ML021420332

Part B - Seabrook Station Application for Order & Conforming License Amendments to Transfer Facility Operating License NPF-86 - FPL Group 2001 Annual Report

ML021420332
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
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Download: ML021420332 (56)

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profile FPL Group, Inc is one of the nationrs largest Groups unregulated electricity generating own a total of more than 31,000 megawatts providers of electricity-related services Its subsidiary is a leader in producing electricity of capacity FPL FiberNet provides fiber-optic principal subsidiary, Florida Power & Light from clean and renewable fuels. Together, FPL services and fiber optic cable to businesses Company, serves nearly eight million people and FPL Energy own domestic power plants within Florida along the eastern seaboard and the southern representing nearly 22,000 megawatts of portion of Florida. FPL Energy, LLC, FPL capacity. By 2005, the company expects to yrI

FINANCIAL HIGHLIGHTS / page I / FPL Group 2001 Annual Report For the Years Ended December 31, 201] 2000  % change Financial Results (millions, except per share amounts)

Net Income excluding merger-related expenses and the net positive effects of FAS 133 $792 $745 63 Net Income $781 $704 109 Earnings Per Share excluding merger-related expenses and the net positive effects of FAS 133 (assuming dilution) $4 69 $4 38 71 Earnings Per Share (assuming dilution) $462 $4.14 11.6 Operating Revenues $8,475 $7,082 19.7 Operating Income $1,397 $1,240 127 Cash Flows from Operating Activities $1,942 $976 990 Total Assets $17,463 $15,300 14.1 Common Stock Data Weighted-Average Shares Outstanding (millions) 169 170 (0.6)

Dividends Per Share $2 24 $216 37 Book Value Per Share $35.59 $33.22 7.1 Market Price Per Share (high/iow) $71 63-$51.21 $73 $36.38 Operating Data Utility Energy Sales (mdrions kwh) 93,488 91,969 17 FPL Customer Accounts (average; thousands) 3,935 3,848 23 Employees (year end) 10,992 10,852 1.3 contents 2 To Our Shareholders 27 Management's Report 8 Florida Power & Light 27 Independent Auditors' Report 16 FPL Energy 28 Financial Statements 20 FPL FiberNet 52 Company Officers 21 Financial and Operating Statistics 52 Board of Directors 22 Management's Discussion and Analysis 53 Investor Information

Le III i Hay

ýn u-- ilR Chairman and Chief Executive Officer C,

TO OUR SHAREHOLDERS / page 3 /

shareholders:

2001: STRONG FINANCIAL PERFORMANCE Wthout doubt, the past Despite these tumultuous year was one of the most tumul events, FPL Group turned in an tuous years ever for the electricity outstanding year. All three of business. The events of 2001 had, our businesses delivered strong and continue to have, an impact growth, record earnings and on our company: excellent operating performance.

"* the California energy debacle - Net income, excluding merger and, along with it, warnings related expenses and the effects of a national power shortage of accounting standard FAS

• within a few months of the 133, reached $792 million, an California crisis, fears of a glut all-time high, compared with of generating capacity in most $745 million in 2000.

regional markets

• Earnings per share, excluding

"* the collapse of Enron, which, the same items, increased by coming on the heels of the 7 percent to $4.69 per share, California problem, has caused meeting our target. a4 many states, including Florida, to rethink plans to deregulate Florida Power & Light:

electric service An Outstanding Utility

"* economic recession FPL is among the very best per

"* changing federal rules about forming utilities in the nation, and how transmission assets should this was surely evident last year.

be structured and managed, "* Our residential base rates are and changing rules governing 12 percent below the industry pricing in "unregulated markets" average.

"* volatile natural gas and "* Our operational performance electricity prices places us in the top 10 percent

"* the toughening of credit rating of the industry in virtually every standards by rating agencies meaningful performance meas

"* and, of course, the tragic ure. Fossil plant availability of events of September 11'". 95 percent equaled the best we've ever achieved and

FPL Group 2001 Annual Report / page 4 / TO OUR SHAREHOLDERS I nuclear availability of 92 Consistent Earnings FPL FiberNet:

Per Share Growth ProfitabilityAmidst Difficult percent, despite three refueling Excluding nonrecurringftems Industry Conditions outages last year, significantly and the effects of FAS 133 The telecomnmunications exceeded the industry average.

And the average amount sector has undergone tremendous 0 41% growth since 1996 changes, especially with the of time our customers were without power during the

$4659 bursting of the "dot coin bubble."

I I

$4.38 Despite this depressed telecom year was just 69 minutes 36 percent better than the

$333$.3 $3.85

• B market, FPL FiberNet, our whole

$397.

sale fiber optic business, has done national average.

$3 an outstanding job of continuing

" We continued to expand our 33 electric system infrastructure to grow and grow profitably to meet growing demand in our service territory, adding 315 1

In fact, this is one of the few fiber optic network businesses S

96 97 98 99 00 01 to make a profit in 2001.

1,200 megawatts of generating capacity and expanding our network to serve almost 87,000 SOUND STRATEGIC DIRECTION new customer accounts. For more than a decade now,

"*We started the year with 4,110 the company has successfully

" Despite this expansion, we remained a low cost provider. net megawatts of generation pursued a strategy focused on in operation and have since energy related businesses. Begun Both our operations and mainte nance costs and our capital brought 1,014 new megawatts thanks to the visionary leadership online, growing by more than of Jim Broadhead, who served investment per customer are 20 percent. as chairman and CEO for 13 years well below industry averages.

"*We have focused on building a until his retirement in December, FPL Energy: diversified portfolio by region this strategy has served sharehold and by fuel mix - and operating ers very well. We plan to continue Growth and Asset Optimization We continued the disciplined these plants at the same high to build on that strategy going growth of our national wholesale performance levels as those in forward.

power business, FPL Energy. our regulated utility.

• As an owner and operator of

"* We further added to shareholder assets in what is fundamentally In 2001, excluding merger related expenses and the value through the efforts of our a commodity business, we must effects of FAS 133, this business significantly enhanced asset be a low-cost producer and optimization organization, which provide superior service in represented 13 percent of FPL allowed us to maintain operat order to succeed. We do very Group's net income and its ing margins despite declining well in both areas and are contributions to earnings per electricity prices. committed to getting even better.

share increased 27 percent.

C OC--

TO OUR SHAREHOLDERS / page 5 / FPL Group 2001 Annual Report

"* Our financial strength and disci growing markets in the country. in place since 1999, becomes pline have also served us well in To meet that growing demand effective April 15, 2002, the past and will continue to do for electricity, we will add more The reduction benefits our so as we pursue further opportu than 4,000 megawatts of clean, customers by lowering the base nities for profitable growth state of-the-art generating capacity rates they pay for electricity by

"* Our business portfolio is diversi by the end of 2005 This new 7 percent, Although the new fied by region and by fuel type, generation, along with demand agreement reduces FPL revenues, and we participate successfully management programs and it also provides important incen in both the traditional, regulated additional short-term purchases, tives that would allow FPL to utility sector and the newer will allow us to maintain a strong grow earnings through continued competitive wholesale sector. 20 percent reserve margin. operational productivity enhance

"* We limit our exposure to In March, the Florida Public ments and other actions.

market volatility by focusing Service Commission approved a Going forward, we are confident our trading activities primarily new four year incentive based that, given our track record of on optimizing the profitability of agreement with the Florida Public providing reliable power at our assets, rather than engaging Counsel and others which reduces reasonable rates and our presence in speculative trading. base rates for customers by in a growing service territory, approximately $1 billion through we will build on our impressive By staying focused and playing 2005. The new agreement, which 2001 results and achieve even to our strengths, we have avoided builds upon the current agreement greater levels of performance many of the mistakes that have in future years.

proven costly for some in our industry and are confident we FPL Energy can continue our successful Opportunities for growth at track record of profitable growth A Growing Portfolio FPL Energy are significant. We and outstanding operational FPL Group proJected net nmeg, watts expect its recent growth trend performance. in operation to continue, with earnings per share contributions increasing an PROSPECTS FOR 2002 U FRL U FPLEner, 31120 average of between 20 and 30 AND BEYOND percent over the next several years.

Florida Power & Light Much of this growth will be driven 21,682 FPL is well positioned for future by our growing portfolio of growth Though we will continue generating assets which, based to feel some effects in 2002 from on projects already announced the aftermath of September 11"' and or under construction, is expected the continued economic slowdown, to exceed 10,000 net megawatts we are located in one of the fastest 01 02 03 04 05 by 2004.

CQQ>

FPL Group 2001 Annual Report / page 6 / TO OUR SHAREHOLDERS i A Decade of O&M Expense Reductions Power Marketing Inc,, our energy (Cents per kilowatt houbr trading & marketing group, I am confident that the energy and "Down 40% since 1990 unique perspectives these talented 1.82 1.79 executives have brought, coupled 1.65 1.61 1.49 with a focus on getting the best ideas from all of our people, will 1.33 help us achieve even gleater levels of perfodrmance.

This team approach extends to other important groups as well.

90 91 92 93 94 1

95 9 1

7 11298 1

99 109 00 1019 01 including our customers, without whom we would n.t exist and whose needs we are continually working hard to anticipate and satisfy, and our suppliers, whose We expect this growth to be FPL FiberNet partnership is critical to satisfying further augmented by new wind Our building program at FPL the customers we both share.

generation projects. We are the FiberNet is largely complete, and None of our achievements leading developer and operator we are well positioned for contin would be possible, of course, with of wind-powered generation in tied revenue growth within our out the outstanding contributions the US. With Congress extending existing network, With a high of an extremely talented workforce, the production tax credit through proportion of our fiber-optic cable and the ongoing confidence our 2003, we are targeting the addition ready for service, we have plenty shareholders place in us We appre of 1,000 to 2,000 megawatts of of capacity available to offer to ciate the support of both groups.

new wind generation over that existing or new customers. Several key leaders also retired timefiame. dining the year, most notably Jim Given the short-term A TOP-NOTCH TEAM Broadhead, as I menmoned earlier abundance of generating capacity, We are committed to maintain in this letter. In addition, Marshall we envision less new project ing a team approach at EPL Group, Ciser retired from our board of development activity in the next During the year we further directors after 13 years of distin few years. Instead, we expect strengthened an already outstand guished service, and Tom Plunkett to be able to capitalize on our ing team by adding several key retired after 1I years of outstand financial strength and look to executives, including Ron Green ing service during which time attr'actively priced acquisition opportunities as some companies as president of FPL Energy, Moray Dewhurst as chief financial officer he led our nuclear division to its curent position as one of the best 0s may elect to sell generating assets. and Mark Maisto as president of performing nuclear operations in

TO OUR SHAREHOLDERS / page 7 / FPL Group 2001 Annual Report the country. We thank each of "* three well-performing businesses, utmost confidence i the ability them for their contributionis to our each with attractive growth and resolve of our talented and success and wish them all well. opportunities highly motivated team of employees

"* financial strength to execute our plans and create LOOKING FORWARD "* and what is perhaps our this all important value for our Were in an exciting industry, greatest strength, a commitment shamholders.

and I'm very confident of the to continuous improvement inherent strength of FPL Group in every part of our business.

and its businesses. We have in place: The creation of shareholder Lewis Hay III k/

• an excellent leadership team value, of course, will be the Chairman, President and and a talented and committed ultimate measure of our success. Chief Executive Officer workforce Be assured that we have the March 22, 2002

-',- 9

/ page 8 / FLORIDA POWER & LIGHT outstanding nearly 4 million Electricity usage per retail customer grew 0.4 percent, In recent years Florida Power & Growth in both usage and new Light Company has distinguished customer accounts is expected to itself from most other energy continue in 2002, companies through a combination of growth, operational excellence, Continuing to expand and financial strength. In 2001, To meet the demands of each of these elements was clearly more customers and greater use evident as the utility turned in of electricity, FPL in 1998 began another outstanding year, an on going capacity expansion program. As part of that program, 1,200 megawatts of new generation 2001 Customer Mix were added at existing facilities in (FPL revenues by customer class) 2001. Included were 900 megawatts

[] Residential 56%

at the Folt Myers power plant and

[] Commercial 300 megawatts of peaking units at 38%

Indusiral 3% the Martin Plant. Over the next four Other 3% yeas, the utility expects to add more than 4,000 megawatts of capacity.

The additions in 2001 increased FPLs total system capability.

including purchased power, to nearly 19,000 megawatts. This increased capability, combined with demand management programs and additional short term purchases, will allow us to maintain a strong 20 pencent reserve margin, FPL's underlying growth More new generation will come fundamentals remained strong on line this year with the completion even in light of the effects of the of "repowering' projects at Fort September 11 tragedies FPL's Myers and Sanford. This will customer base grew 2.3 percent as increase from 250,000 to 600,000 the the company added almost 87,000 number of homes and businesses new customer accounts to total supplied power by the two plants.

Sanford Power Plant (Flora eft) Mike Conon y, production mranacle,

,~r Joe Fishe, maintenance leader, Roxane Kennedy, plant manager,and Daniel Wods, plant leade, c ",

Transmission Line Construction On the ground is Herman Clowney, foreman, working in the buckets (reflected .n M, Clowney's safety glasses) are Lime Spenabsts Ernie Gaces, Jeff Massey and Bobby Nel*si CUC

FLORIDA POWER & LIGHT / page 11 / FPL Group 2001 Annual Report The process of repowering An Industry Leader in latest available industry average converting existing oil-burning Plant Performance of 87 percent The 92 percent plants to state-of the art natural gas availability of the company's Nuclear Plant Availability operations not only increases nuclear plants, despite three Industry average plant output, but reduces emissions refueling outages last year, was as well As a leading 'clean energyý 93% 93% 12% also higher than the nuclear 87%

utility, FPR's overall emissions are 80% 82% industry average of 87 percent, among the lowest of any U.S I In addition, the plants received 67%

electric utility based on the amount one of the nation s highest ratings of electricity that it produces fiom the World Association of Early this year FPL proposed Nuclear Operators, a plan to expand capacity at its FPL's nuclear facilities at St Martin and Manatee plant sites. Lucie and Turkey Point continue 90 92 94 96 98 00 01 The proposal would add 1,900 to play an important role in FPL's megawatts of clean-burning, generation mix and currently natural gas combined cycle provide 24 percent of the utility's generation by mid-2005 and allow Fossil Plant Availability power output, compared to 24 FPL to serve more than 400,000 Industry average percent for natural gas and 26 new customers while maintaining 92% 92% 94 95 5 percent for oil. To ensure the its reserve margin requirements. confuruation of this safe, reliable 82% 83%

FPL is an industry leader in and low cost source of power, helping to hold down the need the company has filed applications for additional new generation by with the Nuclear Regulatory utilizing energy management and Commission to renew the operat conservation programs to reduce ing licenses of both plants beyond demand for electricity during peak the original license term of 40 periods Over the past two decades, 90 92 94 96 98 00 01 years If approved, St. Lucie through conservation and other units 1 and 2 could operate programs, FPL has helped cus untld 2036 and 2043. Turkey tomers reduce their overall energy Point units 3 and 4 could run use and avoided having to build Superior operating performance until 2032 and 2033 nine additional power plants By The performance of FPLs meeting its current conservation power plants remains among the Outstanding reliability, goals, FPL will avoid building nwo best in the nation. In 2001, the customer service additional 400-megawatt power availability of FPIT's fossil fired FPL's electricity delivery plants that otherwise would have plants equaled their all time high system is dramatically improved been part of its expansion program. of 95 percent, well above the as the result of an aimressive C,,

FPL Group 2001 Annual Report / page 12 / FLORIDA POWER & LIGHT I FPL Customer Growth percentage of reduction in costs Number of customer accounts (millions) of any company within a utility peer group. Taking inflation into U 2.3%growthirb2O 36 consideration, the decline in costs is much greater.

3..16 The ability of FPL to successfully control costs has enabled it to maintain base rates substantially lower than the industry average.

