the energy business, we formed in last year's letter, improvements early this year a new company at St. Lucie were a top priority. reliability of our distribution FPL Energy, Inc. - to consolidate system. This was reflected in more these operations.
M As a result of the high frequent and longer outages and FPL Energy encompasses the performance of our nuclear and somewhat reduced customer assets owned by ESI Energy, Inc.
fossil generating plants, we were ratings of our performance. and FPL Group International, able to meet four all-time record We recognized these shortfalls as well as two generation plants summer peak demands. early in the year and began recently acquired in the northeast implementing a comprehensive ern United States. It currently M One area in which we plan to return the quality and has plants in operation or under fell short during 1997 was the reliability of our electric service construction in 11 states, making t11 4
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it the nation's second largest strate success in that endeavor. fuel generation technologies independent power producer. In addition, we made investments will make us a winner in any FPL Energy also owns generating and improvements in Florida regulatory environment. This plants in Colombia and the Power & Light and FPL Energy should enable us to achieve United Kingdom. that will allow us to satisfy the continued growth at both FPL Earlier this year, we announced growing demand for electricity and FPL Energy in the years our agreement to purchase the in FPL's service territory and ahead and to provide attractive hydro, fossil, and biomass gener achieve profitable growth in returns for our shareholders.
ating plants of Maine's largest other attractive market areas.
utility, Central Maine Power. Our actions have been favor These assets - and generating ably recognized by the financial d6/
assets purchased in Massachusetts and business community, as once and New Jersey - will provide an again more analysts recommended James L. Broadhead opportunity for FPL Energy to our stock than any other electric participate in one of the country's utility. Also, in its March 2, 1998 Chairmanand ChiefExecutive Officer most attractive markets for issue, FORTUNE magazine March 2, 1998 generation. ranked FPL Group first among The acquisitions also will electric and gas utilities in the enhance FPL Energy's position as a magazine's annual survey of leader in environmentally-favored America's most admired compa generation. With the completion nies. The top companies in of the Central Maine Power trans their respective industries were action, about 80% of the fuels evaluated on eight key attributes:
FPL Energy uses to generate elec innovation, quality of manage tricity will be "clean" fuels, including ment, employee talent, quality natural gas, hydro, geothermal, of service, long-term investment wind, and solar. FPL Energy is, in value, financial soundness, fact, already the world's largest social responsibility, and use generator of electricity using of corporate assets. FORTUNE wind and solar. described FPL Group as "...the Your board of directors recently FPL and FPL Energy combine brightest light in utilities." increasedthe quarterlycommon to make FPL Group one of the FPL Group is a stronger and stock dividendfrom 48 cents to largest generators of electricity more focused company than 50 cents per share, raising the in the United States and a preemi ever before, and our employees annual dividend to $2.00.
nent clean-fuel energy provider. understand clearly what is required for continued success. The board also elected a new A COMMITMENT TO We are confident that our director,Sherry S. Barrat,a native SHAREHOLDER VALUE strong operating performance, of Miami and presidentof Our unwavering objective is new growth initiatives, and to increase shareholder value, and acknowledged competencies Northieni Irisi Bank of Florida in 1997 we continued to demon- especially those relating to clean- jbr Palm Beach and Martin counties.
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Florida Power & Light Company (FPL) provides 4 today 16,000total more than megawatts electricity and related (MW) and include services to one of the some of the best-run fastest growing regions plants in the U. S.
of the country.
The population FOSSIL PLANTS of Florida has grown GENERATE dramatically, doubling EXCELLENT since 1970 to 14.7 million PERFORMANCE residents today. FPL has FPL's fossil-fueled been a part of Florida's generating plants growth for more than turned in another out 70 years, expanding its standing performance generation system to keep in 1997, achieving pace with the substantial FPL records for avail increases in customers ability. This important and average power usage. Growth in the Sunshine State mea ns new customersfor FPL. operating statistic In 1997, FPL's average measures the amount customer base grew by nearly 65,000 accounts, of time a plant is available to generate power. Fossil continuing a long-term trend of growth that has plant availability reached 93%, compared to an outpaced other companies in the industry. average of 87% for other similar plants in the U.S.
FPL has achieved an excellent record in safely and Such performance reflects both a highly skilled reliably generating the power to serve its thriving Florida workforce and management processes that stress market. FPL's fossil and nuclear generating resources quality, safety and low costs.
Electricity Up 24% ...because Up 14% ...and the Up 8%
sales have FPL's average increased customer customer 21 22,883 8 3,616 24% since 82.7 base has uses more 1990... grown... 3,159 energy.
90 97 Electricity Sales Customer Accounts Usage per Customer Account (billionkilowatt-hours) (average; thousands) (kilowatt-hours)
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88% 90% 89% 92% 93%
adustry Average 85%
82% 8 7.
80% 80%
W 91 92 Fossil Plant Availability 93 A4 N 97 Nstill Nuclear Plant Availability FPL's coal, oil and gas-fired plants achieved record availability in 1997. Nuclear availability continued at a high level, despite planned refueling outages at all units.
In an effort to reach even greater reflects that kind of commitment by the Nuclear Regulatory levels of performance, FPL's power to excellence. Commission (NRC). Today, the generation division began imple FPJ's two nuclear sites, Turkey plant remains a "good" performer, menting its "Total Operational Point and St. Lucie, had an excellent following rating declines in 1996 Excellence" program in 1997. This year operationally, achieving a and 1997. To return the plant to program uses benchmarking outside the utility industry to identify and transfer to FPL best practices in combined availability of 85%.
This operating level is substantially better than the 75% average for the a leadership position in the nuclear industry, FPL completed a self assessment in 1996 and began 4
safety and workforce management. industry. What makes this perfor an aggressive performance In addition to achieving top mance particularly noteworthy is improvement program.
notch operating performance, FPL that all four units (two at each site) Building on a number of steps reduced fuel costs through better were off line during the year for taken that year, including manage procurement and market monitor scheduled refuelings, and one unit ment changes and enhanced train ing programs. FPL also continued its also completed a complex steam ing, in 1997 St. Lucie made notable record of exemplary environmental generator replacement. improvements in several important stewardship; it was recognized as the High plant availability was areas, including plant operations cleanest of nine major utilities in achieved, in part, through a marked and regulatory performance.
Florida based on air emission rates. decrease in the duration of sched uled refueling outages. Excluding ST. LUCIE COMPLETES A YEAR OF ACHIEVEMENTS the steam generator replacement, STEAM GENERATOR FOR NUCLEAR PLANTS FPL's refuelings were completed REPLACEMENT Nuclear plants are capable of in just 42 days on average in 1997, Perhaps the best indicator of generating energy that is among a significant improvement from the positive changes that have taken the lowest cost in the U.S. For that more than 60 days in 1996. place at St. Lucie is the successful to happen, these complex and highly steam generator replacement pro regulated facilities must be operated IMPROVEMENTS CONTINUE ject. The steam generators of a with precision and efficiency. EPPs nuclear performance in 1997 For years St. Lucie was rated one of the top plants in the country nuclear plant are highly engineered and critical components. They 4
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TURKEY POINT REMAINS AT THE TOP Turkey Point retained its rank as a world-class nuclear facility in 1997. In addition to successfully executing two refueling outages, the site was recognized by the NRC as one of the country's top two superior performers.
FPL's nuclear operations achieved high performance while continuing to reduce costs. Operating and main tenance expenditures were lower in 1997 for the third consecutive year and were 35% less than the industry average. Material inventory levels were also reduced. Since 1992, FPL has cut nuclear inventory by 50% to a level that is one-third lower than typical nuclear plants.
A job well done: replacement of the 546-ton steam generators at St. Lucie Unit I was completed under budget and in near-recordtime.
transfer heat from the nuclear generators, the central part of the reactor to tubes that generate steam $168 million project. After years of to make electricity. Each unit at careful planning and preparation, St. Lucie has two steam generators the change-out took just 79 days massive pieces of equipment that to complete, one of the shortest FPL's Energy Encounter, stand 63 feet tall and weigh more on record for U.S. nuclear plants. located on Hutchinson Island at the The project was also completed St. Lucie nuclear plant, is an education than 500 tons. Over the years, center with interactive displays on deterioration of a number of tubes safely, under budget and with quality electricity, nuclear power and the required that the generators in results, with the unit returning to full environment. Each year, Hutch, the parrot, guides 40,000 school children and St. Lucie Unit 1 be replaced. power in early January. The improved other visitors through a high-tech, In October 1997, St. Lucie Unit 1 design of the new generators will interactive treasure hunt began the installation of the new increase the unit's efficiency. in the world of energy.
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C103 1 BUILDING ON CORE STRENGTHS In addition to combining all nuclear generation assets of FPL FPL Group's strategy is to FPL Group's independent power Group, including Florida Power continue building an organization resources, this new structure builds & Light Company.
that will be successful in the future, on the company's world class skills C. 0. Woody, formerly senior in either a regulated or unregulated in gas fired combined-cycle genera vice president of power generation, power market. Implementing that tion and its leadership position in was appointed president of the strategy has involved strengthening other clean fuel technologies, such power generation division. He the operations of the principal as geothermal, solar and wind. brings more than 40 years experi business, Florida Power & Light ence in power plant operations, Company, while using core strengths FPL ENERGY NAMES including the successful construc to pursue growth opportunities MANAGEMENT TEAM tion of FPLs Martin and Lauderdale in markets outside Florida. FPL Energy is headed by a gas-fired combined cycle units.
FPL Group took an important strong management team drawn step in early 1998 that supports its from FPL Group. STARTING FROM strategy, forming a new company Michael Yackira, former chief A STRONG BASE called FPL Energy. This new organi financial officer of FPL Group and FPL Energy begins operation zation brings together the domestic Florida Power & Light Company, was with an existing strong base independent power business former appointed president of FPL Energy. of independent power projects ly operated under FPL Group's ESI Les Gelber, who served as president operated by ESI Energy and Energy subsidiary and the overseas of ESI Energy, was named senior FPL Group International.
power projects previously part of vice president of development for In 1997, ESI Energy continued FPL Group International. FPL Energy the new organization. to strengthen and expand its also includes gas fired cogeneration FPL Energy will be supported portfolio of generating facilities.
facilities purchased at the beginning by a newly created Power Generation The company restructured the of 1998 in Massachusetts and New Division. This new division will ownership and financial arrange Jersey and generating plants being be responsible for the operation ments of several existing projects, acquired in Maine. and construction of all non gaining more operating control and enhancing bottom line perfor mance. This builds on a trend of greater ownership of projects. ESI had operating control of 90% of its projects in 1997, up from only 25% four years earlier.
For example, in 1997 ESI became the operator of the largest independent power facility in the country, the 665 MW Doswell combined-cycle plant in Virginia.
ESI also became owner of a 160 MW solar field in the Mojave Desert that is the world's largest generator of power from the sun.
FPL Energy has power projects in 11 states and overseas with a capacity of 3,400 MW. This will increase to more than 4,500 MW with the pmposed Possessing skills in combined acquisition of generating plants in Maine. cycle and renewable generation
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has enabled FPL Energy to expand to overseas markets.
PPL Energy's project portfolio includes 300 MW of gas fired combined cycle facilities in Colombia. The plants, owned in partnership with KMR Power Corporation, provide power to the local utilities in Cartagena Ma.achuse~ts Z% A New Jersey 9%
The Gulf Island hydro plant is among the facilities FPL Energy is acquiringfrom Central FPL Energy, Inc. Maine Power Company.
Capacity by Region and Cali under long-term plants with a combined capacity contracts. FPL Energy also of 1,185 MW. Pending regulatory operates a 5 MW wind project approvals, this transaction is Windý'.
in Northern Ireland that was expected to be completed by the end constructed by ESI in 1997. of 1998. Between then and the start 6% of retail competition in Maine on ml V ESTABLISHING A PRESENCE March 1, 2000, Central Maine Power IN THE NORTHEAST will buy from FPL Energy all of the In January 1998, FPL Group hydro output and a specified mini announced two transactions to mum amount of the fossil output.
acquire generation assets in the The acquisition of these assets Northeast. These transactions will add valuable hydro capacity to build upon FPL Energy's focus FPL Energy's portfolio. The hydro FPL Energy, Inc. on dean fuels while establishing units have a capacity of 373 MW Capacity by Energy Source a foothold in one of the best and provide the lowest cost power power markets in the country. in New England. In fact, these 31 More than 90% of FPL Energy's In the first transaction, FPL plants operate with costs and staffing capacity uses clean fuels - gas Energy agreed to purchase for levels that are well below average, and renewable resources. The proposed $846 million all the non nuclear and they have achieved the best acquisition of plants in Maine will add low-cost hydro generation and generating assets of Central Maine capacity factors of any other group expand FPL E~nergy's presence Power Company. The facilities of New England hydro units. The in the Notiheast.
consist of hydro, fossil and biomass fossil plants being acquired are 12
oil-fired facilities with a capacity will come on line in the spring of ment has the potential to of 781 MW. 1998. This combined-cycle facility, further expand the market called Cherokee, will provide for "green" power.
BUILDING ON SKILLS IN energy under long-term contract GAS-FIRED GENERATION to Duke Energy. STAKING A LEADERSHIP The fossil plant sites in Maine POSITION IN WIND provide an opportunity for the FOCUSING ON CLEAN FPL Energy has more than company to profitably utilize its FUEL GENERATION 900 MW of wind power projects experience with combined-cycle FPL Energy is one of the nation's in operation and under develop technology, and expand its partici largest clean fuel generators and the ment, making it the world leader pation in gas-fired generation, the largest producer of power in the U.S. in wind-based generation. This fastest growing segment of the U.S. from renewable sources. leadership position reflects the power market. These sites are strate FPL Group sees great opportu restructuring, development and gically located on the transmission nity in being one of the preeminent acquisition of projects.
grid and are close to proposed generators of power derived from In 1997, FPL Energy was natural gas pipelines. resources such as gas, solar, geother awarded power purchase FPL Energy may build up mal and wind. Both FPL and FPL agreements covering 230 MW to 1,500 MW of new gas-fired Energy have technical and financial of wind generation, including combined-cycle capacity on these expertise in these types of projects. projects to be constructed in sites. This new capacity will help With the Maine plants, FPL Energy Iowa, Texas and Minnesota. The alleviate possible power shortages will have more than 3,000 MW project under development in caused by the closing of nuclear of gas and renewables, including Iowa will be a 112 MW facility plants in the region. hydro, while Florida Power & Light the largest wind project in the In the second transaction, Company operates more than world. In early 1998, FPL Energy FPL Energy has acquired existing 9,000 MW of gas-fired plants. acquired 164 MW of wind gas-fired facilities. FPL Energy com In addition, there is strong capacity in the Altamont Pass pleted the acquisition of two 300 MW demand for clean fuel generation. region of California, near combined-cycle plants, in partnership Increasing concern over the environ- San Francisco.
with Tractebel S.A., a Belgian energy and industrial services firm. The plants, one located in Massachusetts southwest of Boston and the other near Newark, New Jersey, were built in the early 1990s and feature modern generation technology.
The plants also have excellent operating records. Over the past five years, the plants have achieved capacity factors greater than 90%.
Output from the plants is sold under long-term contracts to local utilities.
FPL Energy is also completing the construction of a 100 MW gas fired facility in South Carolina that FPL Energy operates the largestsolarfacility in the world.
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FPL Group BUI HIAL
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/0 canm Throughout the 19 90s, the operating environment in the electric utility industry has moved toward greater competi tion, bringing an increased level of business risk. FPL Group was one of the first electric utilities to react to this shift, realizing at the start of the decade that financial strength and flexibility would be critical for achieving success.
The company studied other industries that had gone from fully regulated to competitive airlines, banks and telecom munications - and determined that long-standing financial policies would have to be critically evaluated.
Advertisements, like this one promoting FPL Grop'sfinancial strength, appeared in majorf!inancial publications begitning in 1997.
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FPL Group took a fresh and innova fewer employees than at the start tive approach to ensure that its core of the decade while serving nearly electric utility business prospered half a million more customers.
and to position itself to seize new opportunities brought about by RECOGNIZING THE industry change. NEED FOR CHANGE Historically, the electric utility FOCUSING ON COSTS industry has been the most capital In assessing the new environ intensive industry in the United ment confronting electric utility States, requiring an investment of companies, it became clear that low $2.12 for every dollar of revenue costs and quality operations would generated. As a result, they have be essential success factors. Starting relied heavily on financing Discretionary Cash Flow in 1991, FPL Group embarked on an issuing bonds and common stock. (after dividends and capitalexpenditures) ambitious program to improve effi Capital structures have typically ciency and performance throughout featured more than 50% debt, and The company's cash flow position the company with a keen focus companies paid out a high percent is strong, reflecting higher earnings and reduced capital spending.
on quality and costs. Through age of their earnings as dividends these efforts, Florida Power & Light These policies worked well in Company has been able to reduce its a regulated environment in which forces began to impact the operating costs per kilowatt-hour by revenues tended to be reasonably industry, making the recovery 30% over the last seven years while steady and were designed to recover of costs less certain.
improving performance in many allowable operating costs and capita In 1992, Federal legislation areas. Today, FPL operates with 38% investments. However, competitive opened wholesale electric markets to competition. Initiatives in more than a dozen states have followed, opening retail markets to competi Uses of Cash tion as well.
($ millions)
ADOPTING NEW 97 96 FINANCIAL POLICIES FPL capital expenditures $551 $474 In the face of these competitive forces, FPL Group began adopting Independent power investments 291 52 financial policies that stressed cash Debt and preferred stock reductions: flow and a strong balance sheet.
Florida Power & Light Co. 465 512 This approach provided flexibility to Other debt 97 5 invest in new growth opportunities.
To preserve cash flow, FPL Common stock repurchases 48 82 Group lowered its dividend payout Common stock dividends 332 320 ratio in 1994. At the same time, Florida Power & Light Company was completing a major power FPL Group has used a strong cash position to invest in its core business and growth opportunities outside Florida, as well as to plant construction program.
strengthen its capital structure and provide a return to shareholders. Capital expenditures dropped from 15
OTHER BUSINESSES $1.1 billion in 1993 to $772 million Along with debt reduction, CONTRIBUTE TO in 1994. FPL Group also sold several FPL Group has also used its FINANCIAL PERFORMANCE businesses unrelated to the company's positive cash flow to repurchase core strengths. The combination common stock. Under programs Throughout the 1990s, of these factors resulted in FPL initiated in 1994, and renewed FPL Group narrowed the focus Group achieving positive cash flow in 1997, FPL Group has bought of its other businesses to (operating cash flow after capital back more than nine million concentrate on the independent expenditures and dividends) shares of common stock.
power industry outside Florida. starting in 1994.
FPL Group divested several REDUCING POTENTIAL businesses, including insurance, STRENGTHENING THE STRANDED COSTS consulting, and real estate, BALANCE SHEET As electricity markets grow and strengthened its indepen FPL Group has used the positive more competitive, the risk increases dent power operations by cash flow to strengthen its balance that an electric utility's power plant restructuring the financial and sheet. The increased business risk investments won't be fully recover ownership arrangements in in the electric utility industry able based on market prices for a majority of the projects. requires a corresponding decrease power. Florida Power & Light in financial risk. That means lower Company began a process to address Today, FPL Group has inter debt levels. Over the last three years, the issue of asset recovery. Starting the company has used $1.5 billion in 1995, state regulators approved a ests in two businesses outside of cash flow to reduce debt and program enabling FPL to accelerate the electric power industry:
preferred stock outstanding, includ the recovery of its generating assets Turner Foods Corporation, ing more than $560 million in and certain regulatory assets (costs a major citrus producer (see 1997 alone. As a result, the debt set aside by regulators for future page 21), and Olympus, a cable component of Florida Power & Light recovery). The program called television partnership with Company's capital structure has for the recording of additional Adelphia Communications that been reduced significantly. depreciation expense associated with serves more than 400,000 cable subscribers in Florida.
8 These two well-positioned and valuable businesses con tribute positively to FPL Group's Q financial performance.
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Capital Expenditures FloridaPower& Light Company (Smillions) 11 16 I I li
"Management has successfully implemented several key financial and operational strategies that 52% ..
have strengthened the balance sheet and reduced 0U7o 46%
operating costs, positioning the company... 42%
for a competitive environment.: 7%-
- quote from a leading Wall Street analyst generating and regulatory assets. plans to invest more than $1 billion Almost all the amount of additional in generation facilities in Maine, depreciation was determined based Massachusetts and New Jersey.
on a formula linked to base revenues 93 94 95 96 97 (all revenues not related to fuel and GENERATING BENEFITS other direct expense recoveries). FOR INVESTORS Debt and Preferred Stock Forida Power& Light Company For the three years ended 1997, FPL Group's steps to reposition (%of total capital)
FPL has recorded about $570 million itself for the financial realities of of additional depreciation. As a the new business environment result, the book value (original cost have generated benefits for less depreciation) of FPL's plants investors. Management actions Down 34% since'93 and the balance of regulatory assets to solidify FPL's position as one have been reduced. This, in turn, has of the premier electric utilities in $370 reduced both FPL's exposure to not the country, combined with efforts $313 recovering these costs and the need to refocus and expand independent for rate increases in the future. power operations, have made [$246 FPL Group a top performer in INVESTING IN GROWTH the industry.
While working to strengthen The performance of FPL its financial position, FPL Group Group's stock has been strong, pursued avenues for strengthening reflecting the company's solid and growing its energy-related busi cash flow and earnings growth.
ness outside of Florida. The compa Investors have realized an annual i93 94 95 96 97 ny invested nearly $300 million in return (price appreciation plus independent power projects in 1997, dividends) of 17% since 1990, Interest and Preferred Stock Dividends acquiring additional ownership including more than 30% in 1997. Florida Power & Ught Company interests and building new facilities. A sound capital structure ($ millions)
This represents a significant shift in and excellent business funda the use of cash, from mainly debt mentals have also led to strong Using cash to reduce debt and preferred stock has lowered reduction to a greater amount of credit ratings. FPL's debt is rated fixed costs and strengthened new investment. AA- by Standard & Poor's and FPL's balance sheet.
Being in a strong financial Aa3 by Moody's. Only six electric position has enabled FPL Group to utilities out of more than 120 pursue even larger acquisitions. In in the U.S. have higher early 1998, the company announced credit ratings.
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Florida Power & Light Company and services in general to rise 53%.
understands that formula and has The value of FPL's energy is Other Purchases been working to ensure that its even more evident from looking Purchases from 8% Coal customers get the best energy value at electricity costs in other parts of Utilities 12%
possible. That means finding ways the country. While some regions to keep costs down, even while of the U. S., like California and the Nuclear 25%
investing hundreds of millions Northeast, have rates as high as Gas of dollars annually to maintain and 15 cents per kilowatt-hour, FPLs resi 29%
expand a system that adds more than dential customers enjoy rates that 175 new customer accounts every are less than half that amount day. It also means providing top about 7.4 cents. Overall, that's the notch customer service and support. lowest of the major investor-owned 1997 Energy Sources electric utilities in Florida, and about FloridaPo*e, & Light Company FPL'S ELECTRICITY 9% below the national average. The ability to obtain power from IS A GREAT VALUE various energy sources provides FPL has been able to keep pace MANAGING FUEL COSTS FPL with operating flexibility.
with growing demand while holding Keeping rates competitive takes the line on price. There are few an overall commitment to cost con customer's bill is for energy, things that cost less today than trol. FPL has successftilly reduced so lower energy costs mean they did a decade ago, but FPL's non-fuel operating and maintenance lower prices and better value electricity is one of them. In fact, costs for seven consecutive years. for consumers.
FPL residential rates have dropped However, managing energy costs A diverse energy mix provides 11% since 1985, while inflation, as (the cost of fuel and purchased FPL with operating flexibility measured by the Consumer Price i power) is just as important. and the ability to minimize fuel Index, has caused prices of goods More than 30% of a typical FPL costs by taking advantage of energy price changes. About 45% of FPILs fossil capacity can be switched between oil and gas.
NEW ENERGY MARKETING AND TRADING DIVISION FORMED Due to greater competition in generation, FPL realized the need to expand its capability to track fuel and energy prices and to participate more broadly in
-= - e C .C* the energy marketplace.
- 0) R In 1997, FPL formed the A is energy marketing and trading
-9 (EMT) division to complement Residential Rates Across the Nation a (per l,000kilowat-hoh , as of aocember 1997) FPI's strong fossil generation asset base. EMT is capitalizing on the FFPRLs rensidential customaers, pay about 9% less than the national average for electricity.
value of existing and new fuel 19
Above FPLs state of the art energy tradingflooropened in December 1997.
supply contracts, growing energy markets and new unique products by proposing to use a fuel called Orimulsion, a mixture of water and C
and services. naturally occurring bitumen from EMT's core operations include Venezuela. FPL plans to use the fuel in CPl up 53%
since '85
- 125 wholesale power and gas trading, place of higher-cost oil at its 1,638 MW as well as energy marketing. EMT Manatee plant. By converting to operates in areas that are strategic Orimulsion, FPL could reduce fuel costs to FPE's generation assets and pro by more than $100 million per year vides its energy market expertise to while improving the environmental third parties. This new division has performance of its generating system.
enabled FPL to be active in energy Approval to use Orimulsion must markets through an enhanced ability be obtained from Florida's Governor to buy, sell and transport fuels at and Cabinet, who together constitute Residential Rates vs. Inflation (conts per kdowatt-hour) competitive prices. FPL is one of the the Florida Power Plant Siting Board.
largest gas buyers in the U.S., and its The board is expected to vote on FPLPs Few things cost less today than power sales equal those of the top Orimulsion proposal in mid-1998.
they did in 1985. But FPL's Prices have declined 11%, while power marketers.
infiatiou, as measured by the Consumer Price index (CPI)
SERVICE MAKES has increased 53%. PURSUING SAVINGS THE DIFFERENCE THROUGH ORIMULSION While maintaining attractive FPL continues to pursue alterna prices is important, keeping fives for reducing fuel costs further customers satisfied also requires 0(7' 20
reliable energy service and the best TURNER FOODS SENDS SUNSHINE TO MAINE possible customer care.
FPL responds to more than More than 250,000 cus 50,000 calls from customers per day, tomers of Central Maine Power using voice-response technology and Company were left without elec one of the most modern customer tricity after a severe ice storm information management systems.
ravaged the region in early 1998.
Over the past year, FPL customer To help brighten spirits, FPL service representatives improved Group, through its Turner Foods average call answering speed by 31%.
citrus subsidiary, shipped 1,500 In early 1998, FPL renamed its boxes of fresh oranges and customer service centers. They are IL ANW/ 2ý*1A now called customer care centers, FPL service with a smile: delivering grapefruit to restoration crews at reflecting a sharper focus on deliv world-class customer care. Central Maine Power. This Florida "sunshine" was also shared with ering world-class service. FPL also has expanded its service reach to ment program. FPL committed local Red Cross shelters.
the Internet, allowing customers to significant funds to a multi-year Turner Foods is one of the check their accounts and pay their service enhancement effort. The largest Florida citrus growers, bills online. company spent close to $100 million with 19,000 planted acres.
in 1997 and plans to spend an addi More than 85% of production FPL'S COMMITMENT tional $360 million on reliability is juice oranges for both the TO RELIABILITY projects over the next three years.
fresh and processed juice A significant challenge for FPL FPL increased tree trimming and market, as well as bulk frozen is the expansion and maintenance changed work processes to place concentrated orange juice. Turner of its distribution system, which more service crews on duty during harvested a record 7.6 million covers 65,000 miles of overhead bad weather.