The utility's base rates for residen 90 91 92 93 94 95 96 97 98 99 00 01 tial customers are currently about 12 percent lower than the national average.

program launched in 1997 and who call to report a power outage Regulatory update now ranks among the industry's the estimated time service will In March, the Florida Public best. FPI has reduced customers' be restored. If the estimated time Service Commission (FPSC) average annual outage time by 50 should change by more than one approved a four-year agreement percent. In addition, the frequency hour from the original estimate, with Florida's Public Counsel and of interruptions is 28 percent less, customers are automatically called others to reduce base rates for EPL and their average length is 30 back with an update. Another customers by 7 percent, or approx percent less. system eliminates the manual imately $1 billion through 2005, Improvements in customer paper process of dispatching The agreement, which becomes service also were evident in 2001. routine work orders and allows effective April 15, 2002, builds The J.D Power & Associates field employees to relay informa upon the current incentive based annual study of mid-size business tion electronically using hand-held agreement in place since 1999 customers ranked FPL third nation data transmitting devices, that has saved FPL customers ally among the top 39 utilities FPL nearly $1.3 billion. Although vaulted from 14b to 0h nationally Focus on costs provides benefits the new agreement reduces FPL in overall customer satisfaction. Cost efficiency has played revenues, it also provides impor To further improve customer a major role in FPL's success for tant incentives that would allow service and satisfatini, FPL is more than a decade. Since 1990, FPL to grow earnings through focusing on a project called Tech the company's operations and continued operational productivity 21, which leverages technology to maintenance costs per kilowatt enhancements and other actions.

provide FPL customers with better hour have fallen from 1.82 cents The new agreement does not service. For example, one new to 1.09 cents, a decline of 40 establish a range for a return on computer system gives customers percent. This is the largest equity, but instead is incentive-cc-

L Fleet Performance and Diagnostics Center PRte Holzapfe, general managerof the fleet performance and dcagnostcs center (left), and Gerard Nostra, power generation leader

Routine Work Management System Kerry Wilson, meter electnrcan 0

FLORIDA POWER & LIGHT / page 15 / FPL Group 2001 Annual Report based with a revenue sharing provi Energy Sources piesented with the Star Award, sion that is the exclusive mechanism Florida Power & Light Company the highest safety honor the U.S to address earnings levels. (based on kilowatt-hours produced in 2001)

Department of Labor bestows.

The Commission also is " The Florida Department of Pill 26%

studying a proposal by FPL, Environmental Protection's U Natural Gas 24%

Florida Power Corporation and U Nuclear Partnership for Ecosystem 24%

Tampa Electric Company to nPurchased Power 20% Protection recognized the create a regional transmission Coal 6% Fort Myers repowering site for organization, or RTO, to be its exemplary environmental called GridFlorida Late last year performance as a partner in the Commission agreed that FPi's the Air Division's environmental participation in GridFlorida was protection program.

prudent to date, but requested a " The Edison Electric Institute variation of the original proposal presented FPL with its Land that would include keeping the Management Award for integrating transmission assets with the investor environmental stewardship with owned utilities, The Federal Energy power plant operations, including Regulatory Commission (FERC) its management of wetlands and mandated that all investor owned An environmental leader coodide habitat at the Turkey utilities form RTOs, but the Florida FPL is widely regarded Point nuclea, power plant in process was halted while the FPSC within the energy industry as Miami Dade County.

examined the proposal along with an environmental leader. During " FPL also won for the third time its costs and benefits. 2001 the company's environmental the U.S. Environmental Protection In late 2001, the 2020 Energy stewardship programs drew Agency's WasteWise TProgram Study Commission, established attention on several fronts: Champion Award. WasteWise is by Florida Governor Jeb Bush The Florida Ocean Alliance, a voluntary program that involves to study possible changes in a nonpartisan organization businesses, government agencies the state's electric system, made dedicated to protecting and and others in reducing waste its final report to the governor enhancing Florida's coastal and through recycling, waste preven and legislative leaders. The ocean resources, recognized tion, and buying recycled material report recommended several FPL's Fort Myers and Sanford " In addition, in February 2002, FPL ways to establish competition repowering projects for significant Group announced its participation in the wholesale electricity reductions in air emissions and as a charter partner in the market, but said retail markets barge traffic and for the wise Environmental Protection Agency's should remain regulated for use of existing land. In addition new voluntary Climate Leaders the near term. to the projects' environmental program aimed at reducing accomplishments, both were greenhouse gas emissions.

/ page 16 / FPL ENERGY growing national FPL Energy's Growing Portfolio (net megawatts in operation) epresence of FPL Group 5,063 in the national wholesale power business grew significantly in 2001 4,110 as FPL Energy the company s unregulated electricity generation 3,004 subsidiary - continued to add to an already-impressive portfolio 1,878 of projects and increase its contributions to the parent 68 company's earnings.

FPL Energy's net income jose 96 97 98 99 o,10 27 percent for the year, growing from $83 million in 2000 to $105 million, excluding the effects of FAS 133 and merger related continued expansion and strong expenses Contributions to earnings performance of its wind portfolio.

per share increased 27 percent, FPL Energy added mote from 49 cents to 62 cents. than 1,000 megawatts to its FPL Energy is an industry leader portfolio in 2001, bringing its in the production of clean energy total number of net megawatts with more than 80 percent of its in operation to more than 5,000.

generation coming from natural The additions included 171 gas or renewable sources including megawatts from a peaking unit wind, hydro and solar. While at the Doswell plant in Virginia, the company's primary focus has and approximately 843 megawatts been on greenfield development from five wind facilities. Two building on new sites - it expects of the wind plants are near to shift to a mix of development Odessa, Texas, and produce and acquisition, 278 and 160 megawatts. Also The drivers of FPL Energy's added were a 263-megawsatt wind growth in 2001 included increased facility on the Oregon Washington optimization of the company's border, a 112 megawatt facility existing portfolio, contributions in Gray County, Kansas, and from new natural gas fired a 30 megawatt facility at generating facilities, and the Montfort. Wisconsin r

Wind Power Projects Co/he Fe welt wind projects directo, FPL Energy

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(L-(R Doswell Power Plant (From left) Ken Schauer and Jimmy Fuerte, production technicians, Bill Reed, plant /eader; Juan Nasiff, production manage, and David Thissen, plant leader

FPL ENERGY / page 19 / FPL Group 2001 Annual Report Once considered a n*iche" A Diversified Portfolio at utilizing clean technologies, but business, FPL Energy is now a FPL Energy also to increase existing plant leader in the U.S. wind power (net-megawatts in operation) efficiency and achieve higher market. With the production tax availability than the competition credit for wind energy projects U Natura Gas 46%

U Wind 28% In addition, FPL Energy extended through 2003, the U Oil 15% utilizes its enhanced energy company is targeting Pie addition Hydro 7% marketing and trading oiganization of 1,000 to 2,000 megawatts of Other 4% Power Marketing. Inc to wind powered generation realize the full value of its physical during that period. assets The company employs a relatively low risk, asset-based Additional plant hedging strategy, rather than construction underway a speculative trading strategy, Additional FPL Energy plants which enables it to moderate and their scheduled completion risk and enhance returns. Power dates during 2002 include: Marketing, Inc. actively trades

"* A 54 megawatt natural gas fired atound FPL Energy's expanding peaking unit in New York City, portfolio and contracts for which will supply electricity a substantial portion of its to the Long Island Power "* A 1,789 megawatt natural output, as market conditions Authority (late spring) gas-fired plant in Forney, warrant. At the beginning of

"* A 566-megawatt natural gas Texas, near Dallas, of which this year approximately 80 percent combined cycle plant near FPL Energy owns 1,700 of FPL Energy s 2002 capacity Austin, Texas, in which FPL megawatts (mid-year) and more than 50 percent of its Energy holds a 50 percent "*A 668 megawatt natural 2003 capacity was under contract partnership (mid-year) gas-fired plant in Calhoun Another key to FPL Eneigy s

"* A 535-megawatt natural gas County in northeastern success is its financial strength combined cycle plant near Alabama (mid year). and flexibility as part of FPE Providence, Rhode Island Group. This has enabled the (mid-year) Keys to success company to seize opportunities

"* A 517 megawatt natural A key to FPL Energy's success is to profitably grow its portfolion gas-fired plant in Blythe, its outstanding power generation California (late year). skills. The power generation division, which selves both Two additional plants are FPL Energy and FPL, allows the scheduled for completion during company not only to develop low 2003. These include: cost, state of the-art power plants cc'

FPL Group 2001 Annual Report / page 20 / FPL FIBERNET*"

profitable network L css than tw o years after entering the unregulated fiber-optic wholesale business FPL FibjeNet has built 21network spanning nearly 2,500 route miles.

St. Petersburg

• These include loops in, out, and around eight major Florida cities most of the major metropolitan Expansion at FPL FiberNet areas in the state. FPI FiberNet 4 arweat Palm Beach operates one of the largest SFPL niberNet Network "s\ I B.~ Raton Interconnection Agreement

• R keauderdale metropoli[an area fiberoptic Metro Network, networks in the United States.

FIT FibeiNct's rapid growth and success at forging strategic partnerships with customers such as SBC C ........ ifications, Genuity and BellSouth is enabling it to increase its contributions to FPL Positioned for growth software applications and home Groups earnings. FiberNet is well positioned pages from central servers.

Backed by the strength of FPh for future giowth Only a small In addition, Miami is home to Group. the subsidiaiy not only amount of its current network the NAP (Network Access Point) offers customers the highest quality capability is being utilized, which of the Americas - a giant, high fiber at the fastest transmission moans there is great potential for speed switching station capable speeds, but also gets customers added revenues and earnings of routing global Internet traffic to market faster than many other without additional investment FPL FiberNet was one of the fiber-optic companies In most required In addition, the founding members of the NAP cases, tie fiber is already in place companyvs operations are in of the Americas and is strategically and ready for customers to use. the high tech world of South positioned to offer connectivity to In an industry undergoing a Florida, wheie there is a heavy telecoiimiunications traffic flowing difficult period, FPL FiberNet's concentration of web-hosting through the Caribbean, South profitability and continued companies and application America, Europe and Asia The growth allow it to stand out service providers subsidiary also offers connections from the crowd. Application service providers to the BellSouth Multimedia help companies operate their Internet Fxchange (MIX)

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FINANCIAL INFORMATION / page 21 / FPL Group 2001 Annual Report Financial and Operating Statistics Years Ended December 31, 2000 1999 1998 1997 1996 1991 FPL Group, Inc. (millions)

Operating Revenues $8,475 $7,082 $6,438 $6,661 $6,369 $6,037 $5,239 Operating Expenses $7,078 $5,842 $5,518 $5,409 $5,141 $4,866 $4,372 Operating Income $1,397 $1,240 $920 $1,252 $1,228 $1,171 $866 Income from Continuing Operations $781(" $7042) $697(" $664 $618 $579 $376(4 Net Income $781(1 $704Q) $697(3 $664 $618 $579 $241(4)(5 Total Assets $17,463 $15,300 $13,441 $12,029 $12,449 $12,219 $11,282 Long-Term Debt(61 $4,858 $3,976 $3,478 $2,347 $2,949 $3,144 $3,668 Preferred Stock of FPL with sinking fund requirements(6' $- $42 $150 M i Florida Power & Light Company Operating Revenues (millions) $7,477 $6,361 $6,057 $6,366 $6,132 $5,986 $5,159 Energy Sales (millions of kwh) 93,488 91,969 88,067 89,362 82,734 80,889 68,712 Customer Accounts Average (thousands) 3,935 3,848 3,756 3,680 3,616 3,551 3,227 Peak Load, Winter (mw 60-minute)(n 17,585 18,219 17,057 16,802 13,047 16,490 13,319 Peak Load, Summer (mow 60-minute) 18,754 17,808 17,615 17,897 16,613 16,064 14,123 Reserve Margin (summer peak, %)18) 14 13 14 10 20 23 19 Total Capability (mw)8" 18,871 19,069 18,649 18,509 18,715 18,538 16,355 Net Energy for Load (%):

Oil 26 25 25 27 18 18 28 Natural Gas 24 zn 25 26 29 29 18 Nuclear 24 26 27 26 25 26 19 Net Purchased Power and Interchange 20 17 16 14 20 20 31 Coal 6 7 7 7 8 7 4 Common Stock Data Average Shares Outstanding (millions) 169 170 172 173 173 174 163 Earnings Per Share of Common Stock:

Basic $4.63*1" $4.141) $3.85 $3.57 $3.33 $2.3149

$4.07"3 Assuming Dilution $4.62(') $4.141) $4.073) $3.85 $3.57 $3.33 $2.3149 Dividends Paid Per Share $2.24 $2.16 $2.08 $2.00 $1.92 $1.84 $2.39 Book Value Per Share (year end) $35.59 $33.22 $31.47 $29.76 $28.03 $26.46 $19.64 Market Price Per Share (year end) $56.40 $71.75 $42.81 $61.63 $59.19 $46 $37 Market Price Per Share (high-low) $71.63-51.21 $73-36.38 $61.94-41.13 $72.56-56.06 $60-42.63 $48.13-41.50 $37.25-28.13 Number of Shareholders (year end) 40,990 45,066 50,215 55,149 60,493 67,580 71,117 (1)Includes merger-relatedexpenses and the net positive effects of applying FAS 133. Excluding these items, net income and earningsper share (basicand assuming dilution) would have been $792 million and $4.69, respectively (2)Includes merger-relatedexpenses. Excluding these expenses, net income and earningsper share would have been $745 million and $4.38, respectively.

(3)Includes effects of gains on divestiture of cable investments, impairment loss and litigationsettlement. Excluding these items, net income and earningsper share would have been $681 million and $3.98, respectively.

(4)Includes restructuringcharge. Excluding this charge, income and earningsper share from continuing operationswould have been $432 million and $2.65, respectively.

(5)Includes charges for disposition of a subsidiary accountedfor as discontinued operations.

(6) Excludes current maturities.

(7) Winter season includes November and December of the currentyear and Januaryto March of the following year.

(8)Represents installed capability plus purchasedpower. Reserve margin is based on peak load net of load management.

(9) Represents earningsper share of common stock from continuing operations.Earnings per share were $1.48.

FPL Group 2001 Annual Report / page 22 / FINANCIAL INFORMATION Management's discussion and analysis of financial condition and results of operations J

This discussion should be read in conjunction with the Notes to excluding also the nonrecurring items in 1999, were 9.4% and Consolidated Financial Statements contained herein. In the discussion 10.1%, respectively. In 2001 and 2000, both FPL and FPL Energy of Results of Operations below, all comparisons are with the corre contributed to the growth. The discussion of results of operations sponding items in the prior year. below excludes the effects of FAS 133 net unrealized gains (see Note

5) and merger-related expenses (see Note 11).

Critical Accounting Policies and Estimates The preparation of financial statements requires the application FPL - FPL's net income for 2001, 2000 and 1999, excluding the of numerous complex accounting principles. One of the more nonrecurring charges, was $695 million, $645 million and $618 significant accounting principles considered in the preparation of the million, respectively. FPL's results for 2001 reflect continued customer financial statements is FAS 71, "Accounting for the Effects of Certain growth, slightly higher electricity usage per retail customer despite Types of Regulation." FAS 71 requires rate-regulated public utilities a slowing economy and the terrorist attacks on the United States companies (such as FPL) to alter the accounting for certain costs and on September 11, and lower depreciation expense. A higher retail revenues from what would otherwise be reported by an unregulated refund provision under the revenue sharing mechanism of the rate entity to more closely reflect the ratemaking process. As described in agreement, as well as higher O&M and interest expenses, partly Note 1 - Regulation, significant regulatory assets and liabilities have offset the positive factors. FPL's results for 2000 benefited from been recorded on FPL's books as a result of applying FAS 71. In the customer growth, increased electricity usage per retail customer event that FPL is no longer subject to cost-based rate regulation, and lower O&M expenses. The effect of the rate reduction and these regulatory assets and liabilities would be written off unless higher interest charges partly offset these positives.

regulators specify another means of recovery or refund. See Note 1 FPL's operating revenues consist primarily of revenues from for a discussion of other significant accounting policies. retail base operations, cost recovery clauses, certain revenue taxes Management is often required to use its judgment and make and franchise fees. Revenues from retail base operations were assumptions in the calculation of estimates that affect the recorded $3.6 billion, $3.5 billion and $3.5 billion in 2001, 2000 and 1999, amounts of assets, liabilities, revenues and expenses in the financial statements. One of the more significant estimates affecting the financial statements is the estimated cost to decommission and respectively. Revenues from cost recovery clauses and franchise fees represent a pass-through of costs and do not significantly affect 3 net income. Fluctuations in these revenues are primarily driven by dismantle generating units. See Note 1 - Decommissioning changes in energy sales, fuel prices and capacity charges. Ordinarily, and Dismantlement of Generating Plant for a description of the the fuel charge is set annually based on estimated fuel costs and significant assumptions used to calculate estimated decommissioning estimated customer usage, plus or minus a true-up for prior period and dismantlement costs. estimates. As a result of significant volatility in oil and gas prices in the last couple of years, FPL has received permission from the FPSC Results of Operations for mid-course changes to the annual retail customer fuel rate. The FPL Group's net income and earnings per share in 2001 and fuel rate was increased in June 2000 and April 2001 (in addition to 2000 increased despite charges for merger-related expenses in both another increase on January 1, 2001 as part of the normal fuel set periods. These charges reduced net income and earnings per share ting process) but was decreased in October 2001. This has resulted in 2001 by $19 million and $0.11, respectively, and in 2000 by $41 in a significant increase in clause revenues in 2001 and, to a lesser million and $0.24, respectively. Also impacting 2001 earnings was extent, in 2000. FPL's annual fuel filing for 2001, as approved by the the implementation of FAS 133, "Accounting for Derivative FPSC, included approximately $518 million of under-recovered fuel Instruments and Hedging Activities." Net unrealized gains related costs from 2000, of which one-half ($259 million) was recovered in to derivative instruments accounted for under FAS 133 during 2001 2001. The remaining $259 million is being recovered in 2002. FPL increased net income and earnings per share by $8 million and agreed to this two-year recovery, rather than the typical one-year

$0.04, respectively. Net income and earnings per share in 1999 time frame, to ease the impact to customers' bills. FPL also agreed included the net effect of several nonrecurring transactions that that, instead of receiving a return at the commercial paper rate on resulted in additional net income of $16 million, or $0.09 per share. this unrecovered portion through the fuel clause, the under-recovery Excluding the merger-related expenses in 2001 and 2000 and the will be included as a rate base regulatory asset over the two-year net unrealized mark-to-market gains recorded in accordance with recovery period. See Note 1 - Regulation.