90-pound boxes of citrus during and underground lines. The influx Keeping pace with the growth of additional residents requires of Miami Beach best exemplifies the 1996-97 season.
construction of new service lines, how FPL is working to enhance while FPL's existing distribution sys service reliability. In the early 1990s, tem is continually being modernized. electric load growth in that area Climatic conditions that are some averaged more than 5% a year, what unique to Florida, such as double FPL's system average. In salt spray, year-round vegetation fact, by 2000, demand is expected growth and the highest incidence to be 28% greater than it was of lightning in the country, create at the start of the decade.
additional reliability issues. This high growth, coupled FPL's service reliability in 1996 with an existing distribution system was 20% better than the national that was aging, pointed to the average. In fact, power is available need for new facilities. FPL spent for customers 99.97% of the time. $19 million to upgrade the lines However, in early 1997 FPL recog and substations in Miami Beach, nized a decline in reliability and improving service and began implementing an improve- customer satisfaction.
21
I Financial and Operating Statistics For the Years Ended December 31, 1997 1996 1995 1994 1993 1992 1987 (I
Selected Financial Data (Millions)
Operating Revenues ... ........ .. $6,369 $6,037 $5,592 $5,423 $5,312 $5,186 $4,444 Operating Expenses :'. . . . . . . . $5,141 $4,866 $4,395 $4,274 $4,342 $4,159 $3,518 Operating Income "' . . . . . . . . $1,228 $1,171 $1,197 $1,148 $969 $1,027 $926 Net Income ` . . . . . . . . . . . $618 $579 $553 $519 $429 $467 $403 Total Assets . . . . . . . . . . . $12,449 $12,219 $12,459 $12,618 $13,078 $12,306 $9,887 Long-Term Debt (excl. current maturities) $2,949 $3,144 $3,377 $3,864 $3,749 $3,960 $3,246 Preferred Stock of FPL (excl. current maturities) .. ...... .. $226 $331 $340 $545 $548 $551 $541 Florida Power & Light Company Operating Revenues (millions) ..... ... $6,132 $5,986 $5,530 $5,343 $5,224 $5,100 $4,350 Energy Sales (million kwh) ...... 82,734 80,889 79,756 77,096 72,455 69,290 57,958 Customer Accounts - Average (thousands) 3,616 3,551 3,489 3,422 3,350 3,281 2,840 Peak Load, Winter (mw 60-minute) 2" 13,047 16,490 18,096 16,563 12,594 12,964 10,779 Peak Load, Summer (mw 60-minute) 16,613 16,064 15,813 15,179 15,266 14,661 12,394 Total Capability (summer peak, mw) i3 18,715 18,538 18,153 18,146 16,698 16,627 15,540 Reserve Margin (summer peak, %)j 20 23 21 26 13 17 25 Net Energy for Load (%)
Oil .... ...
Natural Gas . . . . . . . . . . .
........... 18 29 18 29 19 31 31 20 32 17 26 17 21 21 11t Nuclear . . . . . . . . . . . . 25 26 25 26 25 27 23 Net Purchased Power and Interchange 20 20 18 17 21 27 34 Coal ............ ............. 8 7 7 6 5 3 1 Capital Expenditures (including nuclear fuel and AFUDC) $551 $474 $669 $772 $1,109 $1,298 $671 Common Stock Data Average Shares Outstanding (millions) 173 174 175 178 187 176 130 Earnings Per Share of Common Stock $3.57 $3.33 $3.16 $2.91 $2.30 $2.65 $3.10 Dividends Paid Per Share .......... $1.92 $1.84 $1.76 $1.88 $2.47 $2.43 $2.10 Book Value Per Share (year end) . . . $28.03 $26.46 $25.12 $23.82 $21.57 $20.99 $23-82 Market Price Per Share (year end) . . . $593/16 $46 $463/8 $351/8 $391/8 $285s/8
$361/4 Market Price Per Share (high-low) . . . .$60-42s/ $481/8-411/2 $461/2-34 $391/8-267/8 $41-351/2 $383/8-32 $347/8-26 Number of Shareholders (year end) 60,493 67,580 74,169 82,021 85,787 83,109 72,117
( h f1L) itucs charges in 1993 foir cost rwdilction piogrni ($85 million a/fict tax).
(2) Winter peaks include Novem/icr-i/b'lIX J/nlery-Maich of fo/lowinig yar.
er of-( rrc/Lll'1c1r (ai/d (3) Represents installed caipabilityphtis pit-lifhsedpowerc. Reserve morgini is*tmsed on peaik lotid nct o/-lood immtgcoIC11.
(.4) RcLLccts aireutiition of 9 millioil in 1997, 10 milllioi ini 1996 wl /95, owl 11 million im 19944 /fii/oLtLtt'l 'rit/su lIcI h i, thi ESOP Cic ih it 011(IlC0/0111/7 rti*ittiIard iidopti /fLcLtitve Jimiitit 1, 1991.
(5) l3tsic (1i,1 ssjtiii g dlilution/.
0-I I L11
Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations The Florida Public Service Commission (FPSC) regulates FPL's FPL Group, Inc's (FPL Group) net income and earnings per share retail sales, which represent approximately 94% of FPL Group's total for 1997 grew 6.7% and 7.2%, respectively, The improvement over the operating revenues. FPL reported a retail regulatory return on common respective 1996 growth rates of 4.7% and 5.4% is primarily due to better equity (ROE) of 12.3%, 12.1% and 12.3% in 1997, 1996 and 1995, operating results in FPL Group's other businesses, particularly ESI respectively. The ROE range authorized by the FPSC for these periods Energy, Inc.'s (ESI) independent power projects. A number of ESI's pro was 11% to 13% with a midpoint of 12%. In December 1997, a large jects have been restructured to gain more direct operating control and customer of FPL filed a petition with the FPSC requesting a limited projects have been added. Beginning in 1997, several projects are consol scope proceeding to reduce FPL's base rates. The petition asks the FPSC idated in FPL Group's financial statements, including the accounts of a to reduce FPL's authorized ROE and to exclude amounts recorded under 665 mw gas-fired exempt wholesale generator and two solar projects. In an FPSC-approved special amortization program in determining the January 1998, FPL Group announced the formation of FPL Energy, Inc. amount of the rate reduction. FPL Group is unable to predict what (FPL Energy), an FPL Group Capital Inc (FPL Group Capital) sub course of action the FPSC might take and what effect, if any, this matter sidiary, that will hold directly or indirectly all generation assets not would have on FPL Group's financial statements.
owned by Florida Power &Light Company (FPL). Other operations and maintenance (O&M) expenses increased FPL continues to represent the predominant portion of FPL in 1997, following several years of decline, primarily as a result of Group's operations. FPL's results over the past three years reflect a additional costs associated with the energy conservation cost recovery combination of continued growth in the number of customers served clause. Excluding these costs, which are essentially a pass-through and by FPL and actions taken by management to accelerate the amortiza do not affect net income, O&M expenses declined slightly as a result tion of nuclear and fossil fuel generating assets and regulatory assets, of lower nuclear refueling and lower payroll-related costs. Partially and to reduce debt and preferred stock balances. offsetting these items were higher maintenance costs on FPL's distribu FPL's operating revenues represent about 96% of FPL Group's tion system to improve service reliability. O&M expenses are expected operating revenues and primarily consist of revenues from base rates, to increase in 1998 due to a continuing focus on improving service cost recovery clauses and franchise fees. Revenues from FPL's base rates reliability and higher storm fund accruals. In 1996, cost savings from were $3.5 billion, $3.4 billion and $3.4 billion in 1997, 1996 and 1995, operational improvements were partially offset by the third quarter respectively. There were no changes in base rates during those years. adoption of an FPSC-approved change in accounting for costs associ Revenues from cost recovery clauses and franchise fees represent a pass ated with nuclear refueling outages. See Note 1- Accrual for Nuclear through of costs and do not significantly affect net income. Fluctuations Maintenance Costs. O&M expenses in 1995 include charges associated in these revenues are primarily driven by changes in energy sales, fuel with facilities consolidation and inventory reductions.
prices and capacity charges. Clause revenues and the related fuel, pur The increases in depreciation and amortization expense are pri chased power and interchange expense increased in 1996 primarily due marily the result of an FPSC-approved special amortization program ini to higher fuel prices and higher capacity charges as an additional pur tiated by FPL in 1995. The program calls for recording as amortization chased power contract became effective. See Note 9 - Contracts. In 1997, expense a fixed amount of $30 million per year for nuclear assets plus, FPL Group's operating revenues and fuel, purchased power and inter through 1997, an additional amount of amortization based on the level change expense include the effects of consolidating some independent of retail base revenues achieved compared to a fixed amount for nuclear power projects formerly accounted for as equity investments. and fossil generating assets and certain regulatory assets. Under this pro The population in FPL's service territory continued to grow, con gram, $199 million, $160 million and $126 million of special amortiza tributing to retail customer growth of 1.8%, 1.8% and 1.9% in 1997, tion was recorded in 1997, 1996 and 1995, respectively. The 1997 and 1996 and 1995, respectively. In 1997, warmer weather contributed to an 1996 amounts include, as depreciation and amortization expense, $169 increase in retail customer usage of 1.2%, while in 1996, milder weather million and $20 million, respectively, for amortization of regulator),
conditions resulted in a decrease in retail customer usage of 1.3%. assets. All other special amortization amounts were applied against Extreme weather in 1995 contributed to an increase in usage of 2.5%. nuclear and fossil production assets. In December 1997, the FPSC voted Together these factors and changes in sales to other utilities contributed to extend this program through 1999 and added costs associated with the to an increase in FPL's total energy sales of 2.3%, 1.4% and 3.5% in decommissioning of nuclear plants and dismantling fossil plants to the 1997, 1996 and 1995, respectively. The consolidation of some indepen cost categories covered by the plan. The decision was made after the dent power projects increased FPL Group energy sales in 1997. FPSC conducted hearings that were requested by a third party. In addi-23
1ý ---
tion to depreciation and amortization recorded tinder the special amorti Since there is no deregulation proposal currently under consideration zation program, in 1997, 1996 and 1995 FPL amortized $22 million, 528 in Florida, FPL is unable to predict what impact would result from a million and $37 million, respectively, of plant-related regulatory assets deferred since FPL's last rate case in 1984. It is anticipated that substan change to a more competitive environment or when such a change might occur. See Note I - Regulation.
Iii tiall' all of the remaining S24 million balance will be amortized in 1998 FPL Group is working to resolve the potential impact of the year as authorized by the FPSC. In 1997 and 1996 the FPSC approved higher 2000 on the processing of information by its computer systems. An depreciation rates for certain assets which resulted in additional deprecia assessment of identified software, including vendor-supplied software, tion of $31 million and 522 million in 1997 and 1996, respectively. has been completed and work has begun to make the necessary modifi FPL lowered its interest charges and preferred stock dividends by cations. The estimated cost of addressing year 2000 issues in software reducing debt and preferred stock balances. FPL Group has reduced applications is not expected to have a material adverse effect on FPL these balances, net of commercial paper increases, over the past three Group's financial statements. FPL Group continues to assess the potential years by S1.0 billion. In 1997, additional debt has been assumed as a financial and operational impacts of computerized processes embedded result of ESI's portfolio restructuring and expansion resulting in higher in operating equipment.
interest charges at FPL Group.
Improved results in 1997 from independent power partnerships Liquidity and Capital Resources contributed to an increase in the non-operating line other - net. The FPL Group's primary capital requirements consist of expenditures 1996 change in other - net resulted from an accounting rule change, to meet increased electricity usage and customer growth of FPL. Capital approved by the FPSC, that eliminated the capitalization of interest and expenditures of FPL for the period 1998 through 2000 are expected to return on equity on all but very large construction projects. be approximately $1.8 billion, including $620 million for 1998. Also, in The lower effective income tax rate in 1997 and 1996 reflects January 1998 FPL Group acquired interests in two power plants in the increased amortization of FPM's deferred insestment tax credits due Northeast and announced plans to purchase all of Central Maine Power to the special amortization program and adjustments of prior years' Company's (Central Maine) non-nuclear generation assets. The Central tax matters. Maine transaction is expected to close in the second half of 1998 and is The electric utility industry is facing increasing competitive pres sure. FPL currently faces competition from other suppliers of electrical subject to approval by federal and state regulators. Commitments for energy-related acquisitions, including the acquisitions mentioned above, Iii energy to wholesale customers and from alternative energy sources are $1.1 billion for 1998. Other acquisitions may be made as opportuni and self- generation for other customer groups, primarily industrial ties arise. See Note 9 - Commitments. In 1997, FPL's capital expendi customers. In 1997, operating revenues from wholesale and industrial tures were higher than 1996 as a result of costs associated with the customers combined represented approximately 4% of FPL's total oper replacement of steam generators at St. Lucie Unit No. 1.The further ating revenues. Various states, other than Florida, have either enacted planned increase in 1998 reflects reliability improvements to be made to legislation or are pursuing initiatives designed to deregulate the pro the distribution system. Expenditures on independent power proiects in duction and sale of electricity. By allowing customers to choose their 1997 by FPFGroup's other operating subsidiaries, primarily ESI, were electricity supplier, deregulation is expected to result in a shift from 5291 million. This increase over prior"years is the result of ESI's expan cost-based rates to market-based rates for energy production and other sion and restructuring of various projects.
services provided to retail customers. Similar initiatives are also being Debt maturities of F[lL Group's subsidiaries will require cash out pursued on the federal level. Although the legislation and initiatives flows of approximately 5718 million through 2002, including $198 mil vary substantially, common areas of focus include when market-based lion in 1998. See Note 6. It is anticipated that cash requirements for FPF1's pricing will be available for wholesale and retail customers, what exist capital expenditures, energy-related investments and debt maturities in ing prudently incurred costs in excess of the market-based price will be 1998 will be satisfied with internally generated funds and debt issuances.
recoverable and whether generation assets should be separated from Any internally generated funds not required for capital expenditures and transmission, distribution and other assets. In the event the basis of current maturities may be used to reduce outstanding debt, preferred or regulation for some or all of FPL's business changes from cost-based common stock, or for investment. Any temporary cash needs will be met regulation, existing regulatory assets and liabilities would be written bs short-term bank borrowings. Bank lines of credit currentlh available off unless regulators specify an alternative means of recovery or refund. to FPL Group and its subsidiaries aggregate 51.3 billion.
Further, other aspects of the business, such as generation assets and In 1997, FPL Group's board of directors authorized the repur long-term power purchase commitments, would need to be reviewed to assess their recoverability in a changed regulatory environment.
chase of cip to 10 million shares of common stock over an unspecified period. During 1997, FPL Group repurchased 0.7 million shares of LII 24 I I A1
common stock under this program and 0.3 million shares under a pre securities is estimated as the potential loss in fair value resulting from a viously authorized stock repurchase program. hypothetical 10% increase in interest rates and amounts to $19 million.
FPL self-insures for damage to certain transmission and distribu The fair value of FPL Group's long-term debt is also affected by tion properties and maintains a funded storm reserve to reduce the changes in interest rates. Over the last several years, the outstanding financial impact of storm losses. The balance of the storm fund reserve long-term debt balance has been substantially reduced, resulting in a at December 31, 1997 was $252 million. Bank lines of credit of significant decrease in the related interest expense, and a portion of the
$300 million, included in the $1.3 billion above, are also available if remaining debt balance has been converted to variable rate debt.
needed to provide cash for storm restoration costs. The FPSC has indi Interest rate swap agreements entered into by an FPL Group subsidiary cated that it would consider future storm losses in excess of the funded reduce the impact of interest rate changes on its variable rate debt reserve for possible recovery from customers. FPL filed a request for (total notional principal amount of $267 million at December 31, FPSC approval to increase the annual storm fund contribution from 1997). The following presents the sensitivity of the fair value of debt
$20 million to $35 million; a decision by the FPSC ispending. and interest rate swap agreements to a hypothetical 10% decrease in In 1996, the Financial Accounting Standards Board (FASB) interest rates:
issued an exposure draft on accounting for obligations associated with (Millions of Dollars)
Hypothetical the retirement of long-lived assets and recently decided to restudy the Carrying Increase in matter. Amethod proposed by the FASB would require the present Value Fair Value Fair Valuejai Long-term debt ......... $3,147 $3,236(bl $103 value of estimated future cash flows to decommission FPL's nuclear Interest rate swap power plants and dismantle its fossil power plants to be recorded as an agreements ......... - $ 31 (° $ 6 increase to asset balances and as aliability. This amount is currently (a) Calculated based on the change in discounted cash flow.
estimated to be $1.5 billion. Under that proposal, it is anticipated that (b) Based on quoted market prices for these or similar issues.
there will be no effect on cash flows and, because of the regulatory (c) Based on the estimated cost to terminate the agreements.
treatment, there will be no significant effect on net income.
FPL Group Capital and its subsidiaries have guaranteed approxi While a decrease in interest rates would increase the fair value mately $240 million of lease obligations, debt service payments and of debt, it is unlikely that events that would result in a realized loss other payments subject to certain contingencies. This amount includes will occur.
guarantees associated with acquisitions occurring in early 1998. Equity price risk - Included in the special use funds of FPL are FPLs charter and mortgage contain provisions which, under cer marketable equity securities carried at their market value of $367 mil tain conditions, restrict the payment of dividends and the issuance of lion at December 31, 1997. A hypothetical 10% decrease in the prices additional unsecured debt, first mortgage bonds and preferred stock. quoted by stock exchanges would result in a $37 million reduction in Given FPL's current financial condition and level of earnings, expected fair value and corresponding adjustment to the related liability financing activities and dividends are not affected by these limitations. accounts based on current regulatory treatment.
Other risks - Under current cost-based regulation, FPL's cost of Market Risk Sensitivity fuel is recovered through the fuel and purchased power cost recovery All financial instruments and positions held by FPL Group clause (fuel clause), with no effect on earnings. In line with FPL's described below are held for purposes other than trading. ongoing efforts to control costs, and to address the commodity price Interest rate risk - The special use funds of FPL include restricted risk that FPL would face in a deregulated environment, FPL formed funds set aside to cover the cost of storm damage and for the decom a division to buy and sell wholesale energy commodities, such as nat missioning of FPI's nuclear power plants. Aportion of these funds is ural gas and electric power. Initially, the primary focus of the Energy invested in fixed income debt securities carried at their market value of Marketing & Trading Division has been the procurement of natural
$640 million at December 31, 1997. Adjustments to market value result gas for FPL's own use in power generation (the effects of which are in a corresponding adjustment to the related liability accounts based on reflected in the cost of fuel recovered through the fuel clause) and current regulatory treatment. Because the funds set aside for storm the sale of excess electric power. At December 31, 1997, there were damage could be needed at any time, the related investments are gener no material open positions in these activities. The level of trading ally more liquid and, therefore, are less sensitive to changes in interest activity is expected to grow as FPL seeks to manage the risk associat rates. The nuclear decommissioning funds, in contrast, are generally ed with fluctuating fuel prices, increase value from its own power invested in longer term securities as decommissioning activities are not generation and position itself to take advantage of opportunities in expected to begin until 2012. Market risk associated with all of these evolving energy-related markets throughout the country.
25
Management's Report Independent Auditors' Report The management of FPL Group is responsible for the "Tu the Board of Directors and Shareholders, FPL Group, Inc.: (,j integrity and objectivity of the financial information and repre sentations contained in the consolidated financial statements We have audited the consolidated balance sheets of FPL and other sections of this Annual Report. The consolidated Group, Inc. as of December 31, 1997 and 1996 and the related financial statements, which in part are based on informed judg consolidated statements of income and cash flows for each of ments and estimates made by management, have been prepared the three years in the period ended December 31, 1997. These in conformitx with generally accepted accounting principles financial statements arc the responsibility of the company's applied on a consistent basis. managemnent. Our responsibility is to express an opinion on "To aid in carrying out this responsibility management these financial statements based on our audits.
maintains a system of internal accounting control, which is We conducted our audits in accordance with generally established after weighing the cost of such controls against the accepted auditing standards. Those standards require that we benefits derived. The overall system of internal accounting con plan and perform the audit to obtain reasonable assurance trol, in the opinion of management, provides reasonable assur about whether the financial statements are free of material ance that the assets of FPL Group and its subsidiaries are safe misstatement. An audit includes examining, on a test basis, evi guarded and transactions are executed in accordance with man dence supporting the amounts and disclosures in the financial agement's authorization and are properly recorded for the prepa statements. An audit also includes assessing the accounting ration of financial statements. In addition, management believes principles used and significant estimates made by management, the overall system of internal accounting control provides rca as well as evaluating the overall financial statement presenta sonable assurance that material errors or irregularities would be tion. We believe that our audits provide a reasonable basis for prcvented or detected on a timely basis by employees in the nor our opinion.
real course of their duties. Due to the inherent limitations of the In our opinion, such consolidated financial statements effectiveness of any system of internal accounting control, man present fairly, in all material respects, the financial position of agement cannot proside absolute assurance that the objectives of FPL Group, Inc. at December 31, 1997 and 1996 and the results internal accounting control will be met. The system of internal of their operations and their cash flows for each of the three accounting control is supported by written policies and guide years in the period ended December 31, 1997 in conformity lines, the selection and training of qualified employees, an orga with generally accepted accounting principles.
nizational structure that provides an appropriate division of responsibility and a program of internal auditing. To further enhance the internal accounting control environment, manage ment has prepared and distributed to all employees a Code of Conduct which states management's policy on conflict of inter Deloitte & Touche LLP est and ethical conduct. Certified Public Accountants FPL Group's independent auditors, Deloitte & Touche LLP, Miami, Florida are engaged to express an opinion on FPL Group's financial state February 13, 1998 ments. 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 financial reporting and accounting through its Audit Committee. This Committee, which is comprised entirely of outside directors, meets periodically with management, the internal auditors and the independent auditors to make inquiries as to the manner in which the responsibilities of each are being discharged. The inde pendent auditors and the internal audit staff have free access to the Committee without management's presence to discuss audit ing, internal accounting control and financial reporting matters.
0II 26 I I AI
Consolidated Statements of Income (In millions, except per share amounts)
Years Ended December 31, 1997 1996 1995 Operating Revenues ..... ................ $6,369 $6,037 $5,592 Operating Expenses Fuel, purchased power and interchange ........ 2,255 2,131 1,722 Other operations and maintenance .......... 1,231 1,189 1,206 Depreciation and amortization . . . . . . . . . . . . 1,061 960 918 Taxes other than income taxes ............ 594 586 549 Total operating expenses . . . . . . . . . . . . 5,141 4,866 4,395 Operating Income ..... ................. 1,228 1,171 1,197 Other Income (Deductions)
Interest charges ......... ................... (291) (267) (291)
Preferred stock dividends - FPL ........... (19) (24) (43) 4 (7) 19 Other - net .......... .....................
Total other deductions - net . . . . . . . . . . . (306) (298) (315)
Income Before Income Taxes .... ............ 922 873 882 Income Taxes ........ .................. 304 294 329 Net Income ...... .................... $ 618 $ 579 $ 553 Earnings per share of common stock (basic and assuming dilution) . . $ 3.57 $ 3.33 $ 3.16 Dividends per share of common stock $ 1.92 $ 1.84 $ 1.76
..... 173 174 175 Average number of common shares outstanding The accompanying Notes to Consolidated FinancialStatements are an integralpart of these statements.
27
Consolidated Balance Sheets (Millions of Dollars) (iJ December 31, 1997 1996 Property, Plant and Equipment Electric utility plant in service and other property . . . . . . . . $17,430 $16,593 Nuclear fuel under capital lease ....... ................ 186 182 Construction work in progress . . . . . . . . . . . . . . . 204 258 Less accumulated depreciation and amortization ... ......... (8,466) (7,649)
Total property, plant and equipment - net .... .......... 9,354 9,384 Current Assets Cash and cash equivalents . . . . . . . . . . . . . . . . 54 196 Customer receivables, net of allowances of $9 million and $12 million 501 462 Materials, supplies and fossil fuel inventory- at average cost . . . 302 268 Deferred clause expenses ....... ................... 122 127 Other .............. .......................... 122 120 Total current assets . . . . . . . . . . . . . . . . . 1,101 1,173 Other Assets Special use funds of FPL . . . . . . . . . . . . . . . . .
Other investments .......... .....................
1,007 282 806 327 Iii Other .............. .......................... 705 529 Total other assets . . . . . . . . . . . . . . . . . . 1,994 1,662 Total Assets . . . . . . . . . . . . . . . . . . . . . $12,449 $12,219 LI 28 I I lH
(Millions of Dollars)
December 31, 1997 1996 Capitalization Common shareholders' equity .......... S. . . . .. . $ 4,845 $ 4,592 Preferred stock of FPL without sinking fund requirements S. . . . .. . 226 290 Preferred stock of FPL with sinking fund requirements . 42 Long-term debt ......... ................ S. . . . .. . 2,949 3,144 Total capitalization ..... .............. S. . . . .. . 8,020 8,068 Current Liabilities Short-term debt ..... ................ S. . . . .. . 134 Current maturities of long-term debt and preferred stock .. . . . .. . 198 155 Accounts payable ....... ................ . . . .. . 368 308 Customers' deposits ....... .............. . . . .. . 279 268 Accrued interest and taxes . . . . . . . . . . . . . . .. . 180 259 Other .......... ..................... . . . .. . 340 284 Total current liabilities . . . . . . . . . . . . . . .. . 1,499 1,274 Other Liabilities and Deferred Credits Accumulated deferred income taxes ... ......... . . . .. . 1,473 1,531 Deferred regulatory credit - income taxes ......... . . . .. . 166 129 Unamortized investment tax credits ........ . . . .. . 229 251 Storm and property insurance reserve ....... .. . . . .. . 252 223 Other .......... ..................... . . . .. . 810 743 Total other liabilities and deferred credits .... . . . .. . 2,930 2,877 Commitments and Contingencies Total Capitalization and Liabilities ..... .............. $12,449 $12,219 The accompanying Notes to Consolidated FinancialStatements are an integral partof these statements.
29
Consolidated Statements of Cash Flows Years Ended December 31, 1997 (Millions of Dollars) 1996 1995 Lii Cash Flows From Operating Activities Net incom e . . . . . . . . . . . . . . . . . . $ 618 $ 579 $ 553 Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ... ......... 1,061 960 918 Decrease in deferred income taxes and related regulatory credit .... ........... (30) (76) (90)
Increase (decrease) in accrued interest and taxes (79) 39 10 Other- net . . . . . . . . . . . . . . . 27 90 119 Net cash provided by operating activities ....... 1,597 1,592 1,510 Cash Flows From Investing Activities Capital expenditures of FPL ..... ............ (551) (474) (661)
Independent power investments .......... (291) (52) (37)
O ther- net . . . . . . . . . . . . . . . . . . 45 (4)
Net cash used in investing activities .......... (797) (526) (702)
Cash Flows From Financing Activities Issuance of long-term debt . . . . . . . . . . . . 42 178 11, Retirement of long-term debt and preferred stock . . . (717) (338) (574)
Increase (decrease) in short-term debt ... ......... 113 (179) (56)
Repurchase of common stock .... ............ (48) (82) (69)
Dividends on common stock ........... (332) (320) (309)
O ther - net . . . . . . . . . . . . . . . . . . 3 (18)
Net cash used in financing activities ........... (942) (916) (848)
Net increase (decrease) in cash and cash equivalents . . (142) 150 (40)
Cash and cash equivalents at beginning of year .... 196 46 86 Cash and cash equivalents at end of year ...... $ 54 $ 196 $ 46 Supplemental Disclosures of Cash Flow Information Cash paid for interest . . . . . . . . . . . . . $ 287 $ 248 $ 276 Cash paid for income taxes ..... ............ $ 434 $ 381 $ 391 Supplemental Schedule of Noncash Investing and Financing Activities Additions to capital lease obligations . . . . . . . $ 81 $ 86 $ 84 Debt assumed for property additions ....... $ 420 $ 33 1/(l t )o)p) )Iiito \rotos to Consoolitltod FinanciralState nIISuIt' 0? IIit i I ,,It'l pu(t Of O thte?)ItICntS.