FAS 133 in 2001, FPL Group's net income in 2001 increased 6.3% to FPL's current rate agreement, which became effective April 15,

$792 million, and earnings per share (basic and assuming dilution) 1999 and expires on April 14, 2002, provides for a $350 million increased 7.1% to $4.69. The comparable growth rates for 2000, reduction in annual revenues from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the J

twelve-month periods covered by the agreement, whereby revenues II IIII

FINANCIAL INFORMATION / page 23 / FPL Group 2001 Annual Report from retail base operations in excess of a stated threshold are FP's O&M expenses increased in 2001 after several years of required to be shared on the basis of two-thirds refunded to retail decline. The increase can be attributed to system growth, reliability customers and one-third retained by FPL. Revenues from retail base improvements, costs incurred at fossil production plants to comply operations in excess of a second threshold are required to be refund with regulations and maintain operating service availability, as well as ed 100% to retail customers. For the twelve-month period ending costs associated with weaker economic conditions. O&M expenses in April 14, 2002, the first threshold is $3.5 billion and the second 2000 declined due to improved productivity. FPL's O&M expenses are threshold is $3.656 billion. During 2001, 2000 and 1999, FPL expected to increase in 2002 and 2003 reflecting continued pressure accrued approximately $110 million, $60 million and $20 million, from inflation, customer growth and an aging asset base.

respectively, relating to refunds to retail customers. At December 31, Interest charges increased in both 2001 and 2000 reflecting 2001 and 2000, the accrual for the revenue refund was approxi increased debt activity to fund FPL's capital expansion program and mately $62 million and $57 million, respectively. Actual refunds to under-recovered fuel costs.

retail customers, including interest, for the twelve-month periods The electric utility industry is facing increasing competitive ending April 14, 2001 and 2000 were $109 million and $23 million, pressure. FPL currently faces competition from other suppliers of respectively. The final refund under the rate agreement will be electrical energy to wholesale customers and from alternative energy distributed to customers in June 2002. sources and self-generation for other customer groups, primarily The earnings effect of the annual revenue reduction was offset industrial customers. In 2001, operating revenues from wholesale by lower special depreciation. Under the rate agreement, the FPSC and industrial customers combined represented approximately 4%

allowed FPL to recover, as special depreciation, up to $100 million in of FPL's total operating revenues. Various states, other than Florida, each year of the three-year agreement period. The additional depre have enacted legislation or have state commissions that issued orders ciation recovery was required to be applied to nuclear and/or fossil designed to deregulate the production and sale of electricity. By generating assets. Under this depreciation program, FPL recorded allowing customers to choose their electricity supplier, deregulation

$100 million of special depreciation in the first twelve-month period is expected to result in a shift from cost-based rates to market-based and $71 million in the second twelve-month period. Through rates for energy production and other services provided to retail December 31, 2001, FPL has not recorded any special depreciation customers. Similar initiatives are also being pursued on the federal for the third twelve-month period. On a calendar year basis, FPL level. Although the legislation and initiatives vary substantially, recorded approximately $101 million and $70 million of special common areas of focus include when market-based pricing will be depreciation in 2000 and 1999, respectively, and nothing in 2001. available for wholesale and retail customers, what existing prudently

"',./ FPL also recorded special amortization in the amount of $63 million incurred costs in excess of the market-based price will be recoverable in 1999 under a previous program approved by the FPSC. and whether generating assets should be separated from transmis The rate agreement also lowered FPL's authorized regulatory sion, distribution and other assets. It is generally believed transmission ROE range to 10% - 12%. During the term of the agreement, the and distribution activities would remain regulated.

achieved ROE may from time to time be outside the authorized In 2000, the Governor of Florida signed an executive order range, and the revenue sharing mechanism described above is creating the Energy 2020 Study Commission to propose an energy specified to be the appropriate and exclusive mechanism to address plan and strategy for Florida. The commission chose to split the that circumstance. FPL reported an ROE of 12.3%, 12.2% and energy study between wholesale and retail competition. In January 12.1% in 2001, 2000 and 1999, respectively. See Note 1 2001, the commission issued an interim report containing a proposal Revenues and Rates. for restructuring Florida's wholesale electricity market, and no action The increase in retail base revenues in 2001 was due to a 2.3% was taken in the 2001 legislative session, which ended in May 2001.

increase in retail customer accounts and a 0.4% increase in electrici In December 2001, the commission issued a final report that recom ty usage per retail customer. This was partly offset by a higher provi mended the removal of statutory barriers to entry for merchant sion for refund to retail customers. Revenues from retail base opera plants and, according to the report, provides a discretionary transi tions were flat during 2000. Customer growth of 2.5% and a 1.9% tion to a "level playing field" for all generating assets. Under the increase in electricity usage per retail customer was almost entirely commission's proposal, investor-owned utilities such as FPL could, at offset by the effect of the rate reduction and a higher provision for their discretion, transfer or sell their existing generating assets. The refund to retail customers. utility would have the right to six-year cost-based transition contracts On March 22, 2002, the FPSC approved an agreement regard to commit the capacity of assets sold or transferred back to the utili ing FPL's retail base rates that, among other things, provides for an ty. Transfers to affiliates would be at net book value. Gains on sales additional $250 million annual reduction in retail base revenues. The of existing generating assets within the transition contract period new rate agreement resolves all matters in FPL's base rate proceeding would be shared with customers. Any losses would be absorbed by and will be effective April 15, 2002 through December 31, 2005. For the utility's shareholders. The load-serving utilities would acquire new additional information regarding the new rate agreement, see Note capacity through competitive bidding (which would be required if 18 - Base Rate Proceeding. acquired from affiliates), negotiated contracts or from the short-term (spot) market. Transmission assets could be transferred (at net book value) to, or operated by, a FERC-approved RTO. The final report recommends no change to the retail competition structure until an

FPL Group 2001 Annual Report / page 24 / FINANCIAL INFORMATION effective competitive wholesale market has been developed. The In 2000, FPL Energy's earnings also benefited from the commission's proposal may be addressed in the legislative session which takes place from January through March 2002, or in a subse expansion of its independent power generation portfolio, as well as increased revenues generated by the Maine assets as a result of J quent session. In addition, the FERC has jurisdiction over potential warmer weather and higher prices in the Northeast during May changes which could affect competition in wholesale transactions. 2000 and lower O&M expenses at Doswell. In 1999, the effect of a In 1999, the FERC issued its final order on RTOs which, under $176 million ($104 million after-tax) impairment loss (see Note 13) a variety of structures, provides for the independent operation of and higher administrative expenses to accommodate future growth transmission systems for a given geographic area. In November more than offset the benefits of the growing generation portfolio 2001, the FERC issued an order providing guidance on how the and improved results from Doswell.

FERC will proceed with the RTO development. The issues of scope Deregulation of the electric utility market presents both and governance will be addressed within individual RTO dockets, opportunities and risks for FPL Energy. Opportunities exist for the after consultation with the state utility commissions. The issues of selective acquisition of generation assets that are being divested standardization of tariffs and market design will be addressed in under deregulation plans and for the construction and operation of a separate rulemaking docket. With regard to the operational efficient plants that can sell power in competitive markets. Current deadline of the RTOs initially set for December 15, 2001, the FERC, wholesale market trends indicate the potential of an oversupply of in consultation with the state utility commissions, will set revised generation and lower demand as a result of a weakening economy, timelines in each of the individual RTO dockets. which would likely result in lower wholesale electricity prices. FPL In March 2002, FPL filed a modified RTO proposal with the Energy believes that favorable conditions continue to exist in certain FPSC changing the structure from a for-profit transmission company areas of the country and plans to move forward with the projects to a non-profit independent system operator (ISO). Under the currently under construction. FPL Energy seeks to minimize its market proposal, FPL would continue to own the transmission lines and risk by having a diversified portfolio, by fuel type and location, as the ISO would manage them. In addition, the FPSC urged the utilities well as by selling a significant amount of the electricity output of its to continue participation in discussions with the FERC initiated in plants through power sales agreements. In 2001, approximately mid-2001 regarding the creation of a single RTO for the Southeast 86% of FPL Energy's capacity was under contract. FPL Energy has region of the United States, but did not recommend them joining approximately 80% of its 2002 capacity and more than 50% of its it now. 2003 capacity currently under contracts which expire in 2002-27.

3J In the event the basis of regulation for some or all of FPL's As competitive wholesale markets become more accessible to other business changes from cost-based regulation, existing regulatory generators, obtaining power sales agreements will become a assets and liabilities would be written off unless regulators specify an progressively more competitive process. FPL Energy expects that alternative means of recovery or refund. Further, other aspects of the as its existing power sales agreements expire, more of the energy business, such as generation assets and long-term power purchase produced will be sold through shorter-term contracts and into commitments, would need to be reviewed to assess their recoverabil competitive wholesale markets.

ity in a changed regulatory environment. See Note 1 - Regulation. Competitive wholesale markets in the United States continue to evolve and vary by geographic region. Revenues from electricity FPL Energy - FPL Energy's 2001 earnings growth was driven mainly sales in these markets will vary based on the prices obtainable for by the expansion of its independent power generation portfolio. energy, capacity and other ancillary services. Some of the factors Portfolio additions that contributed to the earnings growth included affecting success in these markets include the ability to operate a 495 mw natural gas-fired unit at Lamar Power Partners in the generating assets efficiently, the price and supply of fuel, transmis Central region, which became operational in late 2000, a 171 mw sion constraints, competition from new sources of generation, natural gas-fired peaking unit at its Doswell plant in the Mid-Atlantic demand growth and exposure to legal and regulatory changes.

region and five new wind projects totaling 843 mw in the Central On March 1, 2002, FPL Energy's projects received the majority and West regions. Earnings in 2001 also benefited from improved of the payments due from California utilities for electricity sold from results from the Maine assets, primarily the result of asset optimiza November 2000 through March 2001, which had been past due.

tion activities and higher capacity revenues, partly offset by higher FPL Group's remaining earnings exposure relating to past due administrative and interest expenses associated with the growth of receivables from these California utilities is not material.

the business.

Corporate and Other - FPL FiberNet's 2001 earnings were more than offset by corporate expenses. FPL FiberNet's operating results were included in the corporate and other segment beginning in 2000. FPL FiberNet was formed in January 2000 to enhance the 3J I1 IIII

FINANCIAL INFORMATION / page 25 / FPL Group 2001 Annual Report value of FPL Group's fiber-optic network assets that were originally built to support FPL operations. Accordingly, in January 2000, FPL's existing fiber-optic lines were transferred to FPL FiberNet. In 1999, net income for the corporate and other segment reflects a $149 million ($96 million after-tax) gain on the sale of an investment in Adelphia Communications Corporation common stock, a $108 million ($66 million after-tax) gain recorded by FPL Group Capital on the redemption of its one-third interest in a cable limited partnership, costs associated with closing a retail marketing business of $11 million ($7 million after-tax) and the favorable resolution of a prior year state tax matter of $10 million

($7 million after-tax). For information related to the positive resolution in March 2002 of a prior year tax matter, see Note 18 - Income Taxes.

Merger In July 2000, FPL Group and Entergy announced a proposed merger, which was approved by the shareholders of the respective companies in December 2000. Subsequently, a number of factors led FPL Group to conclude the merger would not achieve the synergies or create the shareholder value originally contemplated when the merger was announced. As a result, on April 1, 2001, FPL Group and Entergy mutually terminated the merger agreement.

In 2001, FPL Group recorded $30 million in merger-related expenses, of which FPL recorded $26 million ($16 million after-tax) and Corporate and Other recorded $4 million ($3 million after-tax). In 2000, FPL Group recorded $67 million in merger-related expenses, of which FPL recorded

$62 million ($38 million after-tax), FPL Energy recorded $2 million ($1 million after-tax) and Corporate and Other recorded $3 million ($2 million after-tax). For additional information concerning the merger, see Note 11.

Liquidity and Capital Resources In 2001, FPL Group Capital and a subsidiary of FPL Energy issued debt totaling $935 million and FPL redeemed approximately $65 million of bonds. The proceeds from the debt issuances were used in part to reduce FPL Group Capital's commercial paper balance. Debt maturities of FPL Group's subsidiaries will require cash outflows of approximately $1.750 billion through 2006, including $32 million in 2002. It is anticipated that cash requirements for capital expenditures, energy-related investments and debt maturities in 2002 will be satisfied with internally generated funds and from the issuance of debt and other securities. Internally generated funds may be affected by, among other things, regulatory actions, including the resolution of FPL's rate proceeding, weather conditions, changes in competitive wholesale markets and pricing and transportation of fuel and other energy commodities. Any internally generated funds not required for capital expenditures and current maturities may be used to reduce outstanding debt or repurchase common stock, or for investment. Any temporary cash needs will be met by short-term bank borrowings. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate $3 billion ($2 billion for FPL Group Capital "x j'-- and $1 billion for FPL). One-half of these facilities have a 364-day term, with the remainder being a three-year term. These facilities are available to support the companies' commercial paper programs as well as for general corporate purposes.

FPL Group's commitments at December 31, 2001 were as follows (see Note 15 - Commitments):

(millions) 2002 2003-04 Thereafter Total Standby letters of credit $278 $ - $ 1 $279 Guarantees 51 3 633 687 1

Other commitments W':

FPL 1,300 3,100 - 4,400 FPL Energy 80 748 - 828 Total $1,709 $3,851 $634 $6,194 (a) Other commitments for FPL represent capitalexpenditures to meet increased electricity usage and customer growth and for FPL Energy represent firm commitments in connection with the development and expansion of independent power projects. FPL Energy expects 2002 capital expenditures to approximate $2.7 billion.

In February 2002, FPL Group sold a total of 11.5 million publicly-traded equity units known as Corporate Units, and in connection with that financing, FPL Group Capital issued $575 million principal amount of debentures due February 16, 2007. Each Corporate Unit initially consisted of a $50 FPL Group Capital debenture and a purchase contract pursuant to which the holder will purchase $50 of FPL Group common shares on or before February 16, 2005. Prior to the issuance of FPL Group's common stock, the purchase contracts will be reflected in FPL Group's diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of FPL Group common stock used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares that would be issued upon settlement of the purchase contracts less the number of shares that could be purchased by FPL Group in the market, at the average market price during the period, using the proceeds receivable upon settlement. Consequently, FPL Group anticipates that there will not be a dilutive effect on its earnings per share except during periods when the average market price of its common stock is above $62.02. The net proceeds from the sale of the equity units were used to reduce FPL Group Capital's commercial paper borrowings. See Note 8.

FPL Group 2001 Annual Report / page 26 / FINANCIAL INFORMATION In 2000, subsidiaries of FPL Energy entered into two off-balance Derivative instruments are recorded on the balance sheets as sheet financing arrangements with special purpose entities. In the first transaction, FPL Energy's subsidiary entered into an operating either an asset or liability (in other current assets, other assets, other current liabilities and other liabilities) measured at fair value. At FPL, J

lease agreement to lease a 535 mw combined-cycle power genera changes in fair value are deferred as a regulatory asset or liability tion plant. In the second transaction, the special purpose entity until the contracts are settled. Upon settlement, any gains or losses funds the construction of certain turbines and related equipment. will be passed through the fuel clause and the capacity clause. For The special purpose entities in these transactions have arranged FPL Group's unregulated operations, predominantly FPL Energy, funding commitments totaling $1 .075 billion through debt and changes in the derivatives' fair value are recognized currently in equity contributions from investors who are not affiliated with FPL earnings (in other - net) unless hedge accounting is applied.