0I 30 11
Notes to Consolidated Financial Statements Years Ended December 31, 1997, 1996 and 1995
- 1. Summary of Significant Accounting the legislation and initiatives vary substantially, common areas of and Reporting Policies focus include when market-based pricing will be available for wholesale and retail customers, what existing prudently incurred Basis of Presentation- FPL Group, Inc.s (FPL Group) operating costs in excess of the market-based price will be recoverable and activities consist of a rate-regulated public utility, Florida Power whether generation assets should be separated from transmission,
& Light Company (FPL), independent power projects and agri distribution and other assets. It is generally believed that under cultural operations. FPL supplies electric service to 3.6 million any proposal, transmission and distribution activities would customers throughout most of the east and lower west coasts remain regulated.
of Florida. The independent power projects consist of owned and In the event that FPL's generating operations are no longer controlled entities, which are consolidated, and non-controlling subject to the provisions of FAS 71, as a result of market-based ownership interests in joint ventures or leveraged leases. pricing due to regulatory or other changes, portions of the exist The consolidated financial statements of FPL Group ing regulatory assets and liabilities that relate to generation would include the accounts of its majority-owned and controlled sub be written off unless regulators specify an alternative means of sidiaries. Ml significant intercompany balances and transactions recovery or refund. The principal regulatory assets and liabilities have been eliminated in consolidation. Certain amounts are as follows:
included in prior years' consolidated financial statements have (Millions of Dollars) been reclassified to conform to the current year's presentation. 1997 1996 December 31, The preparation of financial statements requires the use of esti Assets (included in other assets):
mates and assumptions that affect the reported amounts of Unamortized debt reacquisition costs ..... $171 $283 Plant-related deferred costs ............ $ 24 $ 46 assets, liabilities, revenues and expenses and the disclosure of Nuclear maintenance reserve cumulative contingent assets and liabilities. Actual results could differ from effect adjustment ................... $ 14 $ 21 those estimates. Deferred Department of Energy assessm ent ...................... $48 $ 53 Regulation - FPL is subject to regulation by the Florida Public Liabilities:
Service Commission (FPSC) and the Federal Energy Regulatory Deferred regulatory credit - income taxes $166 $129 Commission (FERC). Its rates are designed to recover the cost Unamortized investment tax credits ...... $229 $251 Storm and property insurance reserve ..... $252 $223 of providing electric service to its customers including a rea sonable rate of return on invested capital. As a result of this cost-based regulation, FPL follows the accounting practices set The storm and property insurance reserve is primarily forth in Statement of Financial Accounting Standards No. related to transmission and distribution properties. The (FAS) 71, "Accounting for the Effects of Certain Types of amounts presented above exclude clause-related regulatory Regulation'" FAS 71 indicates that regulators can create assets assets and liabilities that are recovered or refunded over six- or and impose liabilities that would not be recorded by non-regu twelve-month periods. These amounts are included in current lated entities. Regulatory assets and liabilities represent proba assets and liabilities in the consolidated balance sheets. Further, ble future revenues that will be recovered from or refunded to other aspects of the business, such as generation assets and customers through the ratemaking process. Recoverability of long-term power purchase commitments, would need to be regulatory assets is assessed at each reporting period. reviewed to assess their recoverability in a changed regulatory Various states, other than Florida, have either enacted legis environment. Since there is no deregulation proposal currently lation or are pursuing initiatives designed to deregulate the pro under consideration in Florida, FPL is unable to predict what duction and sale of electricity. By allowing customers to choose impact would result from a change to a more competitive envi their electricity supplier, deregulation is expected to result in a ronment or when such a change might occur.
shift from cost-based rates to market-based rates for energy pro In 1995, FPL began amortizing the plant-related deferred duction and other services provided to retail customers. Similar costs in the preceding table over aperiod of no more than five years initiatives are also being pursued on the federal level. Although as approved by the FPSC. Amounts recorded in 1997, 1996 and 31
I. - t _L" 1995 were $22 million, S28 million and $37 million, respectively. Electric Plant,Depreciation and Auortizaioui - The cost of Pursuant to an FPSC-approved program started in 1995, FP1, additions to units of utility' property of FPL is added to electric recorded as amortization expense a fixed amount of $30 million per year for nuclear assets plus, through 1997, an additional utilitys plant. The cost of units of utilits' property retired, less net salvage, is charged to accumulated depreciation. Maintenance LII amount of amortization based on the level of retail base revenues and repairs of property as well as replacements and renewals (if achieved compared to a fixed amount for nuclear and fossil gen items determined to be less than units of utility' property are erating assets and certain regulatory assets. Under this program, charged to other operations and maintenance (O&M) expenses.
$199 million, $160 million and $126 million of special amortiza At December 31, 1997, the generating, transmission, distribu tion was recorded in 1997, 1996 and 1995, respectively. The 1997 tion and general facilities of FPL represented approximately and 1996 amounts include, as depreciation and amortization 47%, 13%, 33% and 7%, respectively, of FPL's gross investment expense, SI169 million and 520 million, respectively, for amortiza in electric utility plant in sersvice. Substantially all electric utilit' tion of regulatory assets. All other special amortization amounts plant of FPL is subject to the lien of a mortgage securing FPI's were applied against nuclear and fossil production assets. In first mortgage bonds; a portion of the remaining electric plant December 1997, the FPSC voted to extend this program through in service is pledged as collateral for the senior term loan of FIL 1999 and added costs associated with the decommissioning of Group Capital Inc (FPI Group Capital).
nuclear plants and dismantling fossil plants to the cost categories Depreciation of electric property is primarily provided on a covered by the plan. The decision was made after the FPSC con straight-line average remaining life basis. FPL includes in depreci ducted hearings that were requested by a third party. ation expense a provision for fossil plant dismantlement and nuclear plant decommissioning. For substantially all of FPL's Renvcios amni Rates - FPL's retail and wholesale utility rate property, depreciation and fossil fuel plant dismantlement studies schedules are approved by the FPSC and the FERC, respectively. are performed and filed with the FPSC at least every four years.
FPL records unbilled base revenues for the estimated amount of Depreciation studies were filed in December 1997 and will be energy delivered to customers but not )et billed. Unbilled base effective for 1998. The next fossil fuel plant dismantlement studies revenues are included in customer receivables and amounted to approximately $154 million and $161 million at December 31, 1997 and 1996, respectively.
are scheduled to be filed by October 1, 1998 and will be effective for 1999. The weighted annual composite depreciation rate was LII approximately 4.3% for 1997, 4.1% for 1996 and 4.0% for 1995, Revenues include amounts resulting from cost recovery excluding the effects of decommissioning and dismantlement.
clauses, which are designed to permit full recoverys of certain costs Further, these rates exclude approximately $222 million, $188 nil and provide a return on certain assets utilized by these programs, lion and S163 million, respectively, of special and plant-related and franchise fees. These revenues generally represent a pass deferred cost amortization. See Regulation.
through of costs and include substantially all fuel, purchased power and interchange expenses, conservation- and environmen Niclar FuiD - FPL leases nuclear fuel for all four of its nuclear tal-related expenses, certain revenue taxes and franchise fees. units. Nuclear fuel lease expense was $85 million, $94 million Revenues from cost recovery clauses are recorded when billed; and $104 million in 1997, 1996 and 1995, respectively. Included FPI achieves matching of costs and related revenues by deferring in this expense was an interest component of $9 million, $10 the net under or over recovery; Any under recovered costs or over million and S11 million in 1997, 1996 and 1995, respectively.
recovered revenues are collected from or returned to customers in Nuclear fuel lease payments and a charge for spent nuclear fuel subsequent periods. disposal are charged to fuel expense on a unit of production In December 1997, a large customer of FPL filed a petition method. These costs are recovered through the fuel and pur with the FPSC requesting a limited scope proceeding to reduce chased power cost recovery clause (fuel clause). Under certain FPL's base rates. The petition asks the FPSC to reduce FP['s circumstances of lease termination, [PL is required to purchase authorized return on common equity and to exclude amounts all nuclear fuel in whatever form at a purchase price designed recorded under the FPSC-approved special amortization program to allow the lessor to recover its net investment cost in the fuel, in determining the amount of the rate reduction. FPL Group is which totaled S186 million at December 31, 1997. For ratemak unable to predict what course of action the FPSC might take ing, these leases are classified as operating leases. For financial and what effect, if ans; this matter would have on FPL Group's financial statements.
reporting, the capital lease obligation is recorded at the amount due in the event of lease termination. LII 32 I 1 1I
Decommissioningand Dismantlement of Generating Plant- FPL would require the present value of estimated future cash flows accrues nuclear decommissioning costs over the expected ser to decommission FPL's nuclear power plants and dismantle its vice life of each unit. Nuclear decommissioning studies are per fossil power plants to be recorded as an increase to asset bal formed at least once every five years for FPL's four nuclear units ances and as a liability. This amount is currently estimated to and are submitted to the FPSC for approval. The next studies be $1.5 billion. Under that proposal, it is anticipated that there are scheduled to be filed by October 1, 1998 and will be effec will be no effect on cash flows and, because of the regulatory tive for 1999. These studies assume prompt dismantlement for treatment, there will be no significant effect on net income.
the Turkey Point Unit Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013, respectively. St. Lucie Accrual for Nuclear Maintenance Costs - In 1996, the FPSC Unit No. 1 will be mothballed in 2016 until St. Lucie Unit No. 2 approved a new method of accounting for maintenance costs is ready for decommissioning in 2023. These studies also incurred during nuclear refueling outages. Under this new assume that FPL will be storing spent fuel on site pending method, the estimated maintenance costs relating to each unit's removal to a U.S. Government facility. Decommissioning next planned outage will be accrued over the period beginning expense accruals, included in depreciation and amortization when the unit resumes operations until the end of the next expense, were $85 million in 1997, 1996 and 1995. FPL's por refueling outage. Any difference between the estimated and tion of the ultimate cost of decommissioning its four units, actual costs will be included in O&M expenses when known.
including dismantlement and reclamation, expressed in 1997 This approach results in FPL recognizing maintenance costs dollars, is currently estimated to aggregate $1.5 billion. At equivalent to slightly less than three outages per year based December 31, 1997 and 1996, the accumulated provision for upon the current refueling outage schedule for FPL's four nuclear decommissioning totaled $998 million and $805 mil nuclear units. The cumulative effect of adopting this account lion, respectively, and is included in accumulated depreciation. ing method was $35 million and, in accordance with the FPSC Similarly, FPL accrues the cost of dismantling its fossil order, was recorded as a regulatory asset which will be amor fuel plants over the expected service life of each unit. Fossil tized and included in O&M expenses over a period not to dismantlement expense totaled $17 million in both 1997 and exceed five years. In 1997 and 1996, $7 million and $14 million, 1996 and $25 million in 1995, and is included in depreciation respectively, of the cumulative adjustment was expensed.
and amortization expense. The ultimate cost of dismantlement for the fossil units, expressed in 1997 dollars, is estimated to ConstructionActivity - In accordance with an FPSC rule, FPL is be $266 million. At December 31, 1997 and 1996, the accumu not permitted to capitalize interest or a return on common equity lated provision for fossil dismantlement totaled $162 million during construction, except for projects that cost in excess of and $146 million, respectively, and is a component of 1/2% of plant in service and will require more than one year to accumulated depreciation. complete. The FPSC allows construction projects below the 1/2%
Restricted assets for the payment of future expenditures threshold as an element of rate base. FPL Group's non-regulated to decommission FPL's nuclear units are included in special use operations capitalize interest on construction projects.
funds of FPL. At December 31, 1997 and 1996, decommission ing fund assets were $850 million and $667 million, respective Storm and PropertyInsurance Reserve Fund (storm fund) - The ly. Securities held in the decommissioning fund are carried at storm fund provides coverage toward storm damage costs and market value with market adjustments resulting in a corre possible retrospective premium assessments stemming from a sponding adjustment to the accumulated provision for nuclear nuclear incident under the various insurance programs covering decommissioning. See Note 3. Contributions to the funds FPL's nuclear generating plants. The storm fund, which totaled are based on current period decommissioning expense. $157 million and $139 million at December 31, 1997 and 1996, Additionally, fund earnings, net of taxes are reinvested in the respectively, is included in special use funds of FPL. Securities funds. The tax effects of amounts not yet recognized for tax held in the fund are carried at market value with market adjust purposes are included in accumulated deferred income taxes. ments resulting in a corresponding adjustment to the storm and In 1996, the Financial Accounting Standards Board property insurance reserve. See Note 3 and Note 9 - Insurance.
(FASB) issued an exposure draft on accounting for obligations Fund earnings, net of taxes, are reinvested in the fund. The tax associated with the retirement of long-lived assets and recently effects of amounts not yet recognized for tax purposes are decided to restudy the matter. A method proposed by the FASB included in accumulated deferred income taxes.
33
- 2. Employee Retirement Benefits Otheii hni'etmnts - Included in other investments in FPL Group's consolidated balance sheets are FPL Group's participa tion in leveraged leases of $154 million and $157 million at PJiiion /cnfits
- Substantially all employees of FPL Group
'LII December 31, 1997 and 1996, respectively. Additionally, other and its subsidiaries are covered by a noncontributory defined investments include non-majority owned interests in partner benefit pension plan. Plan benefits are generally based on employees' s'ears of service and compensation during the last ships and joint ventures, essentially all of which are accounted for under the equity' method. years of employment. Participants are vested after five years of service. During 1997, the pension plan was amended C(hu ,tqiiiv'l/ents -Cash equivalents consist of short-term, and restated to a cash balance design. This plan amendment, highly liquid investments with original maturities of three together with changes in assumptions, caused a $38 million months or less. decrease in 1997 pension cost and a S236 million decrease in the 1997 projected benefit obligation. Under this new design, Short- 7rm J)ebt -The year end weighted -average interest benefits are described in terms of account balances and they rate on short-term debt at December 31, 1997 was 6.3%. accrue ratably over the years of service. All costs of the FPL Approximately $29 million of the non-FPL fossil-fuel Group pension plan are allocated to participating subsidiaries inventory is pledged as collateral for short-term debt. on a pro rata basis. In September 1997, a special retirement program was accepted by 456 bargaining unit employees Reretiient o(Lonf g eini Debt - The excess of FPL's reacquisition at FPL cost over the book value of long-term debt is deferred and amor For 1997, 1996 and 1995 the components of pension cost tized to expense ratably over the remaining life of the original are as follows:
issue, which is consistent with its treatment in the ratemaking process. Under the special amortization program, S l10 million of (Millions of Dollars)
Years Ended December 31, 1997 1996 1995 this regulatory asset was amortized in 1997. See Regulation. FPL Group Capital expenses this cost in the period incurred.
Service cost ....................
Interest cost on projected benefit obligation ...............
$ 38 76
$ 38 90
$ 32 88 Li Ihcomerlixens - Deferred income taxes are provided on all signifi Actual return on plan assets ........ (343) (123) (350)
Net amortization and deferral ....... 160 (24) 211 cant temporary differences between the financial statement and Negative pension cost ............. (69) (19) (19) tax bases of assets and liabilities. The deferred regulatory credit Effect of special retirement programs. 18 5 income taxes of FPL represents the revenue equivalent of the dif Pension cost ................... $(51) $(19) $ (14) ference in accumulated deferred income taxes computed under FAS 109, "Accounting for Income Taxes," as compared to regulato FPL Group and its subsidiaries fund the pension cost ry accounting rules. This amount is being amortized in accor calculated under the entry age normal level percentage of pay dance with the regulatory treatment over the estimated lives of actuarial cost method, provided that this amount satisfies the the assets or liabilities which resulted in the initial recognition of minimum funding standards of the Employee Retirement the deferred tax amount. Investment tax credits (ITC) for FPL are Income Security Act of 1974, as amended, and is not greater deferred and amortized to income over the approximate lives of than the maximum tax deductible amount for the year. No the related property in accordance with the regulatory treatment. contributions to the plan were required for 1997, 1996 The special amortization program included amortization of regu or 1995.
latory assets related to income taxes of $59 million and S20 mil lion in 1997 and 1996, respectively.
0I 34 I I II
A reconciliation of the funded status of the plan to the For 1997, 1996 and 1995, the components of net periodic amounts recognized in FPL Group's consolidated balance sheets postretirement benefit cost are as follows:
is presented below: (Millions of Dollars)
Years Ended December 31, 1997 1996 1995 (Millions of Dollars) 1997 1996 Service cost ..................... $6 $5 $4 December 31, Interest cost ..................... 21 18 18 Plan assets at fair value, primarily listed Actual return on plan assets ........
(28) (4) (23) stocks and bondsa) ................... $2,287 $1,996 Amortization of transition Actuarial present value of benefits for obligation ..................... 3 3 3 services rendered to datea):
Net amortization and deferral ........ 21 (2) 17 Accumulated benefits based on salaries Postretirement benefit cost ......... $23 $20 $19 to date, including vested benefits of
$1.103 billion and $898 million ..... 1,127 951 Additional benefits based on A reconciliation of the funded status of the plan to the estimated future salary levels ...... 19 311 amounts recognized in FPL Group's consolidated balance sheets Projected benefit obligation(a) .............. 1,146 1,262 is presented below:
Plan assets in excess of projected (Millions of Dollars) benefit obligation ..................... 1,141 734 December 31, 1997 1996 Prior service (credits) costs not recognized Plan assets at fair value, primarily listed in net periodic pension cost ............. (117) 175 stocks and bonds ( ....................
.) $125 $107 Unrecognized net asset at January 1, 1986, Accumulated postretirement benefit obligation (a):
being amortized over 19 years - net Retirees ............................. 214 189 of accumulated amortization ............ (163) (187) Fully eligible active plan participants ....... 9 3 Unrecognized net gain ................... (762) (675) Other active plan participants.......... 101 81 PreDaid nension cost ................... $ 99 $ 47 Tota l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324 273 (a) Measured as of September 30. Accumulated postretirement benefit obligation in excess of plan assets ......... 199 166 Unrecognized net transition obligation The weighted-average discount rate used in determining (amortized over 20 years) ................ (53) (56) the actuarial present value of the projected benefit obligation Unrecognized net loss .................... (23) (10)
Accrued Dostretirement benefit liability ........ $123 $100 was 6.50% and 7.00% for 1997 and 1996, respectively. The assumed rate of increase in future compensation levels was (a) Measuredas of September 30.
5.5% for both years. The expected long-term rate of return on plan assets used in determining pension cost was 7.75% for The weighted-average annual assumed rate of increase in 1997, 1996 and 1995. In 1996, FPL Group elected to change the the per capita cost of covered benefits (i.e., health care cost trend measurement date for pension obligations and plan assets from rate) for 1997 was 7.0% for retirees under age 65 and 6.0% for December 31 to September 30. The effect of this accounting retirees over age 65. These rates are assumed to decrease gradually change was not material. to 5.0% by 2003. The cap on FPL Group's contributions mitigates the potential significant increase in costs resulting from an Other PostretirementBenefits - FPL Group and its subsidiaries increase in the health care cost trend rate. Increasing the assumed have defined benefit postretirement plans for health care and health care cost trend rate by one percentage point would increase life insurance benefits that cover substantially all employees. the plan's accumulated postretirement benefit obligation as of All costs of the FPL Group plans are allocated to participating September 30, 1997 by $12 million, and the aggregate of the ser subsidiaries on a pro rata basis. Eligibility for health care vice and interest cost components of net periodic postretirement benefits is based upon age plus years of service at retirement. benefit cost of the plan for 1997 by approximately $1 million.
The plans are contributory and contain cost-sharing features The weighted-average discount rate used in determining the such as deductibles and coinsurance. FPL Group has set a cap accumulated postretirement benefit obligation was 6.50% and on company contributions for postretirement health care 7.00% for 1997 and 1996, respectively. The expected long-term which may be reached at some point in the future depending rate of return on plan assets used in determining postretirement on actual claims experience. Generally, life insurance benefits benefit cost was 7.75% for 1997, 1996 and 1995. In 1996, FPL for retirees are capped at $50,000. FPL Group's policy is to Group elected to change the measurement date for benefit obliga fund postretirement benefits in amounts determined at tions and plan assets from December 31 to September 30. The the discretion of management. effect of this accounting change was not material.
35
- 3. Financial Instruments The carrying amounts of cash equivalents and short-term debt approximate their fair values. Certain investments of FPL Group, includ Iii ed in other investments, are carried at estimated fair value which was $51 million and $66 million at December 31, 1997 and 1996, respective ly. 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.
(Millionsof Dollars)
December 31, 1997 1996 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Preferred stock of FPL with sinking fund requirements " ............ $ 46 $ 47t' Long-term debt ,1:...................................... $3,147 $ 3,236111 $ 3,295 $ 3,3191" Interest rate swap agreements ............................. $ 31 M (a) hncludescurrent mnaturities.
() cd on quo ted mnarket pricesfor th ese or sit Hilatr issues.
Ba (c) Bansed on estimated cost to terminate the agretnents.
Special U' Iiutuls - Securities held in the special use funds are carried at estimated fair value. Slightly more than one-half of the nuclear decommissioning fund consists of municipal and corporate debt securities w\ith a weighted-average maturity of 10 years. The remaining bal ance consists of equity securities. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of 4 years.
The cost of securities sold isdetermined on the specific identification method. The funds had realized gains of $3 million and realized losses of
$2 million in 1997, $8 million and $9 million in 1996 and $13 million and $4 million in 1995, respectively. The funds had unrealized gains of
$126 million and S55 million at December 31, 1997 and 1996, respectively; the unrealized losses at those dates were $1 million and $2 million.
The proceeds from the sale of securities in 1997, 1996 and 1995 were $800 million, $1.05 billion and S950 million, respectively.
- 4. Common Shareholders' Equity 1ii The changes in common shareholders' equity accounts are as follows:
(In Millions)
Corr imon Stock t"I Additional Common Aggregate Paid-In Unearned Retained Shareholders' Shares Par Value Capital Compensation Earnings Equity Balances, December 31, 1994 ........... 187 $2 $3,486 $(304) $1,014 Net incom e ....................... 553 Repurchase of common stock ......... (2) (69)
Dividends on common stock .......... (309)
Earned compensation under ESOP ..... 5 17 Othe r . . . . . . . . . . .. .. .. . . . . . . . . . . . . (2) 1 Balances, December 31, 1995 ........... 185 ' 2 3,420 (287) 1,259 Net incom e ....................... 579 Repurchase of common stock ......... (2) (82)
Dividends on common stock .......... (320)
Earned compensation under ESOP ..... 8 15 Oth e r . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) 1,518 Balances, December 31, 1996........... 183:,, 2 3,345 (272) $4,593 Net incom e ....................... 618 Repurchase of common stock ......... (1) (48)
Dividends on common stock .......... (332)
Earned compensation under ESOP. 6 8 Balances. December 31. 1997 ........... 182 * $2 $3,303 $(264) $1,804 $4,845 (a)
(b)
S.01 par value, authorized - 300,000,000 shares; outstanding 181,762,385 and 182,815,135 iat December 31, 1997 atd 1996, respectivecly Ou!tstanding ant uiallocatedshares held by the ESOP Trust totaled 8.9 million, 9.3 million and 9.8 million (it ecettmber 31, 1997, 1996 atn 1995, respectivelv.
LI 36 I I 11
Common Stock Dividend Restrictions - FPL Group's charter The changes in share awards under the incentive plan are does not limit the dividends that may be paid on its common as follows:
stock. As a practical matter, the ability of FPL Group to pay div idends on its common stock is dependent upon dividends paid Performance Restricted Non-Qualified to it by its subsidiaries, primarily FPL. FPL's charter and a Shares (a) Stock Option SharesM" Balances, December 31, 1994 377,190 187,750 38,387 mortgage securing FPrs first mortgage bonds contain provi Granted (b).............. 97,786 13,500 sions that, under certain conditions, restrict the payment of Exercised at $30 7/8 ..... - - (23,136) dividends and other distributions to FPL Group. These restric Paid/released ........... (123,328) (3,000)
Forfeited ............... (31,312) (4,050) (4,066) tions do not currently limit FPLs ability to pay dividends to Balances, December 31, 1995 320,336 194,200 11,185 FPL Group. In 1997, 1996 and 1995, FPL paid, as dividends to Granted () .............. 90,772 23,000 FPL Group, its net income available to FPL Group on a one Exercised at $30 7/8 ...... - - (10,935) month lag basis. Paid/released ........... (60,359) (34,250)
Forfeited .............. (39,222) (16,650) (250)
Balances, December 31, 1996 311,527 166,300 Employee Stock Ownership Plan (ESOP) - The employee thrift Granted a .............. 212,011 71,000 plans of FPL Group include a leveraged ESOP feature. Shares Paid/released ........... (70,008) of common stock held by the Trust for the thrift plans (Trust) Forfeited ............... (10,942) (17,750)
Balances. December 31. 1997 442.588(c) 219.550 M are used to provide all or a portion of the employers' matching (a) Performanceshares and non-qualified option shares resulted in contributions. Dividends received on all shares, along with 132 thousand, 124 thousand and 112 thousand assumed incre cash contributions from the employers, are used to pay princi mental shares of common stock outstandingfor purposes of pal and interest on an ESOP loan held by FPL Group Capital. computing diluted earningsper share in 1997, 1996 and 1995, respectively. These incrementalshares did not change basic Dividends on shares allocated to employee accounts and earningsper share.
used by the Trust for debt service are replaced with an (b) The average grantdate fair value of equity instruments issued equivalent amount of shares of common stock at prevailing under the incentive plan was $13 million in 1997, $5 million in 1996 and $4 million in 1995.
market prices. (c) Payment of performance shares is based on the market price of ESOP-related compensation expense of approximately FPL Group's common stock when the relatedperformance goal is
$19 million in 1997, $23 million in 1996 and $18 million in achieved.
(d) Shares of restrictedstock were issued at market value at the date of 1995 was recognized based on the fair value of shares allocated the grant.
to employee accounts during the period. Interest income on the ESOP loan is eliminated in consolidation. ESOP-related The accounting and disclosure requirements of FAS 123, unearned compensation included as a reduction of sharehold "Accounting for Stock-Based Compensation," became effective ers' equity at December 31, 1997 was approximately $259 mil in 1996. The statement encourages a fair value-based method of lion, representing 8.9 million unallocated shares at the original accounting for stock-based compensation. FPL Group, however, issue price of $29 per share. The fair value of the ESOP-related elected to continue the use of the intrinsic value-based method unearned compensation account using the closing price of FPL of accounting as permitted by the statement. The results of uti Group stock as of December 31, 1997 was approximately lizing the accounting method recommended in FAS 123 would
$528 million. not have a material effect on FPL Group's results of operations or earnings per share.
Long-Term Incentive Plan- In 1994, FPL Group's board of directors and its shareholders approved FPL Group's current Other- Each share of common stock has been granted a long-term incentive plan. Under this plan, 9 million shares Preferred Share Purchase Right (Right), which is exercisable in of common stock are reserved and available for awards to the event of certain attempted business combinations. The officers and employees of FPL Group and its subsidiaries as Rights will cause substantial dilution to a person or group of December 31, 1997. Total compensation charged against attempting to acquire FPL Group on terms not approved by earnings under the incentive plan was not material in any year. FPL Group's board of directors.