Group. At December 31, 2001, $340 million had been drawn on Settlement gains and losses are included within the line items in these commitments. FPL Group Capital has guaranteed the obliga the statements of income to which they relate. See Note 5.

tions of the FPL Energy subsidiaries under these agreements, which are included in the table above. Additionally, at December 31, 2001, Market Risk Sensitivity - Substantially all financial instruments FPL Energy has posted cash collateral of $256 million (included in and positions affecting the financial statements described below are other assets on the consolidated balance sheets). See Note 15 held for purposes other than trading. Market risk is measured as the Off-Balance Sheet Financing Arrangements. potential loss in fair value resulting from hypothetical reasonably FPL Group has guaranteed certain payment obligations of FPL possible changes in commodity prices, interest rates or equity prices Group Capital, including those under the FPL Group Capital debt, over the next year.

commercial paper and guarantees discussed above.

FPL Group did not repurchase any common shares in 2001. Commodity price risk - The fair value of the net position in As of December 31, 2001, FPL Group had repurchased a total commodity-based derivative instruments at December 31, 2001 of approximately 4.6 million shares of common stock under its and 2000 was a negative $6 million and a negative $11 million, 10 million share repurchase program that began in April 1997. respectively. The effect of a hypothetical 40% decrease in the price FPL self-insures for damage to certain transmission and of natural gas and electricity and a hypothetical 25% decrease in the distribution properties and maintains a funded storm reserve to price of oil, both of which are reasonably possible near-term market reduce the financial impact of storm losses. The balance of the storm changes, would be to change the fair value at December 31, 2001 fund reserve at December 31, 2001 and 2000 was approximately of these instruments to a negative $36 million.

$235 million and $229 million, respectively. FPL's bank lines of credit 3 discussed above are also available if needed to provide cash for Interest rate risk - The special use funds of FPL include restricted storm restoration costs. The FPSC has indicated that it would funds set aside to cover the cost of storm damage and for the consider future storm losses in excess of the funded reserve for decommissioning of FPL's nuclear power plants. A portion of these possible recovery from customers. funds is invested in fixed income debt securities carried at their FPL's charter and mortgage contain provisions which, under market value of approximately $1.020 billion and $1.002 billion at certain conditions, restrict the payment of dividends and the issuance December 31, 2001 and 2000, respectively. Adjustments to market of additional unsecured debt, first mortgage bonds and preferred value result in a corresponding adjustment to the related liability stock. Given FPL's current financial condition and level of earnings, accounts based on current regulatory treatment. Because the funds expected financing activities and dividends should not be affected set aside for storm damage could be needed at any time, the by these limitations. related investments are generally more liquid and, therefore, are less sensitive to changes in interest rates. The nuclear decommissioning Energy Marketing and Trading and funds, in contrast, are generally invested in longer-term securities, Market Risk Sensitivity as decommissioning activities are not expected to begin until at Energy Marketing and Trading - Certain of FPL Group's sub least 2012. At December 31, 2001 and 2000, other investments sidiaries, including FPL and FPL Energy, use derivative instruments (pri include approximately $600 million and $300 million, respectively, marily swaps, options, futures and forwards) to manage the commod of investments that are carried at estimated fair value or cost, ity price risk inherent in fuel purchases and electricity sales, as well as which approximates fair value.

to optimize the value of power generation assets. To a lesser extent, At December 31, 2001, the carrying value and fair value of FPL Energy engages in limited energy trading activities to take advan long-term debt (including current maturities) was $4.890 billion and tage of expected future favorable price movements. Derivatives with $5.080 billion, respectively; the corresponding amounts at December fair values based on quoted market prices totaled negative $8 million, 31, 2000, were $4.041 billion and $4.080 billion. The fair values those with fair values based on prices provided by other external were based on quoted market prices for these or similar issues.

sources totaled $3 million and those with fair values based on valua Based upon a hypothetical 10% decrease in interest rates, tion models totaled negative $1 million. The fair value of derivatives which is a reasonable near-term market change, the net fair value of expiring in 2002 was $3 million and the remainder have expiration the net liabilities would increase by approximately $148 million at dates through December 2005. At December 31, 2001, the fair value December 31, 2001.

of trading instruments at FPL Group was less than $1 million.

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FINANCIAL INFORMATION / page 27 / FPL Group 2001 Annual Report Equity price risk- Included in the special use funds of FPL are accounting through its Audit Committee. This Committee, which marketable equity securities carried at their market value of approxi is comprised entirely of outside directors, meets periodically with mately $576 million and $511 million at December 31, 2001 and management, the internal auditors and the independent auditors to 2000, respectively. A hypothetical 10% decrease in the prices quoted make inquiries as to the manner in which the responsibilities of each by stock exchanges, which is a reasonable near-term market change, are being discharged. The independent auditors and the internal would result in a $58 million reduction in fair value and correspon audit staff have free access to the Committee without management's ding adjustment to the related liability accounts based on current presence to discuss auditing, internal accounting control and regulatory treatment at December 31, 2001. financial reporting matters.

New Accounting Rules Goodwill and Other Intangible Assets - Effective January 1, Lewis Hay III 2002, FPL Group adopted FAS 142, "Goodwill and Other Intangible Chairman, Presidentand Chief Executive Officer Assets." For information concerning the adoption of FAS 142, see Note 1 - Goodwill and Other Intangible Assets.

Moray P. Dewhurst Accounting for Asset Retirement Obligations - Beginning in Vice President,Financeand Chief FinancialOfficer 2003, FPL Group will be required to adopt FAS 143, "Accounting for Asset Retirement Obligations." See Note 1 - Accounting for Asset Retirement Obligations. K. Michael Davis Controllerand Chief Accounting Officer Management's Report The management of FPL Group is responsible for the integrity Independent Auditors' Report and objectivity of the financial information and representations To the Board of Directors and Shareholders, FPL Group, Inc.:

contained in the consolidated financial statements and other sections We have audited the accompanying consolidated balance of this Annual Report. The consolidated financial statements, which sheets of FPL Group, Inc. and subsidiaries as of December 31, 2001 in part are based on informed judgments and estimates made by and 2000, and the related consolidated statements of income, management, have been prepared in conformity with generally shareholders' equity, and cash flows for each of the three years in accepted accounting principles applied on a consistent basis. the period ended December 31, 2001. These financial statements are To aid in carrying out this responsibility, management maintains the responsibility of the company's management. Our responsibility a system of internal accounting control, which is established after is to express an opinion on these financial statements based on weighing the cost of such controls against the benefits derived. our audits.

The overall system of internal accounting control, in the opinion of We conducted our audits in accordance with auditing standards management, provides reasonable assurance that the assets of FPL generally accepted in the United States of America. Those standards Group and its subsidiaries are safeguarded and transactions are require that we plan and perform the audit to obtain reasonable executed in accordance with management's authorization and are assurance about whether the financial statements are free of properly recorded for the preparation of financial statements. In material misstatement. An audit includes examining, on a test addition, management believes the overall system of internal basis, evidence supporting the amounts and disclosures in the accounting control provides reasonable assurance that material errors financial statements. An audit also includes assessing the accounting or irregularities would be prevented or detected on a timely basis by principles used and significant estimates made by management, as employees in the normal course of their duties. Due to the inherent well as evaluating the overall financial statement presentation. We limitations of the effectiveness of any system of internal accounting believe that our audits provide a reasonable basis for our opinion.

control, management cannot provide absolute assurance that the In our opinion, such consolidated financial statements present objectives of internal accounting control will be met. The system of fairly, in all material respects, the financial position of FPL Group, Inc.

internal accounting control is supported by written policies and and subsidiaries at December 31, 2001 and 2000, and the results of guidelines, the selection and training of qualified employees, an their operations and their cash flows for each of the three years in organizational structure that provides an appropriate division of the period ended December 31, 2001, in conformity with accounting responsibility and a program of internal auditing. To further enhance principles generally accepted in the United States of America.

the internal accounting control environment, management has prepared and distributed to all employees a Code of Conduct which states management's policy on conflict of interest and ethical conduct.

FPL Group's independent auditors, Deloitte & Touche LLP, are Deloitte & Touche LLP engaged to express an opinion on FPL Group's financial statements. Certified Public Accountants Their report is based on procedures believed by them to provide a Miami, Florida reasonable basis to support such an opinion. The Board of Directors February 8, 2002, except for Note 18, as to which the date is pursues its oversight responsibility for financial reporting and March 25, 2002.

FPL Group 2001 Annual Report / page 28 / FINANCIAL INFORMATION Consolidated Statements of Income Years Ended December 31, S 2000 1999 (millions, except per share amounts)

Operating Revenues $8,475 $7,082 $6,438 Operating Expenses Fuel, purchased power and interchange 4,030 2,868 2,365 Other operations and maintenance 1,325 1,257 1,253 Merger-related 30 67 Litigation settlement - - 69 Depreciation and amortization Impairment loss on Maine assets 983 1,032 1,040 176 U

Taxes other than income taxes 710 618 615 Total operating expenses 7,078 5,842 5,518 Operating Income 1,397 1,240 920 Other Income (Deductions)

Interest charges (324) (278) (222)

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

Divestiture of cable investments - - 257 Other - net 102 93 80 Total other income (deductions)- net (237) (200) 100 Income Before Income Taxes 1,160 1,040 1,020 Income Taxes 379 336 323 Net Income $ 781 $ 704 $ 697 Earnings per share of common stock:

Basic $4.63 $4.14 $4.07 Assuming dilution $4.62 $4.14 $4.07 Dividends per share of common stock $2.24 $2.16 $2.08 Weighted-average number of common shares outstanding:

Basic 168.7 169.9 171.3 Assuming dilution 168.9 170.2 171.5 j

The accompanying Notes to ConsolidatedFinancialStatements are an integralpart of these statements.

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FINANCIAL INFORMATION / page 29 / FPL Group 2001 Annual Report Consolidated Balance Sheets December 31,20 2000 (millions)

Property, Plant and Equipment Electric utility plant in service and other property $21,272 $19,642 Nuclear fuel under capital lease - net 133 127 Construction work in progress 1,983 1,253 Less accumulated depreciation and amortization (11.726) (11.088)

Total property, plant and equipment - net 11,662 9,934 Current Assets Cash and cash equivalents 82 129 Customer receivables, net of allowances of $8 and $7, respectively 636 637 Other receivables 144 246 Materials, supplies and fossil fuel inventory - at average cost 349 370 Deferred clause expenses 304 337 Other 87 62 Total current assets 1,602 1,781 Other Assets Special use funds of FPL 1,608 1,497 Other investments 1,035 651 Other 1,556 1,437 Total other assets 4,199 3,585 Total Assets $17,463 $15,300 Capitalization Common shareholders' equity $ 6,015 $ 5,593 Preferred stock of FPL without sinking fund requirements 226 226 Long-term debt 4,858 3,976 Total capitalization 11,099 9,795 Current Liabilities Commercial paper 1,680 1,158 Note payable 302 Accounts payable 473 564 Customers' deposits 285 254 Accrued interest and taxes 160 146 Deferred clause revenues 144 70 Other 595 571 Total current liabilities 3,639 2,763 Other Liabilities and Deferred Credits Accumulated deferred income taxes 1,302 1,378 Deferred regulatory credit - income taxes 88 107 Unamortized investment tax credits 140 162 Storm and property insurance reserve 235 229 Other 960 866 Total other liabilities and deferred credits 2,725 2,742 Commitments and Contingencies Total Capitalization and Liabilities $ 17,463 $ 15,300 The accompanying Notes to ConsolidatedFinancialStatements are an integralpart of these statements.

FPL Group 2001 Annual Report / page 30 / FINANCIAL INFORMATION Consolidated Statements of Cash Flows Years Ended December 31, 2000 1999 (millions)

Cash Flows from Operating Activities Net income $ 781 $ 704 $ 697 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 983 1,032 1,040 Increase (decrease) in deferred income taxes and related regulatory credit (91) 283 (198)

Deferrals under cost recovery clauses 411 (810) 55 Increase in restricted cash Gain on sale of cable investments (260)

(257)

J Impairment loss on Maine assets - - 176 Other - net 118 (233) 50 Net cash provided by operating activities 1,942 976 1,563 Cash Flows from Investing Activities Capital expenditures of FPL (1,154) (1,299) (861)

Independent power investments (1,977) (507) (1,540)

Proceeds from the sale of.assets 50 22 198 Other - net (188) (159) 31 Net cash used in investing activities (3,269) (1,943) (2,172)

Cash Flows from Financing Activities Issuances of long-term debt 920 947 1,609 Retirements of long-term debt (87) (515) (584)

Increase in commercial paper and note payable 824 819 229 Repurchases of common stock - (150) (116)

Dividends on common stock (377) (366) (355)

Net cash provided by financing activities 1,280 735 783 Net increase (decrease) in cash and cash equivalents (47) (232) 174 Cash and cash equivalents at beginning of year 129 361 187 Cash and cash equivalents at end of year $ 82 $ 129 $ 361 Supplemental Disclosures of Cash Flow Information Cash paid for interest (net of amount capitalized) $ 373 $ 301 $ 221 Cash paid for income taxes $ 433 $ 160 $ 573 Supplemental Schedule of Noncash Investing and Financing Activities Additions to capital lease obligations $ 70 $ 43 $ 86 U

The accompanying Notes to ConsolidatedFinancialStatements are an integralpart of these statements.

Ii III

FINANCIAL INFORMATION / page 31 / FPL Group 2001 Annual Report Consolidated Statements of Shareholders' Equity Accumulated Common Stocko Additional Other Common Aggregate Paid-In Unearned Comprehensive Retained Shareholders' (millions) Shares Par Value Capital Compensation Income (Loss)( Earnings Equity Balances, December 31, 1998 181 $ 2 $3,252 $(252) $ 1 $2,123 Net income - -.. 697 Repurchases of common stock (2) (116)

Dividends on common stock - -- .- (355)

Earned compensation under ESOP - - 12 14 -

Other comprehensive loss - - - - (2)

Other - - - (6) -

Balances, December 31, 1999 17911) 2 3,148 (244) (1) 2,465 Net income - - - - 704 Repurchases of common stock (3) - (150) - -

Dividends on common stock - - - - (366)

Earned compensation under ESOP - - 12 15 Other comprehensive income - - - 1 Other - - (2) 9 -

Balances, December 31, 2000 17611) 2 3,008 (220) - 2,803 $5,593 Net income . 781 Dividends on common stock - - - - - (377)

Earned compensation under ESOP - - 15 15 -

Other comprehensive loss - - - - (8)

Other - - 2 (6) -

Balances, December 31, 2001 176(l) $2 $3,025 $(211) $ (8) $3,207 $6,015

- (a) $0.01 par value, authorized- 300,000, 000 shares; outstanding 175,854,056 and 175,766,215 at December 31, 2001 and 2000, respectively.

(b) Comprehensive income, which includes net income and other comprehensive income (loss), totaled $773 million, $705 million and

$695 million for 2001, 2000 and 1999, respectively.

(c) Outstanding and unallocatedshares held by the Employee Stock Ownership Plan Trust totaled 7 million, 7 million and 8 million at December 31, 2001, 2000 and 1999, respectively.

The accompanying Notes to ConsolidatedFinancialStatements are an integralpartof these statements.

FPL Group 2001 Annual Report / page 32 / FINANCIAL INFORMATION Notes To Consolidated The amounts presented above exclude clause-related regulatory Financial Statements assets and liabilities that are recovered or refunded over the next twelve-month period. Those amounts are included in deferred clause J

expenses and deferred clause revenues on the consolidated balance Years Ended December 31, 2001, 2000 and 1999 sheets. Cost recovery clauses, which are designed to permit full recovery of certain costs and provide a return on certain assets

1. Summary of Significant Accounting and utilized by these programs, include substantially all fuel, purchased Reporting Policies power and interchange expenses, conservation- and environmental Basis of Presentation - FPL Group, Inc.'s (FPL Group) operations related expenses, certain revenue taxes and franchise fees. Revenues are conducted primarily through its wholly-owned subsidiary Florida from cost recovery clauses are recorded when billed; FPL achieves Power & Light Company (FPL) and its wholly-owned indirect matching of costs and related revenues by deferring the net subsidiary FPL Energy, LLC (FPL Energy). FPL, a rate-regulated public under- or over-recovery. Any under-recovered costs or over-recovered utility, supplies electric service to approximately 3.9 million customers revenues are collected from or returned to customers in throughout most of the east and lower west coasts of Florida. subsequent periods.