37
- 5. Preferred Stock FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, $.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:
(Millions of Dollars)
December 31, 1997 December 31, Shares Outstanding Redemption Price 1997 1996 Cumulative, No Par Value, authorized 10,000,000 shares at December 31, 1996; without sinking fund requirements - $2.00 No Par Value, Series A (Involuntary Liquidation Value $25 Per Share) tbi ........... $63 Cumulative, $100 Par Value, authorized 15,822,500 shares at December 31, 1997 and 1996:
Without sinking fund requirements:
4 1/2% Series ........................................ 100,000 $101.00 $ 10 10 4 1/2% Series A ...................................... 50,000 $101.00 5 5 4 1/2% Series B ...................................... 50,000 $101.00 5 5 4 1/2% 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 $1103.49(c) 75 75 7.05% Series T ....................................... 500,000 $1103.521c) 50 50 6.75% Series U ....................................... 650,000 $103.37(c) 65 65 Total nreferred stock of FPL without sinkina fund reauirements. 2.262.500 226 289 Less current m aturities ..............................
Total preferred stock of FPL without sinking fund requirements, excluding current maturities ...............
With sinking fund requirements:
6.84% Series Q (d)......................................-$41 2,262,500 $226 $289
'l 8.625% Series R iei.................................... 5 Total preferred stock of FPL with sinking fund requirements ... 46 Less current m aturities .............................. 4 Total preferred stock of FPL with sinking fund requirements, excluding current maturities .............. $ 42
( I)F L's charter actlhorizc s thic' issuance o-f 5 million sharcs of -scbordiicctclprc'riccd stock, iio par v'cluc. Noni , e l tichsc sharcs is outstcicicing.
Thcrc wcre no issuances o pr/'Icrrcd stock inc1997, 1996 anc 1995. Ic 1996, FPl1 recdceciecc 600,000 sharcs ci its 17.28 Prcic/red Stock, 4
SCrics t, $l100 Par aluic anc 400,000 sharcs of-its 7. 00o Prcc/rrcdStock, Scrics (G,$100 Par Scluc.
( In 1997, FPL1rceccei ed till ofthce outstcnricc g sharcs of-its 52.00 No Por oilc Pcicr/rcc d Stock, Sec ics . S.
(c) Not rcdccmablc prioi to 2003.
PiiLredecinc and P il retircd 30,000 sharcs ili 1996 ciic thi rcm'ici liig 410,000 s/icc s ini 1997.
(C) FP[Icrccie edicand rctircd 50,000 sharcs in 1996 cnci the rc'cincicg 50,000 5]carc*' ill 1997.
Iii 38 I I II
- 6. Long-Term Debt 7. Income Taxes Long-term debt consists of the following: The components of income taxes are as follows:
(Millions of Dollars) (Millions of Dollars)
December 31, 1997 1996 Years Ended December 31, 1997 1996 1995 FPL Federal:
First mortgage bonds: C urrent ..................... $308 $355 $381 Maturing through 2000 - 5 3/8% to 5 1/2% ..... $ 355 $ 355 Deferred .................... (34) (77) (78)
Maturing 2001 through 2015 - 6 5/8% to 7 7/8%. 642 660 ITC - net ................... (22) (31) (22)
Maturing 2016 through 2026 - 7% to 7 3/4% .... 741 910 Total federal ............... 252 247 281 Medium-term notes: State:
Maturing 1998 - 5.50% to 6.20% ........... 180 180 C urrent ..................... 52 63 59 Maturing 2003 - 5.79% ................... 70 107 Deferred .................... (16) (11)
Maturing 2016 through 2022 - 8% .......... 99 Total state ............. 52 47 48 Pollution control and industrial development series Total income taxes .......... $304 $294 $329 Maturing 2020 through 2027 - 6.7% to 7.5% 150 150 Pollution control, solid waste disposal and industrial development revenue bonds - Maturing 2021 through 2029 - variable, 3.9% and 3.6% A reconciliation between the effective income tax rates average annual interest rate, respectively... 484 484 and the applicable statutory rates is as follows:
Installment purchase and security contracts Maturing 2007 - 5.9% ...................... 2 Years Ended December 31, 1997 1996 1995 Quarterly Income Debt Securities (Subordinated Statutory federal income tax rate ... 35.0% 35.0% 35.0%
Deferrable Interest Debentures) Increases (reductions) resulting from:
Maturing 2025 - 8.75% .................. 62 State income taxes - net of Unamortized discount - net ................... (22) (28) 3.7 3.5 3.5 federal income tax benefit .....
Total long-term debt of FPL .................. 2,600 2,981 Amortization of ITC ............ (2.4) (3.6) (2.4)
Less current maturities ................... 180 Amortization of deferred regulatory Long-term debt of FPL, excluding credit - income taxes ........ (1.8) (2.0) (2.0) current maturities ..................... 2,420 2,981 Adjustments of prior years' FPL Group Capital tax matters ................ (2.7) (1.3) (0.1)
Debentures: Preferred stock dividends - FPL.. 0.7 1.0 1.7 Maturing 1997 - 6 1/2% .................... 150 0.5 1.0 1.6 Other - net ..................
Maturing 2013 - 7 5/8% .................... 125 125 37.3%
Effective income tax rate ......... 33.0% 33.6%
Senior term loan - Maturing 2007 - variable 11) ...... 333 Other long-term debt - 3.5% to 8.58%
due various dates to 2013 ................... 91 41 Unamortized discount ........................ (2) (2) The income tax effects of temporary differences giving Total long-term debt of FPL Group Capital ...... 547 314 rise to consolidated deferred income tax liabilities and assets Less current maturities ................... 18 151 Long-term debt of FPL Group Capital, are as follows:
excluding current maturities ............. 529 163 (Millions of Dollars)
Total Ionn-term debt ................. $2,949 $3,144 December 31, 1997 1996 Deferred tax liabilities:
(a) A notional principal amount of $267 million at December 31, Property-related ......................... $1,663 $1,708 1997 is hedged with interest rate swap agreements to reduce the Investment-related ....................... 436 384 impact of changes in interest rates on variable rate long-term debt. Other . . .... .... .... .... .... . .... .... .. 362 342 The swap agreements effectively change the variableinterest rates 2,461 2,434 Total deferred tax liabilities ..............
to an averagefixed rate of 9.7% and expire in 2001.
Deferred tax assets and valuation allowance:
Minimum annual maturities of long-term debt for Asset writedowns and capital loss carryforward 110 155 FPL Group for 1998-2002 are approximately $198 million, Unamortized ITC and deferred regulatory credit - income taxes .................. 153 147
$322 million, $147 million, $24 million and $27 million, Storm and decommissioning reserves ....... 246 224 respectively. Other ... .... .... .... .. .. . .... .... .... . 507 442 Available lines of credit aggregated approximately Valuation allowance ...................... (28) (65)
Net deferred tax assets ........... 988 903
$1.3 billion at December 31, 1997, all of which were based Accumulated deferred income taxes ........... $1,473 $1,531 on firm commitments.
39
- 1. -__
The carryforward period for a capital loss from the dispo nuclear reactor owners to the amount of the insurance available sition in a prior year of an FPL Group Capital subsidiary from private sources and under an industry retrospective payment expired at the end of 1996. The amount of the deductible loss from this disposition was limited by Internal Revenue Service plan. In accordance with this Act, FPL maintains S200 million of private liability insurance, which is the maximum obtainable, and Ii' (IRS) rules. FPL Group is challenging the IRS loss limitation participates in a secondary financial protection system under and the IRS is disputing certain other positions taken by FPL which it is subject to retrospective assessments of up to $327 mil Group. Tax benefits, if any, associated with these matters will be lion per incident at any nuclear utility reactor in the United States, reported in future periods when resolved. payable at a rate not to exceed S40 million per incident per year.
FPL participates in nuclear insurance mutual companies
- 8. Jointly-Owned Electric Utility Plant that provide S2.75 billion of limited insurance coverage for prop erty damage, decontamination and premature decom missioning FPL owns approximately 83% of the St. Lucie Unit No. 2, risks at its nuclear plants. The proceeds from such insurance, 20% of the St. Johns River Power Park units and coal terminal however, must first be used for reactor stabilization and site and approximately 76% of Scherer Unit No. 4. At December 31, decontamination before they can be used for plant repair. FPL 1997, FPL's gross investment in these units was $1.173 billion, also participates in an insurance program that provides limited
$328 million and $573 million, respectively; accumulated coverage for replacement power costs if a nuclear plant is out of depreciation was S484 million, $155 million and S160 million, service because of an accident. In the event of an accident at one respectively. of FPl's or another participating insured's nuclear plants, FPL FPL is responsible for its share of the operating costs, as could be assessed up to $68 million in retrospective premiums.
well as providing its own financing. At December 31, 1997, FPL also participates in a program that provides $200 there was no significant balance of construction work in million of tort liability coverage industry wide for nuclear progress on these facilities. worker claims. In the event of a tort claim by an FPL or another insured's nuclear worker, FPL could be assessed up to $12 mul 9.
LII Commitments and Contingencies lion in retrospective premiums per incident.
In the event of a catastrophic loss at one of FPL's nuclear Commitowtits - FPL has made commitments in connection plants, the amount of insurance available may not be adequate with a portion of its projected capital expenditures. Capital to cover propertys damage and other expenses incurred.
expenditures for the construction or acquisition of additional Uninsured losses, to the extent not recovered through rates, facilities and equipment to meet customer demand are estimat would be borne by' FPL and could have a material adverse effect ed to be approximately $1.8 billion for 1998 through 2000. on FPL Group's financial condition.
Included in this three-year forecast are capital expenditures for FPL self-insures certain of its transmission and distribution 1998 of approximately $620 million. Also, in January 1998 FPL (T&D) property due to the high cost and limited coverage avail Group acquired interests in two power plants in the Northeast able from third-party insurers. FPL maintains a funded storm and and announced plans to purchase all of Central Maine Power property insurance reserve, which totaled approximately $252 Company's (Central Maine) non-nuclear generation assets. The million at December 31, 1997, for T&1D property storm damage Central Maine transaction is expected to close in the second or assessments under the nuclear insurance program. Recovery half of 1998 and is subject to approval by federal and state reg from customers of any losses in excess of the storm and property ulators. Commitments for energy-related acquisitions, includ insurance reserve will require the approval of the FPSC. FPL's ing the acquisitions mentioned above, are $1.1 billion for 1998. available lines of credit include $300 million to provide additional FPL Group Capital and its subsidiaries have guaranteed liquidity in the event of a T&D property loss.
approximately $240 million of lease obligations, debt service payments and other payments subject to certain contingencies. Contracts - FPL has entered into certain long-term purchased This amount includes guarantees associated with acquisitions power and fuel contracts. Take-or-pay purchased power con tracts with the Jacksonville Electric Authority' (JEA) and sith occurring in earls' 1998.
subsidiaries of the Southern Company (Southern Companies) hnsuiaice - Liability for accidents at nuclear power plants is gov erned by the Price-Anderson Act, which limits the liability of provide approximatelys 1,300 megawatts (mw) of power through mid-2010 and 374 mw' through 2022. FPL also has various firm LII 40 I I H1
pay-for-performance contracts to purchase approximately 1,000 Litigation - In 1997, FPL filed a complaint against the owners of mw from certain cogenerators and small power producers (quali two qualifying facilities (plant owners) seeking an order declaring fying facilities) with expiration dates ranging from 2002 through that FPL's obligations under the power purchase agreements with 2026. The purchased power contracts provide for capacity and the qualifying facilities were rendered of no force and effect because energy payments. Energy payments are based on the actual power the power plants failed to accomplish commercial operation before taken under these contracts. Capacity payments for the pay-for January 1,1997, as required by the agreements. In 1997, the plant performance contracts are subject to the qualifying facilities meet owners filed for bankruptcy under Chapter XI of the United States ing certain contract conditions. The fuel contracts provide for the Bankruptcy Code, ceased all attempts to operate the power plants transportation and supply of natural gas and coal and the supply and entered into an agreement with the holders of more than 70%
and use of Orimulsion. Orimulsion is a new fuel that FPL expect of the bonds that partially financed the construction of the plants.
ed to begin using in 1998. The contract and related use of this fuel This agreement gives the holder of a majority of the principal is subject to regulatory approvals. In 1996, Florida's Power Plant amount of the bonds (the majority bondholders) the right to con Siting Board denied FPL's request to burn Orimulsion at the trol, fund and manage any litigation against FPL and the right to Manatee power plant. FPL appealed the denial. In 1997, Florida's settle with FPL on any terms such holders approve, provided that Power Plant Siting Board remanded selected issues for hearing certain agreements are not affected and certain conditions are met.
before an administrative law judge. Hearings took place in In January 1998, the plant owners (through the attorneys for the January and February 1998. A decision is pending. majority bondholders) filed an answer denying the allegations in The required capacity and minimum payments through FPL's complaint and asserted a counterclaim for approximately 2001 under these contracts are estimated to be as follows: $2billion, consisting of all capacity payments that could have been (Millions of Dollars) made over the 30-year term of the power purchase agreements, 1998 1999 2000 2001 2002 plus some security deposits. The plant owners also seek three times Capacity payments: their actual damages for alleged violations of Florida antitrust laws, JEA ........................ $ 80 $ 90 $ 90 $ 90 $ 90 Southern Companies .......... $130 $130 $120 $120 $120 plus attorneys' fees.