FPL Energy invests in independent power projects through both At December 31, 2000, FPL had $259 million of noncurrent controlled and consolidated entities and non-controlling ownership under-recovered fuel costs which were included in other assets. The interests in joint ventures accounted for under the equity method. noncurrent portion of under-recovered fuel costs resulted from the The consolidated financial statements include the accounts of its FPSC allowing FPL to recover $518 million of under-recovered fuel respective majority-owned and controlled subsidiaries. All significant costs over a two-year period beginning January 2001, rather than intercompany balances and transactions have been eliminated in the typical one-year time frame. FPL also agreed that instead of consolidation. Certain amounts included in prior years' consolidated receiving a return at the commercial paper rate on this unrecovered financial statements have been reclassified to conform to the current portion through the fuel and purchased power cost recovery clause year's presentation. The preparation of financial statements requires the (fuel clause), the under-recovery will be included as a rate base use of estimates and assumptions that affect the reported amounts of regulatory asset over the two-year recovery period.

assets, liabilities, revenues and expenses and the disclosure of contingent In the event that FPL's generating operations are no longer assets and liabilities. Actual results could differ from those estimates. subject to the provisions of FAS 71, portions of the existing regula Regulation - FPL is subject to regulation by the Florida Public tory assets and liabilities that relate to generation would be written off unless regulators specify an alternative means of recovery or refund. Further, other aspects of the business, such as generation 3

Service Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). Its rates are designed to recover the cost of assets and long-term power purchase commitments, would need to providing electric service to its customers including a reasonable be reviewed to assess their recoverability in a changed regulatory rate of return on invested capital. As a result of this cost-based environment. The continued applicability of FAS 71 is assessed regulation, FPL follows the accounting practices set forth in at each reporting period.

Statement of Financial Accounting Standards No. (FAS) 71, Various states, other than Florida, have enacted legislation or "Accounting for the Effects of Certain Types of Regulation." FAS 71 have state commissions that issued orders designed to deregulate indicates that regulators can create assets and impose liabilities that the production and sale of electricity. By allowing customers to would not be recorded by unregulated entities. Regulatory assets choose their electricity supplier, deregulation is expected to result in and liabilities represent probable future revenues that will be recov a shift from cost-based rates to market-based rates for energy ered from or refunded to customers through the ratemaking process. production and other services provided to retail customers. Similar The principal regulatory assets and liabilities are as follows: initiatives are also being pursued on the federal level. Although the legislation and initiatives vary substantially, common areas of focus (millions) include when market-based pricing will be available for wholesale December 31, so 2000 and retail customers, what existing prudently incurred costs in Assets (included in other assets): excess of the market-based price will be recoverable and whether Unamortized debt reacquisition costs $ 17 $ 18 generating assets should be separated from transmission, distribution Deferred Department of Energy assessment $ 30 $ 35 and other assets. It is generally believed transmission and distribution Under-recovered fuel costs activities would remain regulated.

(noncurrent portion) $ - $259 In 2000, the Governor of Florida signed an executive order Litigation settlement (see Note 12) $178 $223 creating the Energy 2020 Study Commission to propose an energy plan and strategy for Florida. The commission chose to split the Liabilities: energy study between wholesale and retail competition. In January Deferred regulatory credit - income taxes $ 88 $107 2001, the commission issued an interim report containing a proposal Unamortized investment tax credits Storm and property insurance reserve

$140 $162 for restructuring Florida's wholesale electricity market, and no action was taken in the 2001 legislative session, which ended in May 2001. 3 (see Note 15 - Insurance) $235 $229 In December 2001, the commission issued a final report that Ii III

FINANCIAL INFORMATION / page 33 / FPL Group 2001 Annual Report recommended the removal of statutory barriers to entry for merchant $137 million at December 31, 2001 and 2000, respectively. FPL's plants and, according to the report, provides a discretionary transi operating revenues also include amounts resulting from cost recovery tion to a "level playing field" for all generating assets. Under the clauses (see Regulation), certain revenue taxes and franchise fees.

commission's proposal, investor-owned utilities such as FPL could, The majority of the energy produced by FPL Energy's independent at their discretion, transfer or sell their existing generating assets. power projects is sold through power sales agreements with utilities The utility would have the right to six-year cost-based transition and revenue is recorded as electricity is delivered.

contracts to commit the capacity of assets sold or transferred back FPL's current rate agreement, which became effective April 15, to the utility. Transfers to affiliates would be at net book value. Gains 1999 and expires on April 14, 2002, provides for a $350 million on sales of existing generating assets within the transition contract reduction in annual revenues from retail base operations allocated to period would be shared with customers. Any losses would be all customers on a cents-per-kilowatt-hour basis. Additionally, the absorbed by the utility's shareholders. The load-serving utilities would agreement sets forth a revenue sharing mechanism for each of the acquire new capacity through competitive bidding (which would be twelve-month periods covered by the agreement, whereby revenues required if acquired from affiliates), negotiated contracts or from the from retail base operations in excess of a stated threshold are short-term (spot) market. Transmission assets could be transferred (at required to be shared on the basis of two-thirds refunded to retail net book value) to, or operated by, a FERC-approved regional trans customers and one-third retained by FPL. Revenues from retail base mission organization (RTO). The final report recommends no change operations in excess of a second threshold are required to be refund to the retail competition structure until an effective competitive ed 100% to retail customers. For the twelve-month period ending wholesale market has been developed. The commission's proposal April 14, 2002, the first threshold is $3.5 billion and the second may be addressed in the legislative session which takes place threshold is $3.656 billion.

from January through March 2002, or in a subsequent session. In The accrual for the refund associated with the revenue sharing addition, the FERC has jurisdiction over potential changes which mechanism is computed monthly for each twelve-month period of could affect competition in wholesale transactions. the rate agreement. At the beginning of each twelve-month period, In 1999, the FERC issued its final order on RTOs which, under planned revenues are reviewed to determine if it is probable that the a variety of structures, provides for the independent operation of threshold will be exceeded. If so, an accrual is recorded each month transmission systems for a given geographic area. In November for a portion of the anticipated refund based on the relative percent 2001, the FERC issued an order providing guidance on how the age of year-to-date planned revenues to the total estimated revenues FERC will proceed with the RTO development. The issues of scope for the twelve-month period, plus accrued interest. In addition, if in

"' and governance will be addressed within individual RTO dockets, any month actual revenues are above or below planned revenues, the after consultation with the state utility commissions. The issues of accrual is increased or decreased as necessary to recognize the effect standardization of tariffs and market design will be addressed in a of this variance on the expected refund amount. The annual refund separate rulemaking docket. With regard to the operational deadline (including interest) is paid to customers as a credit to their June elec of the RTOs initially set for December 15, 2001, the FERC, in tric bill. At December 31, 2001 and 2000, the accrual for the revenue consultation with the state utility commissions, will set revised refund was approximately $62 million and $57 million, respectively.

timelines in each of the individual RTO dockets. The rate agreement also lowered FPL's authorized regulatory FPL as well as other investor-owned utilities in Florida had return on common equity (ROE) range to 10% - 12%. During the requested that the FPSC open a separate generic docket to address term of the agreement, the achieved ROE may from time to time be issues related to the utilities' participation in an independent RTO, outside the authorized range, and the revenue sharing mechanism pursuant to the FERC's 1999 order on RTOs. In June 2001, the FPSC described above is specified to be the appropriate and exclusive decided to address on an expedited basis the RTO matters in conjunc mechanism to address that circumstance. For purposes of calculating tion with the base rate proceeding instead of in a generic docket. In ROE, the agreement establishes a cap on FPL's adjusted equity ratio December 2001, the FPSC ordered the utilities to file a modified RTO of 55.83%. The adjusted equity ratio reflects a discounted amount proposal by March 20, 2002. The FPSC has stated that the proposal for off-balance sheet obligations under certain long-term purchased should not involve the divestiture of transmission assets initially, but power contracts. Finally, the rate agreement established a new does not preclude the RTO from building or owning transmission special depreciation program (see Electric Plant, Depreciation and assets in the future. In addition, the FPSC urged the utilities to Amortization) and includes provisions which limit depreciation rates continue participation in discussions with the FERC initiated in and accruals for nuclear decommissioning and fossil dismantlement mid-2001 regarding the creation of a single RTO for the Southeast costs to the then approved levels and limit amounts recoverable region of the United States, but did not recommend them joining under the environmental compliance cost recovery clause during it now. For subsequent events, see Note 18- RTO. the term of the rate agreement.

In May 2001, the FPSC ordered FPL to submit minimum filing Revenues and Rates - FPL's retail and wholesale utility rate requirements (MFRs) to initiate a base rate proceeding regarding FPL's schedules are approved by the FPSC and the FERC, respectively. FPL future retail rates. FPL completed the filing of MFRs with the FPSC on records unbilled base revenues for the estimated amount of energy October 15, 2001 and supplemented these filings with information delivered to customers but not yet billed. Unbilled base revenues are filed on November 9, 2001. Hearings are scheduled for April 2002 included in customer receivables and amounted to $146 million and and a final decision is scheduled for June 2002. Any change in base

FPL Group 2001 Annual Report / page 34 / FINANCIAL INFORMATION rates would not become effective until after the expiration of FPL's Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear current rate agreement on April 14, 2002. FPL is conducting settle ment discussions with the FPSC staff, the State of Florida Office of units. Nuclear fuel lease expense was $70 million, $82 million and

$83 million in 2001, 2000 and 1999, respectively- Included in this J

Public Counsel and other parties. Also, as part of the rate case, the expense was an interest component of $5 million, $9 million and FPSC will consider FPLs request to increase the annual accrual to $8 million in 2001, 2000 and 1999, respectively. Nuclear fuel lease the storm and property insurance reserve fund (storm fund) by payments and a charge for spent nuclear fuel disposal are charged

$30 million to $50.3 million. FPL has requested approval to establish to fuel expense on a unit of production method. These costs are a corresponding storm fund reserve objective of $500 million to be recovered through the fuel clause. Under certain circumstances of achieved over five years. At December 31, 2001, the storm fund lease termination, FPL is required to purchase all nuclear fuel in reserve totaled approximately $235 million. See Storm Fund. For whatever form at a purchase price designed to allow the lessor to subsequent events, see Note 18 - Base Rate Proceeding. recover its net investment cost in the fuel, which totaled $133 million at December 31, 2001. For ratemaking, these leases are classified as Electric Plant, Depreciation and Amortization - The cost of operating leases. For financial reporting, the capital lease obligation additions to units of utility property of FPL and FPL Energy is added is recorded at the amount due in the event of lease termination.

to electric utility plant. In accordance with regulatory accounting, the cost of FPL's units of utility property retired, less net salvage, is Decommissioning and Dismantlement of Generating Plant charged to accumulated depreciation. Maintenance and repairs of FPL accrues nuclear decommissioning costs over the expected service property as well as replacements and renewals of items determined life of each unit. Nuclear decommissioning studies are performed at to be less than units of utility property are charged to other opera least every five years and are submitted to the FPSC for approval.

tions and maintenance (O&M) expenses. At December 31, 2001, the FPL's latest nuclear decommissioning studies were approved by the generating, transmission, distribution and general facilities of FPL FPSC in December 2001 and are effective in May 2002. The represented approximately 44%, 13%, 37% and 6%, respectively, of changes include a reduction in the annual decommissioning expense FPLs gross investment in electric utility plant in service. Substantially accrual to $79 million from $85 million and the reclassification of all electric utility plant of FPL is subject to the lien of a mortgage approximately $99 million of accumulated nuclear amortization to a securing FPLs first mortgage bonds. FPL Energy's Doswell generating regulatory liability, which will be amortized over the remaining life of facility is encumbered by liens against its assets securing bonds the nuclear units. These studies assume prompt dismantlement for issued by an FPL Energy subsidiary in July 2001.

Depreciation of electric property is primarily provided on a straight-line average remaining life basis. FPL includes in depreciation the Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013, respectively, when the current J operating licenses expire. Current plans, which are consistent with expense a provision for fossil plant dismantlement and nuclear plant the term of the existing operating licenses, call for St. Lucie Unit decommissioning (see Decommissioning and Dismantlement of No. I to be mothballed beginning in 2016 with decommissioning Generating Plant). For substantially all of FPL's property, depreciation activities to be integrated with the prompt dismantlement of St.

studies are performed and filed with the FPSC at least every four Lucie Unit No. 2 beginning in 2023. These studies also assume that years. In April 1999, the FPSC granted final approval of FPL's most FPL will be storing spent fuel on site pending removal to a U.S.

recent depreciation studies, which were effective January 1, 1998.

government facility. The studies indicate FPLs portion of the ultimate The weighted annual composite depreciation rate for FPL's electric plant in service was approximately 4.2% for 2001, 4.2% for 2000 costs of decommissioning its four nuclear units, including costs asso ciated with spent fuel storage, to be $6.4 billion. Decommissioning and 4.3% for 1999, excluding the effects of decommissioning and dismantlement. Further, these rates exclude the special and plant expense accruals included in depreciation and amortization expense, related deferred cost amortization discussed below. were $85 million in each of the years 2001, 2000 and 1999. FPL's Under the current rate agreement that reduced FPL's base rates portion of the ultimate cost of decommissioning its four units, (see Revenues and Rates), the FPSC allowed FPL to recover, as special expressed in 2001 dollars, is currently estimated to aggregate $1.9 depreciation, up to $100 million in each year of the three-year billion. At December 31, 2001 and 2000, the accumulated provision agreement period. The additional depreciation recovery was required for nuclear decommissioning totaled approximately $1.7 billion and to be applied to nuclear and/or fossil generating assets. Under this $1.5 billion, respectively, and is included in accumulated deprecia depreciation program, FPL recorded $100 million of special deprecia tion. See Electric Plant, Depreciation and Amortization and tion in the first twelve-month period and $71 million through Accounting for Asset Retirement Obligations.

December 31, 2000 of the second twelve-month period. Through Similarly, FPL accrues the cost of dismantling its fossil fuel plants December 31, 2001, FPL has not recorded any special depreciation over the expected service life of each unit. Fossil fuel plant disman for the third twelve-month period. On a calendar year basis, FPL tlement studies are performed and filed with the FPSC at least every recorded approximately $101 million and $70 million of special four years. FPLs latest fossil fuel plant dismantlement studies were depreciation in 2000 and 1999, respectively, and nothing in 2001. effective January 1, 1999. Fossil dismantlement expense was $16 FPL also recorded special amortization in the amount of $63 million million in 2001, $14 million in 2000 and $17 million in 1999 and is in 1999 under a previous program approved by the FPSC. These costs are considered recoverable costs and are monitored through included in depreciation and amortization expense. FPLs portion of the ultimate cost to dismantle its fossil units is $482 million. At J

the monthly reporting process with the FPSC. December 31, 2001 and 2000, the accumulated provision for fossil I, I 1

FINANCIAL INFORMATION / page 35 / FPL Group 2001 Annual Report dismantlement totaled $253 million and $246 million, respectively, investment in partnerships and joint ventures totaled $276 million and is included in accumulated depreciation. See Electric Plant, and $196 million, respectively, which are included in other Depreciation and Amortization. investments on the consolidated balance sheets. FPL Energy provides Restricted trust funds for the payment of future expenditures certain services to the partnerships and joint ventures, including to decommission FPL's nuclear units are included in special use funds O&M and business management services. Operating revenues for of FPL. Securities held in the decommissioning funds are carried at the years ended December 31, 2001, 2000 and 1999 include market value with market adjustments resulting in a corresponding approximately $14 million, $15 million and $12 million, respectively, adjustment to the accumulated provision for nuclear decommissioning. related to such services. The receivables at December 31, 2001 and See Note 3 - Special Use Funds. Contributions to the funds are 2000 for these services, as well as payroll and other payments made based on current period decommissioning expense. Additionally, on behalf of these investments, were approximately $23 million and fund earnings, net of taxes are reinvested in the funds. The tax $20 million, respectively, and are included in other current assets on effects of amounts not yet recognized for tax purposes are included the consolidated balance sheets. For information regarding notes in accumulated deferred income taxes. receivable from these investments, see Note 3.

Accrual for Major Maintenance Costs - Consistent with regula Investments in Leveraged Leases - Subsidiaries of FPL Group tory treatment, FPL's estimated nuclear maintenance costs for each have investments in leveraged leases, which at December 31, 2001 nuclear unit's next planned outage are accrued over the period from and 2000, totaled $155 million and $154 million, respectively, and the end of the last outage to the end of the next planned outage. are included in other investments on the consolidated balance The accrual for nuclear maintenance costs at December 31, 2001 sheets. The related deferred tax liabilities totaled $135 million and and 2000 totaled $23 million and $31 million, respectively, and is $143 million at December 31, 2001 and 2000, respectively, and are included in other liabilities. Any difference between the estimated included in accumulated deferred income taxes.

and actual costs is included in O&M expenses when known.

FPL Energy's estimated major maintenance costs for each unit's Impairment of Long-Lived Assets - FPL Group evaluates on next planned outage are accrued over the period from the end of an ongoing basis the recoverability of its assets for impairment the last outage to the end of the next planned outage. The accrual whenever events or changes in circumstances indicate that the for FPL Energy's major maintenance costs totaled $28 million and carrying amount may not be recoverable as described in FAS 121,

$33 million at December 31, 2001 and 2000, respectively. Any "Accounting for the Impairment of Long-Lived Assets and for difference between the estimated and actual costs is included in Long-Lived Assets to be Disposed of." See Note 13.

O&M expenses when known.

Cash Equivalents - Cash equivalents consist of short-term, highly Construction Activity - In accordance with FPSC guidelines, FPL liquid investments with original maturities of three months or less.

has elected not to capitalize interest or a return on common equity on construction projects. The cost of these construction projects Retirement of Long-Term Debt - The excess of FPL's reacquisi is allowed as an element of rate base. FPL Group's unregulated tion cost over the book value of long-term debt is deferred and operations capitalize interest on construction projects. Capitalized amortized to expense ratably over the remaining life of the original interest amounted to $55 million, $23 million and $9 million in issue, which is consistent with its treatment in the ratemaking 2001, 2000 and 1999, respectively. process. See Regulation. FPL Group Capital Inc (FPL Group Capital) expenses this cost in the period incurred.

Storm Fund - The storm fund provides coverage toward storm damage costs and possible retrospective premium assessments stem Income Taxes - Deferred income taxes are provided on all signifi ming from a nuclear incident under the various insurance programs cant temporary differences between the financial statement and tax covering FPL's nuclear generating plants. Securities held in the fund bases of assets and liabilities. FPL Group's subsidiaries are included in are carried at market value with market adjustments resulting in a the consolidated federal income tax return and determine their income corresponding adjustment to the storm and property insurance tax provisions on the "separate return method." The deferred regula reserve. See Note 3 - Special Use Funds and Note 15 tory credit - income taxes of FPL represents the revenue equivalent of Insurance. Fund earnings, net of taxes, are reinvested in the fund. the difference in accumulated deferred income taxes computed under The tax effects of amounts not yet recognized for tax purposes are FAS 109, "Accounting for Income Taxes," as compared to regulatory included in accumulated deferred income taxes. For information accounting rules. This amount is being amortized in accordance with concerning FPL's request to the FPSC for an increase in contributions the regulatory treatment over the estimated lives of the assets or to the storm fund, see Revenues and Rates. liabilities which resulted in the initial recognition of the deferred tax amount. Investment tax credits (ITC) for FPL are deferred and amor Investments in Partnerships and Joint Ventures - FPL Energy tized to income over the approximate lives of the related property in has non-controlling non-majority owned interests in partnerships and accordance with the regulatory treatment. A valuation allowance is joint ventures, essentially all of which are accounted for under the recorded to reduce the carrying amounts of deferred tax assets unless equity method. At December 31, 2001 and 2000, FPL Energy's it is more likely than not that such assets will be realized.

FPL Group 2001 Annual Report / page 36 / FINANCIAL INFORMATION Energy Trading - FPL Energy engages in limited energy trading conducting the initial impairment test and is unable to estimate the activities to optimize the value of electricity and fuel contracts and generating facilities, as well as to take advantage of expected favor effect, if any, on the financial statements.

j able commodity price movements. These activities are accounted for Accounting for Asset Retirement Obligations - In August at market value. FPL Energy's unrealized net trading gains and losses 2001, the Financial Accounting Standards Board (FASB) issued FAS are recognized in other - net in the consolidated statements of 143, "Accounting for Asset Retirement Obligations." The statement income. FPL Energy's realized gains and losses from trading in requires that a liability for the fair value of an asset retirement obli financial instruments are recorded net in operating revenues and gation be recognized in the period in which it is incurred with the realized gains and losses from trading in physical power contracts offsetting associated asset retirement costs capitalized as part of the are recorded gross in operating revenues and fuel, purchased power carrying amount of the long-lived asset. The asset retirement cost is and interchange in the consolidated statements of income. subsequently allocated to expense using a systematic and rational method over its useful life. FPL and FPL Energy currently accrue for Goodwill and Other Intangible Assets - Effective January 1, asset retirement obligations over the life of the related asset through 2002, FPL Group adopted FAS 142, "Goodwill and Other Intangible depreciation and O&M expenses, respectively. At FPL, the net effect Assets." Under this statement, the amortization of goodwill is no of recording the full fair value of asset retirement obligations and the longer permitted. Instead, goodwill is assessed for impairment at least associated increase in assets pursuant to FAS 143 will, in accordance annually by applying a fair-value based test, with the initial impairment with regulatory treatment, be recorded as a regulatory asset.

test to be completed by June 30, 2002. FPL Group recorded approxi Management is in the process of evaluating the impact of imple mately $10 million in goodwill amortization expense in 2001. At menting FAS 143 and is unable to estimate the effect, if any, on the December 31, 2001, FPL Group had approximately $365 million of financial statements. FPL Group will be required to adopt FAS 143 goodwill recorded in other assets. Management is in the process of beginning in 2003. See Decommissioning and Dismantlement of Generating Plant.

2. Employee Retirement Benefits FPL Group and its subsidiaries sponsor a noncontributory defined benefit pension plan and defined benefit postretirement plans for health care and life insurance benefits (other benefits) for substantially all employees. The following tables provide a reconciliation of the changes in the plans' benefit obligations, fair value of assets and a statement of the funded status:

J3 (millions) Pension Benefits Other Benefits if 2000 ml 2000 Change in benefit obligation:

Obligation at October 1 of prior year $1,205 $1,178 $350 $ 335 Service cost 48 44 6 5 Interest cost 82 77 23 22 Participant contributions - - 1 1 Plan amendments 42 6 -

Actuarial (gains) losses- net 55 (20) 29 4 Benefit payments (79) (80) (22) (17)

Obligation at September 30 1,353 1,205 387 350 Change in plan assets:

Fair value of plan assets at October 1 of prior year 2,750 2,555 98 111 Actual return on plan assets (117) 284 (1) 7 Participant contributions - - 1 1 Benefit payments and expenses (87) (89) (24) (21)

Fair value of plan assets at September 30 2,546 2,750 74 98 Funded Status:

Funded status at September 30 1,193 1,545 (313) (252)

Unrecognized prior service cost (39) (76) -

Unrecognized transition (asset) obligation (70) (93) 38 42 Unrecognized (gain) loss (591) (993) 53 15 Prepaid (accrued) benefit cost at December 31 $ 493 $ 383 $(222) $(195) 3 1i I III

FINANCIAL INFORMATION / page 37 / FPL Group 2001 Annual Report The following table provides the components of net periodic benefit cost for the plans:

(millions) Pension Benefits Other Benefits Years Ended December 31, i 2000 1999 I m1m 2000 1999 Service cost $ 48 $44 $ 46 $ 6 $ 5 $ 6 Interest cost 82 77 71 24 21 21 Expected return on plan assets (185) (172) (156) (7) (7) (7)

Amortization of transition (asset) obligation (23) (23) (23) 3 4 3 Amortization of prior service cost 5 (7) (8) - -

Amortization of (gains) losses (37) (31) (22) - - 1 Effect of Maine acquisition - - - - - 2 Net periodic (benefit) cost $(110) $(112) $ (92) $26 $23 $26 The weighted-average discount rate used in determining the benefit obligations was 6.25% and 6.75% for 2001 and 2000, respectively.

The assumed level of increase in future compensation levels was 5.5% for all years. The expected long-term rate of return on plan assets was 7.75% for all years.

Based on the current discount rates and current health care costs (as related to other benefits), the projected 2002 trend assumptions used to measure the expected cost of benefits covered by the plans are 5.4% for persons up to age 65 and 5.2% thereafter. The rate is assumed to decrease over the next two years to the ultimate trend rate of 5% for all age groups and remain at that level thereafter.

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A 1% increase or decrease in assumed health care cost trend rates would have a corresponding effect on the service and interest cost components and the accumulated obligation of other benefits of approximately $1 million and $12 million, respectively.

3. Financial Instruments The carrying amounts of cash equivalents, commercial paper and note payable approximate fair values. At December 31, 2001 and 2000, other investments included financial instruments of approximately $600 million and $300 million, respectively, the majority of which consist of notes receivable that are carried at estimated fair value or cost, which approximates fair value. Notes receivable (long-and short-term) include s--' approximately $120 million and $160 million at December 31, 2001 and 2000, respectively, due from partnerships and joint ventures in which FPL Energy has an ownership interest. The notes receivable mature 2002-14 and the majority bear interest at variable rates, which ranged from 5.575% to 8.7% at December 31, 2001 and 7% to 11.66% at December 31, 2000. Interest income on these notes totaling approximately

$12 million, $13 million and $11 million for the years ended December 31, 2001, 2000 and 1999, respectively, is included in other- net in the consolidated statements of income. The associated receivables as of December 31, 2001 and 2000 were approximately $0.5 million and

$2 million, respectively, and are included in other current assets on the consolidated balance sheets.

The following estimates of the fair value of financial instruments have been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values.

(millions)

December 31, ORM0 2000 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt, including current maturities $4,890 $5,0801') $4,041 $4,08011)

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

Special Use Funds - The special use funds consist of storm fund assets totaling $145 million and $140 million, and nuclear decommissioning fund assets totaling $1.463 billion and $1.357 billion at December 31, 2001 and 2000, respectively. Securities held in the special use funds are carried at estimated fair value based on quoted market prices. The nuclear decommissioning fund consists of approximately 40% equity securities and 60% municipal, government, corporate and mortgage- and other asset-backed debt securities with a weighted-average maturity of approximately eight years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately five years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $30 million and approximate realized losses of $16 million in 2001, $8 million and $15 million in 2000 and $32 million and $22 million in 1999, respectively.

The funds had unrealized gains of approximately $208 million and $258 million at December 31, 2001 and 2000, respectively; the unrealized losses at those dates were approximately $9 million and $4 million. The proceeds from the sale of securities in 2001, 2000 and 1999 were approximately $1.8 billion, $2.0 billion and $2.7 billion, respectively.

.1 . ...

FPL Group 2001 Annual Report / page 38 / FINANCIAL INFORMATION

4. Common Stock Earnings per share - The reconciliation of basic and diluted earnings per share is shown below:

3 (millions,except pershare amounts)

Years Ended December 31, 06 2000 1999 Numerator (basic and assuming dilution):

Net income $ 781 $ 704 $ 697 Denominator:

Weighted-average number of shares outstanding - basic 168.7 169.9 171.3 Performance awards and options 0.2 0.3 0.2 Weighted-average number of shares outstanding - assuming dilution 168.9 170.2 171.5 Earnings per share:

Basic $ 4.63 $ 4.14 $ 4.07 Assuming dilution $ 4.62 $ 4.14 $ 4.07 Shares issuable upon the exercise of stock options, which were ESOP-related compensation expense of approximately not included in the denominator above due to their antidilutive $24 million, $22 million and $21 million in 2001, 2000 and 1999, effect, were 1.6 million in 2001, none in 2000 and 0.2 million respectively, was recognized based on the fair value of shares in 1999. allocated to employee accounts during the period. Interest income In February 2002, FPL Group issued publicly-traded equity units on the ESOP loan is eliminated in consolidation. ESOP-related which include a purchase contract that will be reflected in diluted unearned compensation included as a reduction of shareholders' earnings per share calculations using the treasury stock method. equity at December 31, 2001 was approximately $202 million, See Note 8. representing 7 million unallocated shares at the original issue price of $29 per share. The fair value of the ESOP-related unearned Common Stock Dividend Restrictions - FPL Group's charter does not limit the dividends that may be paid on its common stock.

As a practical matter, the ability of FPL Group to pay dividends on its compensation account using the closing price of FPL Group stock at December 31, 2001 was approximately $393 million. 3 common stock is dependent upon dividends paid to it by its sub Long-Term Incentive Plan -At December 31, 2001, approxi sidiaries, primarily FPL. FPL's charter and a mortgage securing FPL's mately 9 million shares of common stock are reserved and first mortgage bonds contain provisions that, under certain condi 8.7 million available for awards to officers and employees of FPL tions, restrict the payment of dividends and other distributions to Group and its subsidiaries under FPL Group's long-term incentive FPL Group. These restrictions do not currently limit FPL's ability to plan. Restricted stock is issued at market value at the date of grant, pay dividends to FPL Group. In 2001, 2000 and 1999, FPL paid, typically vests within four years and is subject to, among other as dividends to FPL Group, its net income available to FPL Group things, restrictions on transferability. Performance awards are on a one-month lag basis. typically payable at the end of a three- or four-year performance period and are subject to risk of forfeiture if the specified Employee Stock Ownership Plan (ESOP) - The employee performance criteria are not met within the vesting period.

thrift plans of FPL Group include a leveraged ESOP feature. Shares of common stock held by the Trust for the thrift plans (Trust) are used to provide all or a portion of the employers' matching contributions.

Dividends received on all shares, along with cash contributions from the employers, are used to pay principal and interest on an ESOP loan held by FPL Group Capital. Dividends on shares allocated to employee accounts and used by the Trust for debt service are replaced with an equivalent amount of shares of common stock at prevailing market prices.

III

FINANCIAL INFORMATION / page 39 / FPL Group 2001 Annual Report The changes in awards under the incentive plan are as follows:

Optionsl'l Restricted Performance Weighted-Average Stock Awards' Number Exercise Price Balances, December 31, 1998 216,800 510,620 Granted 210,100-a 294,662r1 1,300,000- $51.53 Paid/released - (78,640) -

Forfeited (13,500) (80,027) (200,000) $51.16 Balances, December 31, 1999 413,400 646,615 1,100,000 $51.59 Granted 28, 3 5011 465,614r1 564,950($96 $39.64 Paid/released/exercised (264,800) (1,038,375) (1,060,726) $49.88 Forfeited (95,700) (54,854) (212,056) $50.51 Balances, December 31, 2000 81,250 19,000 392,168 $39.58 Granted 263,825* 617,420(l 2,009,200(0$ $62.04 Paid/released/exercised (6,600) (41,492) (120,380) $39.01 Forfeited (30,750) (49,849) (137,174) $62.61 Balances, December 31, 2001 307,725 545,079 2,143,814-$. $59.19 (a)Performance awardsand options resulted in 169,621, 373,431 and 252,572 assumed incrementalshares of common stock outstanding for purposes of computing diluted earningsper share in 2001, 2000 and 1999, respectively.

(b) The weighted-averagegrantdate fair value of restrictedstock granted in 2001, 2000 and 1999 was $60.19, $45.55 and $53.21 per share, respectively.

(c) The weighted-averagegrantdate fair value of performanceawards in 2001, 2000 and 1999 was $70.25, $41.25 and $61.19 pershare, respectively.

(d)The exercise price of each option granted in 2001, 2000 and 1999 equaled the market price of FPL Group stock on the date of grant.

(e)Of the options outstandingat December 31, 2001, 271,514 options were exercisable and had an exercise price ranging from $38.13 to $47.63 per share with a weighted-averageexercise price of $39.83 per share and a weighted-average remaining contractuallife of 8.2 years. The remainder of the outstanding options had exercise prices rangingfrom $54.00 to $65.13 per share with a weighted-averageexercise price of $61.99 pershare and a weighted-average remaining contractuallife of 9.3 years.

FAS 123, "Accounting for Stock-Based Compensation," encourages a fair value based method of accounting for stock-based compensation.