Qualifying facilities M..... $ 350 $ 360 $ 370 $ 380 $ 400 The Florida Municipal Power Agency (FMPA), an organiza Minimum payments, at projected prices: tion comprised of municipal electric utilities, has sued FPL for Natural gas, including allegedly breaching a "contract" to provide transmission service to transportation .............. $230 $220 $220 $220 $220 Orimulsion 1b) ................. - - $140 $140 $140 the FMPA and its members and for breaching antitrust laws by Coal ....................... $ 50 $ 40 $ 40 $ 40 $ 40 monopolizing or attempting to monopolize the provision, coordi (a) Includes approximately $35 million, $40 million, $40 million, nation and transmission of electric power in refusing to provide
$40 million and $45 million, respectively,for capacitypayments transmission service, or to permit the FMPA to invest in and use associated with two projects that are currently in dispute. These capacitypayments are subject to the outcome of the related FPL's transmission system, on the FMPAs proposed terms. The litigation. See Litigation. FMPA seeks $140 million in damages, before trebling for the (b) All of FPL's Orimulsion-relatedcontractobligationsare subject to obtaining the requiredregulatory approvals. antitrust claim, and court orders requiring FPL to permit the FMPA to invest in and use FPL's transmission system on "reason Capacity, energy and fuel charges under these contracts able terms and conditions" and on a basis equal to FPL. In 1995, were as follows: the Court of Appeals vacated the District Court's summary judg (Millions of Dollars) ment in favor of FPL and remanded the matter to the District 1997 Charges 1996 Charges 1995 Charges Court for further proceedings. In 1996, the District Court ordered Energy/ Energy/ Energy/ the FMPA to seek a declaratory ruling from the FERC regarding Capacity Fuel 'a' Capacity Fuel 0a) Capacity Fuel (
JEA .............. $ 78 1 $ 50 $ 77th) $ 49 certain issues in the case. All other action in the case has been
$ 830h) $ 47 Southern Companies . $123 "' $103 $115"'1 $ 99 $130(l $ 94 stayed pending the FERC's ruling.
Qualifying facilities .... $296 "' $128 $279 Ic"$125 $158 " $ 92 A former cable installation contractor for Telesat Cablevision, Natural gas ......... -$413 - $422 - $361 Inc. (Telesat), a wholly-owned subsidiary of FPL Group Capital, Coal .............. -$ 52 -$ 49 -$ 37 sued FPL Group, FPL Group Capital and Telesat for breach of con (a) Recovered through the fuel clause.
(b) Recovered through base rates and the capacity cost recovery clause tract, fraud, violation of racketeering statutes and several other (capacity clause). claims. The trial court entered a judgment in favor of FPL Group (c) Recovered through the capacity clause. and Telesat on nine of twelve counts, including all of the racketeer-41
ing and fraud claims, and in favor of FPL Group Capital on all operating expenses were $186 million, $65 million and $77 mil counts. It also denied all parties' claims for attorneys' fees. However, the jury in the case awarded the contractor damages totaling approximately $6 million against FPI Group and Telesat for breach lion, respectively. Net income for 1997, 1996 and 1995 was
$27 million, $11 million and 52 million, respectivelx.
At December 31, 1997, FPL Group Capital had $156 million di of contract and tortious interference. All parties have appealed. of current assets, S 1.447 billion of noncurrent assets, $252 million FPL Group and FPL believe that they have meritorious of current liabilities and $999 million of noncurrent liabilities.
defenses to the litigation to which the) are parties described above At December 31, 1996, FPI Group Capital had current assets of and are vigorously defending these suits. Accordingly, the liabilities, S144 million, noncurrent assets of 5857 million, current liabilities if any) arising from these proceedings are not anticipated to have a of SI182 million and noncurrent liabilities of S595 million.
material adverse effect on their financial statements. The expansion and restructuring of a number of ESI Energy, Inc. projects contributed to the fluctuations in certain
- 10. Summarized Financial Information of FPL Group account balances disclosed above. Beginning in 1997, several Capital (Unaudited) projects are consolidated in FPI Group Capital's financial state ments including the accounts of a 665 mw gas-fired exempt FPI Group Capital's debenture is guaranteed by FPL wholesale generator and two solar projects. These transactions Group and included in FPL Group's consolidated balance sheets. increased noncurrent assets by approximately $555 million Operating revenuces of FPL Group Capital for the three years and noncurrent liabilities by approximately $336 million ended December 31, 1997, 1996 and 1995 were $237 million, as of December 31, 1997, as welI as contributed to the increase
$50 million and $62 million, respectively. For the same periods, in operating revenues and operating expenses during 1997.
- 11. Quarterly Data (Unaudited)
F81 Group's condensed consolidated quarterly financial information for 1997 and 1996 is as follows:
(Inmillions, except pershare amounts)
LQI March 31 " June 30 (a) September 30
- December 31 "')
1997 Operating revenues ................. $ 1.445 $ 1,587 $ 1,859 $ 1,478 Operating incom e .................. $ 225 $ 321 $ 464 $ 218 Net incom e ....................... $ 101 $ 164 $ 262 $ 91 Earnings per share ibi ...... ........
$ 0.58 $ 0.95 $ 1.52 $ 0.52 Dividends per share ................ $ 0.48 $ 0.48 $ 0.48 $ 0.48 High-low trading prices .............. $46 3/. 43 5/8 $43 1/
42 5/8 $51 V16 - 45 1/2 $ 60 - 49 'V 1996 Operating revenues ................. $ 1,358 $ 1,474 $ 1,770 $ 1,435 Operating income .................. $ 223 $ 299 $ 459 $ 190 Net incom e ....................... $ 94 $ 150 $ 250 $ 85 Earnings per share "I ................ $ 0.54 $ 0.86 $ 1.44 $ 0.49 Dividends per share ................ $ 0.46 $ 0.46 $ 0.46 $ 0.46 Hiqh-low tradinq prices .............. $ 48 -42 1/8 $46 / - 41 112 $46 5/8 - 42 5/8 $48 1/ - 43 1A hite opiiiniio of ItP1 IIi (roup, oll ojlistiwni'its, whiih col sist ofoil o rmilicurring atciIliils it"ccss't" to prisOiIt a tfoir sintit'nit of tho amoioiij show' i'/o tll /I pcrioi', /iti'o bi'ooii iia. Rest ills of of'ou iotii'iifo Iilriiiii pcrioi'iimai inite I Iot give a troi oicaition of rosots for the' a'r.711 lhtiiix ill (lit' iiictloi of, acco fiiitiill fol the cost (i /-1ti-lel rlii cling oitatcs dtcsctiibtd ii Note I did iiot ho'c a muterial effect oi tit opbratiiig lhi a*?ic and (?ssunmhlg dluhtion.
LiI 42 I I II
Officers FPL Group, Inc. James L. Broadhead Dennis P. Coyle Thomas E Kirk Chairman, President and General Counsel and Vice President Chief Executive Officer Secretary Planning, Development and Quality James P. Higgins Vice President Mary Lou Kromer Tax Vice President Corporate Communications Lawrence J. Kelleher Vice President K. Michael Davis Human Resources Controller Dilek L. Samil Treasurer Florida Power James L. Broadhead Dennis P. Coyle Thomas E Plunkett
& Light Company Chairman and Chief General Counsel and President Senior Officers Executive Officer Secretary Nuclear Division Paul J.Evanson Lawrence J. Kelleher C.O. Woody President Senior Vice President President Human Resources Power Generation Division FPL Energy, Inc. Michael W. Yackira Leslie J. Gelber President Senior Vice President Development Turner Foods John C. Norris Corporation President 43
Directors H. Jesse Arnelle B, F. Dolan Of Courtsel 1ýetffcd aiid Clilef FxecLitivc officer Worrtblc CarIN-le Satidrld',,c & IZICC 'lextroll, 111c.
11 (law firiii) (di%ýerslfied corrtpauý,)
Directorsbicc 1990. AlciiibcraiJitcommittce, I )ircctor Sill cc 1992. C1101'I'llh I II (?Cq II iS It 10 1IS COMM It t cc.
coI)IPcII'zIItIoil colillillttcc. Mclillm- alldit Collilliftlec, colýlpcllseltiojl coillillittec, cXccIItI1'c col)IIIIIffcc.
Sherry S. Barrat Prcsiderit, Nortlicni Trtist Bartk of Florida Willard D. Dover for PaIrti Bcach atid Martiii coLiritics Prilicipal (cortirricrcial barik) Flerti1jig, O'Bryart & FIcirtirig, RA.
da%%ý firm)
Dircclor ýii7cc 1998. Ale))iI)er aii(lit coýiioiittcc, Oircctorsillcc 1989. !ýIcilibcr allilit coll)Illittec, filiallce colillilittcc.
acqI(ISl ti o)IS co?77ýllittcc' I)Cllcflts colý71711 ttcc.
Robert M. Beall, 11 Alexander W. Dreyfoos, Jr.
Chairiiiart aiid (Iiief ExecLiti%,e Officer Cllairiiiart Beall's, Itic. 'I'lle I)]-CN'fOOS GrOUP (departinerit storcs) iii%'cstiiiciit iiiaiiauciiiciit cortipally)
Dircctor ýillck' 1989. Member flcqlliýitiollý colilillittcc, 0ircctorsmcc 1997. Mcoilicr aiielit coi)iiiiittec, bellclits colilliliffcc, coll)pcilsatioil colillillttcc. 1111(117ce collill7ittec.
James L. Broadhead Paul J.Evanson Chalriiiart, Presidem artd Cliief'Exccutlýv Officer Presiciew FP1, Group, I rlc. Florida Poýcr & Liglit CoinpartN!
11, Director silict, 1989. ('11all'IMM CXCclititv collill7li'tcc. I)h-cctor Sillcc 1995.
Drew Lewis J.Hyatt Brown lZctirccl Cliairmart aiid Cl-lief Exectiti\lc Officer Chairinart, Prestdcrtt aiid C111Cf FXCCUtiVC OffiCC1 Uiiloti Pacific Corporatioji Poe & Bro\%(11, 111c.
(dINerstfied coiiipaiiNl)
(irtsurarice broker) 0ircctor sbicc 1992. Alciiibcr acqiiisitioiiscoioizittce, DIrcc-torsilicc 1989. 0 1(lit'llMll COMPE'llzatiýoll col)IIIII.ttcc.
col7ipcilsotioll coll1ý71ittce'-filliallcecollollittec.
'Wellibcr bmcf-Its coIIj)IIttcc' cXc(-1Iti1'c colilt) littcc.
Frederic V. Malek Armando M. Codina Chainiian Cliairmaii aiid Cl-lief Fxcctitkv Officer TliaNvr Capital Parwers Codirta Group, Iiic. (inercham batik)
(real estate firiii) ])ircctorsbice 1987. Cliali-iii(iiibmcf-Its coiio)zittcc.
Director sHicc 1994. MC171I)CI- 17clictits collimittce, Mejill)cr ac(plisitiolls colllýlittcc' C,'VCClltiic colliPcilsatzoil colillillttcc.
comillitIcc,fiiiaiice coii)iiiittcc.
Marshall M. Criser Paul R. Tregurtha Of Coullsel Cliainiiart arid Cl-tief ExccLitivc Officer McGuire, Woods, Battle & Boothe 111) %lormac Mat-iric Group, hic.
(law firiii) (iiiaritirtie shipping coniparty)
Dircctor sliicc 1989. Cbalriiiaiiaiidit coiiiiiiltlce. Mrcctor SilIcc 1989. ClIalt-111(olfillalicc collll)littee.
jvfeflll)cl- execlithc colýlllllttec' lillalicc CoMlllittcc. Alcoiber coi7ipciisatioiicoi7iii7ittcc,excciaiic coiiiiiiiace.
0 44 I I ý[I
Investor Information Corporate Offices Shareholder Inquiries News and Financial Information FPL Group, Inc. Communications concerning transfer For the latest news and financial informa 700 Universe Blvd. requirements, lost certificates, dividend tion about FPL Group, call our Shareholder P.O. Box 14000 checks, address changes, stock accounts Direct toll-free line: (888) 375-1329. Callers Juno Beach, FL 33408-0420 or the dividend reinvestment plan may listen to recorded announcements and (561) 694-4000 should be directed to Boston request information via fax or mail.
EquiServe, L.P Company information is also available on Exchange Listings Other shareholder the Internet: http://www.fplgroup.com Common Stock communications to:
New York Stock Exchange Analyst Inquiries Alyse E. Porter Ticker Symbol: FPL
Contact:
Shareholder Services Investor Relations (800) 222-4511 (561) 694-4697 Options (561) 694-4693 (561) 694-4718 (Fax)
Philadelphia Stock Exchange (561) 694-4620 (Fax)
News Media Inquiries Duplicate Mailings
Contact:
Newspaper Listing Corporate Communications Financial reports must be mailed to Common Stock: FPL Gp P.O. Box 029100 each account unless you instruct us otherwise. If you wish to discontinue Miami, FL 33102-9100 Registrar, Transfer, and multiple mailings to your address, (305) 552-3888 Paying Agents please call Boston EquiServe, L.P. (305) 552-2144 (Fax)
FPL Group Common Stock andFPL PreferredStock Direct Deposit of Dividends Certified Public Accountants Boston EquiServe, L.P. Cash dividends may be deposited Deloitte &Touche LLP P.O. Box 8040 directly to personal accounts at 100 S.E. Second Street, Suite 2500 Boston, MA 02266-8040 financial institutions. Call Boston Miami, FL 33131-2100 (888) 218-4392 EquiServe, L.P. for authorization forms. Form 10-K 8:30 a.m. to 6:00 p.m., The Form 10-K annual report for 1997 Monday-Friday Dividend Reinvestment Plan as filed with the Securities and Exchange FPL Group offers a low-cost plan Commission is available without charge by FloridaPower & Light Co. for holders of common stock and writing to FPL Group Shareholder Services.
FirstMortgage Bonds FPL preferred stock to reinvest their Annual Meeting Bankers Trust Company dividends or make optional cash Security Holder Relations payments for the purchase of May 18, 1998, 10 a.m.
P.O. Box 305050 additional common stock. Enrollment Palm Beach Gardens Marriott Nashville, TN 37230-5050 materials may be obtained by 4000 RCA Boulevard (800) 735-7777 calling Boston EquiServe, L.P. Palm Beach Gardens, FL Proposed 1998 Common Stock Dividend Dates* Optional Cash Payment Dates Declaration Ex-Dividend Record Payment Qtr./Yr. Acceptance begins Must be received by February 16 February 25 February 27 March 16 2nd/98 May15 June 10 May 18 May 27 May 29 June 15 3rd/98 August15 September 10 August 17 August 26 August 28 September 15 4th/98 November 15 December10 November 16 November 24 November 27 December 15 lst/99 February 15 March 10
- 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 patternswill prevail.
45
coa