FPL Group, however, uses the intrinsic value based method of accounting as permitted by the statement. Stock-based compensation expense was approximately $22 million, $80 million and $13 million in 2001, 2000 and 1999, respectively. Stock-based compensation expense in 2000 reflects merger-related costs associated with the change in control provisions in FPL Group's long-term incentive plan. Compensation expense for restricted stock and performance shares is the same under the fair value and the intrinsic value based methods. Had compensation expense for the options been determined as prescribed by the fair value based method, net income and earnings per share would have been $775 million and $4.60 ($4.59 assuming dilution) in 2001, $696 million and $4.10 ($4.09 assuming dilution) in 2000 and $696 million and $4.06 (basic and assuming dilution) in 1999, respectively.

The fair value of the options granted in 2001, 2000 and 1999 were estimated on the date of the grant using the Black-Scholes option pricing model with a weighted-average expected dividend yield of 4.23%, 3.82% and 3.81%, a weighted-average expected volatility of 19.01%,

20.27% and 17.88%, a weighted-average risk-free interest rate of 4.98%, 6.59% and 5.46% and a weighted-average expected term of 7 years, 10 years and 9.3 years, respectively.

Other - Each share of common stock has been granted a Preferred Share Purchase Right (Right), at an exercise price of $120, subject to adjustment, in the event of certain attempted business combinations. The Rights will cause substantial dilution to a person or group attempting to acquire FPL Group on terms not approved by FPL Group's board of directors.

5. Accounting for Derivative Instruments Effective January 1, 2001, FPL Group adopted FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by FAS 137 and 138 (collectively, FAS 133). As a result, beginning in January 2001, derivative instruments are recorded on the balance sheets as either an asset or liability (in other current assets, other assets, other current liabilities and other liabilities) measured at fair value. FPL Group uses derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in fuel purchases and electricity sales, as well as to optimize the value of power generation assets.

At FPL, changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses will be passed through the fuel clause and the capacity cost recovery clause (capacity clause).

FPL Group 2001 Annual Report / page 40 / FINANCIAL INFORMATION For FPL Group's unregulated operations, predominantly FPL Energy, changes in the derivatives' fair value are recognized currently in earnings (in other-net) unless hedge accounting is applied. While substantially all of FPL Energy's derivative transactions are entered into for the purposes described above, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge account ing, the transaction must be designated as a hedge and it must be highly effective. The hedging instrument's effectiveness is assessed utilizing regression analysis at the inception of the hedge and on at least a quarterly basis throughout its life. Hedges are considered highly effective when a correlation coefficient of .8 or higher is achieved. Substantially all of the transactions that FPL Group has designated as hedges are cash flow hedges which have expiration dates through December 2005. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. The ineffective portion of these hedges flows through earnings in the current period. Settlement gains and losses are included within the line items in the statements of income to which they relate.

In January 2001, FPL Group recorded in other-net a $2 million loss as the cumulative effect on earnings of a change in accounting principle representing the effect of those derivative instruments for which hedge accounting was not applied. For those contracts where hedge accounting was applied, the adoption of the new rules resulted in a credit of approximately $10 million to other comprehensive income.

During 2001, the FASB discussed and, from time to time throughout the year, issued guidance regarding when certain contracts for the purchase and sale of power and certain fuel supply contracts can be excluded from the provisions of FAS 133. In December 2001, final guidance on these issues was released and will be effective beginning April 1, 2002. Management is in the process of evaluating the new guidance and is unable to estimate the effects, if any, on the financial statements. One possible result of management's evaluation could be that certain of these contracts will have to be recorded on the balance sheet at fair value, with changes in fair value recorded in the income statement each reporting period.

6. Comprehensive Income The following table provides the components of comprehensive income and accumulated other comprehensive income (loss):

Accumulated Other Comprehensive Income (Loss)

Net Unrealized Gains (Losses)

On Cash Flow Comprehensive (millions) Net Income Hedges Other Total Income Balances, December 31, 1998 $- $ 1 $ 1 Net income $697 $697 Net unrealized loss on securities (net of $1 tax benefit) - (2) (2) (2)

Balances, December 31, 1999 - (1) (1) $695 Net income $704 $704 Net unrealized gain on securities (net of $1 tax expense) - 1 1 1 Balances, December 31, 2000 - - - $705 Net income $781 $781 Net unrealized loss on cash flow hedges:

FAS 133 transition adjustment (net of $6 tax expense) 10 - 10 10 Net unrealized loss (net of $13 tax benefit) (21) - (21) (21)

Reclassification adjustment (net of $2 tax expense) 3 - 3 3 Balances, December 31, 2001 $ (8) $- $ (8) $773 5'

ItiIIt

FINANCIAL INFORMATION / page 41 / FPL Group 2001 Annual Report

7. Preferred Stock FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, $0.01 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)

Shares Redemption December 31, Outstanding Price 2000 L - - B-Cumulative, $100 Par Value, without sinking fund requirements, authorized 15,822,500 shares:

43% Series 100,000 $101.00 $ 10 $ 10 41/2% Series A 50,000 $101.00 5 5 4X% Series B 50,000 $101.00 5 5 4%% Series C 62,500 $103.00 6 6 4.32% Series D 50,000 $103.50 5 5 4.35% Series E 50,000 $102.00 5 5 6.98% Series S 750,000 $103.49b 75 75 7.05% Series T 500,000 $103.52 50 50 6.75% Series U 650,000 $103.371 65 65 Total preferred stock of FPL 1 2,262,500 $226 $226 (a) FPL's charter also authorizes the issuance of 5 million shares of subordinatedpreferredstock, no par value.

None of these sharesis outstanding. There were no issuances or redemptionsof preferredstock in 2001, 2000 or 7999.

(b) Not callableprior to 2003.

8. Debt Long-term debt consists of the following:

(millions)

December 31, as 2000 FPL:

First mortgage bonds:

Maturing through 2005 - 6%% to 6%% $ 725 $ 725 Maturing 2008 through 2016 - 5%% to 7.3% 650 650 Maturing 2023 through 2026 - 7% to 7Y4% 516 516 Medium-term notes - maturing 2003 - 5.79% 70 70 Pollution control and industrial development series maturing 2023 through 2027 - 6.7% to 7.5% 24 41 Pollution control, solid waste disposal and industrial development revenue bonds maturing 2020 through 2029 - variable, 2.8% and 3.4% average annual interest rates, respectively 609 658 Unamortized discount (15) (18)

Total long-term debt of FPL 2,579 2,642 Less current maturities, included in other current liabilities -- 65 Long-term debt of FPL, excluding current maturities 2,579 2,577 FPL Group Capital:

Debentures - maturing 2004 through 2009 - 6Y6% to 7s6% 1,900 1,400 Other long-term debt - maturing 2013 - 7.35% 5 5 Unamortized discount (8) (6)

Total long-term debt of FPL Group Capital 1,897 1,399 FPL Energy:

Senior secured bonds - maturing 2019 - 7.52% 414 Less current maturities, included in other current liabilities 32 Long-term debt of FPL Energy, excluding current maturities 382 Total long-term debt $4,858 $3,976

FPL Group 2001 Annual Report / page 42 / FINANCIAL INFORMATION Minimum annual maturities of long-term debt are approximately A reconciliation between the effective income tax rates and the

$32 million, $205 million, $337 million, $541 million and $635 million for 2002, 2003, 2004, 2005 and 2006, respectively.

applicable statutory rates is as follows:

J At December 31, 2001, commercial paper borrowings and Years Ended December 31, IM 2000 1999 the note payable, had a weighted-average interest rate of 2.19%.

Statutory federal income tax rate 35.0% 35.0% 35.0%

Available lines of credit aggregated $3 billion ($2 billion for FPL Increases (reductions) resulting from:

Group Capital and $1 billion for FPL) at December 31, 2001, all State income taxes - net of federal of which were based on firm commitments.

income tax benefit 2.5 3.5 2.4 In February 2002, FPL Group sold a total of 11.5 million Amortization of ITC (1.9) (2.1) (2.1) publicly-traded equity units known as Corporate Units, and in con Production tax credits - FPL Energy (2.3) (1.3) (0.8) nection with that financing, FPL Group Capital issued $575 million Amortization of deferred principal amount of 4.75% debentures due February 16, 2007. The regulatory credit - income taxes (1.0) (1.2) (1.3) interest rate on the debentures is expected to be reset on or after Adjustments of prior years' tax matters (0.8) (2.7) (2.7)

November 16, 2004. Payment of FPL Group Capital debentures is Preferred stock dividends - FPL 0.5 0.5 0.5 absolutely, irrevocably and unconditionally guaranteed by FPL Group.

Other - net 0.7 0.6 0.6 Each Corporate Unit initially consisted of a $50 FPL Group Capital Effective income tax rate 32.7% 32.3% 31.6%

debenture and a purchase contract pursuant to which the holder will purchase $50 of FPL Group common shares on or before February The income tax effects of temporary differences giving rise to 16, 2005, and FPL Group will make payments of 3.75% of the unit's consolidated deferred income tax liabilities and assets are as follows:

$50 stated value until the shares are purchased. Under the terms of the purchase contracts, FPL Group will issue between 9,271,300 and (millions) 10,939,950 shares of common stock in connection with the settle December 31,

• 2000 ment of the purchase contracts (subject to adjustment in certain Deferred tax liabilities:

circumstances). Prior to the issuance of FPL Group's common stock, Property-related $1,294 $1,338 the purchase contracts will be reflected in diluted earnings per share Investment-related 466 398 calculations using the treasury stock method. Under this method, the Other 545 630 number of shares of FPL Group common stock used in calculating Total deferred tax liabilities 2,305 2,366 diluted earnings per share is deemed to be increased by the excess, Deferred tax assets and valuation allowance:

if any, of the number of shares that would be issued upon settlement Asset writedowns and capital of the purchase contracts less the number of shares that could be loss carryforward 159 156 purchased by FPL Group in the market, at the average market price Unamortized ITC and deferred during the period, using the proceeds receivable upon settlement.

regulatory credit - income taxes 88 104 Consequently, FPL Group anticipates that there will not be a dilutive Storm and decommissioning reserves 292 277 effect on its earnings per share except during periods when the Other 489 474 average market price of its common stock is above $62.02.

Valuation allowance (25) (23)

Net deferred tax assets 1,003 988

9. Income Taxes Accumulated deferred income taxes $1,302 $1,378 The components of income taxes are as follows:

The carryforward period for a capital loss from the disposition (millions) in a prior year of an FPL Group Capital subsidiary expired at the Years Ended December 31, ' 2000 1999 end of 1996. The amount of the deductible loss from this disposition Federal:

was limited by Internal Revenue Service (IRS) rules. FPL Group is Current $432 $ 77 $ 511 challenging the IRS loss limitation and the IRS is disputing certain Deferred (49) 239 (196) other positions taken by FPL Group. Tax benefits, if any, associated ITC and other- net (49) (35) (29) with these matters will be reported in future periods when resolved.

Total federal 334 281 286 For subsequent events, see Note 18 - Income Taxes.

State:

Current 55 6 55 Deferred (10) 49 (18)

Total state 45 55 37 Total income taxes $379 $336 $ 323 U

1i III

FINANCIAL INFORMATION / page 43 / FPL Group 2001 Annual Report

10. Jointly-Owned Electric Utility Plant 13. Acquisition of Maine Assets FPL owns approximately 85% of St. Lucie Unit No. 2, 20% of the In 1999, FPL Energy completed the purchase of Central Maine St. Johns River Power Park units and coal terminal and approximately Power Company's (CMP) non-nuclear generating assets, primarily 76% of Scherer Unit No. 4. At December 31, 2001, the proportionate fossil and hydro power plants, for $866 million. The purchase price share of FPL's gross investment in these units was $1.171 billion, $328 was based on an agreement, subject to regulatory approvals, million and $566 million, respectively; accumulated depreciation was reached with CMP in January 1998. In October 1998, the FERC

$793 million, $178 million and $308 million, respectively. struck down transmission rules that had been in effect in New FPL is responsible for its share of the operating costs, as well England since the 1970s. FPL Energy filed a lawsuit in November as providing its own financing. These costs are included in the 1998 requesting a declaratory judgment that CMP could not meet consolidated statements of income. At December 31, 2001, there the essential terms of the purchase agreement and, as a result, FPL was no significant balance of construction work in progress on Energy should not be required to complete the transaction. FPL these facilities. See Note 15 - Litigation. Energy believed these FERC rulings regarding transmission constitut ed a material adverse effect under the purchase agreement because

11. Merger of the significant decline in the value of the assets caused by the In July 2000, FPL Group and Entergy Corporation (Entergy) rulings. The request for declaratory judgment was denied in 1999 announced a proposed merger, which was approved by the and the acquisition was completed. The acquisition was accounted shareholders of the respective companies in December 2000. for under the purchase method of accounting, and the results of Subsequently, a number of factors led FPL Group to conclude the operating the Maine plants have been included in the consolidated merger would not achieve the synergies or create the shareholder financial statements since the acquisition date.

value originally contemplated when the merger was announced. The FERC rulings regarding transmission, as well as the As a result, on April 1, 2001, FPL Group and Entergy mutually announcement of new entrants into the market and changes in fuel terminated the merger agreement. Both companies agreed that no prices since January 1998, resulted in FPL Energy recording a $176 termination fee is payable under the terms of the merger agreement million pre-tax impairment loss to write down the fossil assets to as a result of this termination. Each company will bear its own their fair value, which was determined based on a discounted cash merger-related expenses. flow analysis. The impairment loss reduced 1999 results of opera FPL Group recorded $30 million and $67 million in merger tions and earnings per share by $104 million and $0.61 per share, related expenses in 2001 and 2000, respectively, of which FPL respectively.

recorded $26 million ($16 million after-tax) and $62 million Most of the remainder of the purchase price was allocated to

($38 million after-tax). FPL Energy recorded $2 million ($1 million the hydro operations. The hydro plants and related goodwill are after-tax) in 2000 and Corporate and Other recorded $4 million being amortized on a straight-line basis over the 40-year term of the

($3 million after-tax) and $3 million ($2 million after-tax) in 2001 hydro plant operating licenses. See Note 1 - Goodwill and Other and 2000, respectively. Intangible Assets.

12. Settlement of Litigation 14. Divestiture of Cable Investments In October 1999, FPL and the Florida Municipal Power Agency In January 1999, an FPL Group Capital subsidiary sold 3.5 (FMPA) entered into a settlement agreement pursuant to which FPL million common shares of Adelphia Communications Corporation agreed to pay FMPA a cash settlement; FPL agreed to reduce the stock and in October 1999 had its one-third ownership interest in demand charge on an existing power purchase agreement; and FPL a cable limited partnership redeemed, resulting in after-tax gains and FMPA agreed to enter into a new power purchase agreement of approximately $96 million and $66 million, respectively. Both giving FMPA the right to purchase limited amounts of power in the investments had been accounted for under the equity method.

future at a specified price. FMPA agreed to dismiss the lawsuit with prejudice, and both parties agreed to exchange mutual releases. The 15. Commitments and Contingencies settlement reduced 1999 net income by $42 million. Commitments - FPL has made commitments in connection with a In September 2000, a bankruptcy court approved the settlement portion of its projected capital expenditures. Capital expenditures for of a contract dispute between FPL and two qualifying facilities. The the construction or acquisition of additional facilities and equipment settlement was approved by the FPSC in October 2000. In December to meet customer demand are estimated to be approximately $4.4 2000, under the terms of the settlement, the trustee was paid $222.5 billion for 2002 through 2004, including approximately $1.3 billion million plus security deposits. The funds were subsequently distributed for 2002. At December 31, 2001, FPL Energy has made commitments by the trustee as directed by the bankruptcy court. FPL will recover the in connection with the development and expansion of independent cost of the settlement through the fuel and capacity clauses over a power projects totaling approximately $828 million. At December five-year period beginning January 1, 2002. Also, from the payment 31, 2001, subsidiaries of FPL Group, other than FPL, have guaran date to December 31, 2001, FPL did not receive a return on the unre teed approximately $966 million of lease obligations, prompt covered amount through the fuel and capacity clauses, but instead, performance payments, purchase and sale of power and fuel the settlement amount was included as a rate base regulatory asset agreement obligations, debt service payments and other payments over that period. See Note 1 - Regulation. subject to certain contingencies.

FPL Group 2001 Annual Report / page 44 / FINANCIAL INFORMATION Off-Balance Sheet Financing Arrangements - In 2000, an FPL costs incurred to date. At any time during the construction period, FPL Energy subsidiary entered into an operating lease agreement with a special purpose entity (SPE) lessor to lease a 535 megawatt (mw)

Energy may purchase any equipment for 100% of payments made to date by the SPE to the equipment vendors. Upon completion of each U

combined-cycle power generation plant. At the inception of the item of equipment, FPL Energy may choose to purchase the equipment, lease, the lessor obtained the funding commitments required to remarket the equipment to another party or continue under the operat complete the acquisition, development and construction of the plant ing lease agreement to lease the equipment for the remainder of the through debt and equity contributions from investors who are not five year term. The minimum annual lease payments are estimated to affiliated with FPL Group. At December 31, 2001 and 2000, the be $1 million, $6 million, $8 million, $7 million and $2 million for 2002, lessor had drawn $298 million and $127 million, respectively, on a 2003, 2004, 2005 and 2006, respectively. If FPL Energy chooses to

$425 million total commitment. Construction is expected to be continue the lease, and does not choose to purchase the equipment at completed in the third quarter of 2002. The FPL Energy subsidiary is the end of the lease term, the FPL Energy subsidiary is subject to a acting as the lessor's agent to construct the plant and, upon comple residual value guarantee payment of 84% of the equipment cost. FPL tion, will lease the plant for a term of five years. Generally, if the FPL Group Capital has guaranteed the FPL Energy subsidiary's obligations Energy subsidiary defaults during the construction period on its obli under the agreement, which are included in the $966 million of guar gations under the agreement, a residual value guarantee payment antees discussed above. The equity holder controls the lessor. The lessor equal to 89.9% of lessor capitalized costs incurred to date must be has represented that it has essentially no assets or obligations other made by the FPL Energy subsidiary. However, under certain limited than the equipment under construction and the related debt and that events of default during the construction period and the post total assets, total liabilities and equity of the SPE at December 31, 2001 construction lease term, the FPL Energy subsidiary can be required were $41.7 million, $40.4 million and $1.3 million, respectively.

to purchase the plant for 100% of costs incurred to date. Once construction is complete, the FPL Energy subsidiary is required to Insurance - Liability for accidents at nuclear power plants is make rent payments in amounts intended to cover the lessor's debt governed by the Price-Anderson Act, which limits the liability of service, a stated yield to equity holders and certain other costs; these nuclear reactor owners to the amount of the insurance available payments are estimated to be $3 million in 2002, $13 million in each from private sources and under an industry retrospective payment of the years 2003-06 and $10 million thereafter. The FPL Energy plan. In accordance with this Act, FPL maintains $200 million of subsidiary has the option to purchase the plant for 100% of costs incurred to date at any time during construction or the remaining lease term. If the FPL Energy subsidiary does not elect to purchase private liability insurance, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $363 million per U

the plant at the end of the lease term, a residual value guarantee incident at any nuclear utility reactor in the United States, payable (equal to 85% of total costs) must be paid and the plant will be at a rate not to exceed $43 million per incident per year.

sold. Any proceeds received by the lessor in excess of the outstand FPL participates in nuclear insurance mutual companies that pro ing debt and equity will be given to the FPL Energy subsidiary. FPL vide $2.75 billion of limited insurance coverage for property damage, Group Capital has guaranteed the FPL Energy subsidiary's obligations decontamination and premature decommissioning risks at its nuclear under the lease agreement, which are included in the $966 million plants. The proceeds from such insurance, however, must first be used of guarantees discussed above. Additionally, at December 31, 2001, for reactor stabilization and site decontamination before they can be FPL Energy has posted cash collateral related to this transaction of used for plant repair. FPL also participates in an insurance program

$256 million (included in other assets on the consolidated balance that provides limited coverage for replacement power costs if a nuclear sheets). The equity holder controls the lessor. The lessor has repre plant is out of service because of an accident. In the event of an acci sented that it has essentially no assets or obligations other than the dent at one of FPL's or another participating insured's nuclear plants, plant under construction and the related debt and that total assets, FPL could be assessed up to $71 million in retrospective premiums.

total liabilities and equity of the lessor at December 31, 2001 were In the event of a catastrophic loss at one of FPUs nuclear plants,

$307 million, $296 million and $11 million, respectively. the amount of insurance available may not be adequate to cover Also in 2000, another FPL Energy subsidiary entered into an property damage and other expenses incurred. Uninsured losses, to the operating lease agreement with an SPE related to the construction of extent not recovered through rates, would be borne by FPL and could certain turbines and related equipment (equipment). At the inception have a material adverse effect on FPL Group's financial condition.

of the lease, the SPE arranged a total credit facility of $650 million to FPL self-insures the majority of its transmission and distribution be funded through debt and equity contributions from investors who (T&D) property due to the high cost and limited coverage available are not affiliated with FPL Group. At December 31, 2001 and 2000, from third-party insurers. As approved by the FPSC, FPL maintains the amounts outstanding under the facility were $42 million and $14 a funded storm and property insurance reserve, which totaled million, respectively. Generally, if the FPL Energy subsidiary defaults approximately $235 million at December 31, 2001, for uninsured during the construction period on its obligations under the agreement, property storm damage or assessments under the nuclear insurance a residual value guarantee payment equal to 89.9% of costs incurred program. Recovery from customers of any losses in excess of the to date must be made by the FPL Energy subsidiary. However, under storm and property insurance reserve will require the approval of certain limited events of default, the FPL Energy subsidiary can be the FPSC. FPL's available lines of credit provide additional liquidity required to purchase all equipment then in the facility for 100% of in the event of a T&D property loss. See Note 8.

lI III

FINANCIAL INFORMATION / page 45 / FPL Group 2001 Annual Report Contracts - FPL Group has a long-term agreement for the supply of gas turbines through 2004 and for parts, repairs and on-site services S. through 2011, some of which have been assigned to the SPE that is funding the construction of turbines. See Off-Balance Sheet Financing Arrangements. In addition, FPL Energy has entered into various engineering, procurement and construction contracts to support its development activities through 2004. All of these contracts are intended to support expansion, primarily at FPL Energy, and the related commitments are included in Commitments above.

FPL has entered into long-term purchased power and fuel contracts. Take-or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of The Southern Company (Southern Companies) provide approximately 1,300 mw of power through mid-2010 and 388 mw thereafter through 2021. FPL also has various firm pay-for-performance contracts to purchase approximately 900 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts and the Southern Companies' contract is subject to minimum quantities. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. In 2001, FPL entered into agreements with several electricity suppliers to purchase an aggregate of up to approximately 1,300 mw of power with expiration dates ranging from 2003 through 2007. In general, the agreements require FPL to make capacity payments and supply the fuel consumed by the plants under the contracts. FPL has medium- to long-term contracts for the transportation and supply of natural gas, coal and oil with various expiration dates through 2022. FPL Energy has long-term contracts for the transportation and supply of natural gas with expiration dates ranging from 2005 through 2017, and a contract for the supply of natural gas that expires in mid-2002.

The required capacity and minimum payments through 2006 under these contracts are estimated to be as follows:

(millions) 2002 2003 2004 2005 2006 FPL:

Capacity payments:

JEA and Southern Companies $190 $190 $190 $190 $200 Qualifying facilities $340 $350 $360 $360 $310 Other electricity suppliers $ 80 $100 $100 $ 45 $ 35 Minimum payments, at projected prices:

Southern Companies - energy $ 50 $ 60 $ 50 $ 60 $ 60 "Naturalgas, including transportation $580 $240 $200 $200 $180 Coal $ 40 $ 25 $ 15 $ 15 $ 10 Oil $375 $ - $ - $ - $

FPL Energy:

Natural gas transportation $ 20 $ 20 $ 15 $ 15 $ 15 Charges under these contracts were as follows:

Ii (millions) Isig W4 - 2000 Charges 1999 Charges Energy/ Energy/ Energy/

Capacity Fuel Capacity Fuel Capacity Fuel FPL:

JEA and Southern Companies $19711) $1691 $198("1 $153- $18611) $1321' Qualifying facilities $314"' $124"b $318" $135"b $31911 $121"'

Other electricity suppliers $ 25" $ 6( $ - $ - $ - $

Natural gas, including transportation $ - $7631b $ - $567b $ - $373"'

Coal $ - $ 49b $ -- $ 50b $ - $ 43" Oil $ - $294"b $ - $354) $ - $115(w FPL Energy:

Natural gas, including transportation and storage $ - $ 17 $ - $ 17 $ - $ 16 (a) Recoverable through base rates and the capacity clause.

(b) Recoverable through the fuel clause.

(c) Recoverable through the capacity clause.

FPL Group 2001 Annual Report / page 46 / FINANCIAL INFORMATION Litigation - In 1999, the Attorney General of the United States, the partnerships entered into an agreement that provides, among on behalf of the U.S. Environmental Protection Agency (EPA),

brought an action against Georgia Power Company and other other things, that SCE and the partnerships will take all necessary steps to suspend or stay, during a specified period of time, the U

subsidiaries of The Southern Company for certain alleged violations proceeding initiated by the petition. The agreement is conditioned of the Clean Air Act. In May 2001, the EPA amended its complaint. upon, among other things, completion of SCE's financing plan.

The amended complaint alleges, among other things, that Georgia The agreement provides that, if the conditions of the agreement are Power Company constructed and is continuing to operate Scherer satisfied, then SCE and each of the partnerships agree to release and Unit No. 4, in which FPL owns a 76% interest, without obtaining discharge each other from any and all claims of any kind arising from proper permitting, and without complying with performance and either parties' performance under the power purchase agreements.

technology standards as required by the Clean Air Act. It also alleges Such a release would include release of the claim made by SCE in that unspecified major modifications have been made at Scherer Unit the petition for refunds with respect to past usage. For subsequent No. 4 that require its compliance with the aforementioned Clean Air events, see Note 18- Litigation.

Act provisions. The EPA seeks injunctive relief requiring the installa In 2001, J. W. and Ernestine M. Thomas, Chester and Marie tion of best available control technology and civil penalties of up to Jenkins, and Ray Norman and Jack Teague, as Co-Personal

$25,000 per day for each violation from an unspecified date after Representatives on behalf of the Estate of Robert L. Johns, filed suit June 1, 1975 through January 30, 1997, and $27,500 per day for against FPL Group, FPL, FPL FiberNet LLC, FPL Group Capital and FPL each violation thereafter. Georgia Power Company has answered the Investments, Inc. in the Florida circuit court. This action is purported amended complaint, asserting that it has complied with all require ly on behalf of all property owners in Florida (excluding railroad and ments of the Clean Air Act, denying the plaintiff's allegations of public rights of way) whose property is encumbered by easements liability, denying that the plaintiff is entitled to any of the relief that in favor of defendants, and on whose property defendants have it seeks and raising various other defenses. In June 2001, a federal installed or intend to install fiber-optic cable which defendants district court stayed discovery and administratively closed the case currently lease, license or convey or intend to lease, license or convey pending resolution of the EPA's motion for consolidation of discovery for non-electric transmission or distribution purposes. The lawsuit in several Clean Air Act cases that was filed with a Multi-District alleges that FPL's easements do not permit the installation and use of Litigation (MDL) panel. In August 2001, the MDL panel denied the fiber-optic cable for general communication purposes. The plaintiffs motion for consolidation. In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery.

have asserted claims for unlawful detainer, unjust enrichment and constructive trust and seek injunctive relief and compensatory U Georgia Power Company has opposed that motion asking that the damages. In December 2001, all defendants filed a motion to case remain closed until the Eleventh Circuit Court of Appeals rules dismiss the complaint for, among other things, the failure to state on the Tennessee Valley Authority's appeal of an EPA administrative a valid cause of action.

order relating to legal issues that are also central to this case. In January 2002, Roy Oorbeek and Richard Berman filed suit The federal district court has not yet ruled upon the EPA's motion against FPL Group (as an individual and nominal defendant); its to reopen. current and certain former directors; and certain current and former In 2000, Southern California Edison Company (SCE) filed with officers of FPL Group and FPL, including James L. Broadhead, Lewis the FERC a Petition for Declaratory Order (petition) asking the FERC Hay III,Dennis P. Coyle, Paul J. Evanson and Lawrence J. Kelleher.

to apply a November 1999 federal circuit court of appeals' decision The lawsuit alleges that the proxy statements relating to shareholder to all qualifying small power production facilities, including two solar approval of FPL Group's Long Term Incentive Plan (LTIP) and its facilities operated by partnerships indirectly owned in part by FPL proposed, but unconsummated, merger with Entergy were false and Energy (the partnerships) which have power purchase agreements misleading because they did not affirmatively state that payments with SCE. The federal circuit court of appeals' decision invalidated made to certain officers under FPL Group's LTIP upon shareholder the FERC's so-called essential fixed assets standard, which permitted approval of the merger would be retained by the officers even if the uses of fossil fuels by qualifying small power production facilities merger with Entergy was not consummated and did not state that beyond those expressly set forth in PURPA. The petition requests that under some circumstances payments made pursuant to FPL Group's the FERC declare that qualifying small power production facilities LTIP might not be deductible by FPL Group for federal income may not continue to use fossil fuel under the essential fixed assets tax purposes. It also alleges that FPL Group's LTIP required either standard and that they may be required to make refunds with consummation of the merger as a condition to the payments or respect to past usage. In August 2000, the partnerships filed motions the return of the payments if the transaction did not close, and that to intervene and protest before the FERC, vigorously objecting to the the actions of the director defendants in approving the proxy state position taken by SCE in its petition. The partnerships contend that ments, causing the payments to be made, and failing to demand they have always operated the solar facilities in accordance with their return constitute corporate waste. The plaintiffs seek to have certification orders issued to them by the FERC. Such orders were the shareholder votes approving FPL Group's LTIP and the merger neither challenged nor appealed at the time they were granted, and declared null and void, the return to FPL Group of the payments it is the position of the partnerships that the orders remain in effect. received by the officers, compensatory damages from the individual Briefing in this proceeding is complete and the parties are currently defendants and attorneys' fees. The defendants intend to file a awaiting a final determination from the FERC. In June 2001, SCE and motion to dismiss the complaint or stay the proceeding for failure to I II

FINANCIAL INFORMATION / page 47 / FPL Group 2001 Annual Report make a demand, as required by the Florida Business Corporation Act, that the board of directors of FPL Group take action with respect to the matters alleged in the complaint. FPL Group's board of directors has established a special committee to investigate a demand by another share holder that the board take action to obtain the return of the payments made to the officers.

FPL Group believes that it has meritorious defenses to the pending litigation discussed above and is vigorously defending the suits.

Accordingly, management believes the liabilities, if any, arising from the proceedings are not anticipated to have a material adverse effect on their financial statements.

16. Segment Information FPL Group's reportable segments include FPL, a rate-regulated utility, and FPL Energy, a non-rate regulated energy generating subsidiary.

Corporate and Other represents other business activities, other segments that are not separately reportable and eliminating entries. Operating revenues derived from the sale of electricity represented approximately 97%, 97% and 98% of FPL Group's operating revenues in 2001, 2000 and 1999, respectively. Less than 1% of operating revenues were from foreign sources for each of the three years ended December 31, 2001.

At December 31, 2001 and 2000, less than 1% of long-lived assets were located in foreign countries.

Segment information is as follows:

(millions) 1ol20 (milios)2000 1999 I Corp. I Corp. Corp.

FPL and FPL and FPL and FPL Energya) Other Total FPL Energy('" Other Total FPL Energy"* Other Total Operating revenues $ 7,477 $ 869 $129 $ 8,475 $ 6,361 $ 632 $ 89 $ 7,082 $ 6,057 $ 323 $ 58 $ 6,438 Interest charges $ 187 $ 74 $ 63 $ 324 $ 176 $ 67 $ 35 $ 278 $ 163 $ 44 $ 15 $ 222 Depreciation and amortization $ 898 $ 77 $ 8 $ 983 $ 975 $ 50 $ 7 $ 1,032 $ 989 $ 34 $ 17 $ 1,040 Equity in earnings of equity method investees $ - $ 81 $ - $ 81 $ - $ 45 $ - $ 45 $ - $ 50 $ - $ 50 Income tax expense (benefit) $ 383 $ 25 $(29) $ 379 $ 341 $ 36 $ (41) $ 336 $ 324 $ (42) $ 41 $ 323 Net income (loss)"'I $ 679 $ 113- $(11) $ 781 $ 607 $ 82 $ 15 $ 704 $ 576 $ (46) $167 $ 697 Significant noncash items $ 70 $ - $ - $ 70 $ (57) $ - $100 $ 43 $ 86 $ - $ - $ 86 Capital expenditures and investments $ 1,154 $1,977 $131 $ 3,262 $ 1,299 $ 507 $ 90 $ 1,896 $ 924 $1,540 $ 15 $ 2,479 Total assets $11,924 $4,957 $582 $17,463 $12,020 $2,679 $601 $15,300 $10,608 $2,212 $621 $13,441 Investment in equity method investees $ - $ 276 $ - $ 276 $ - $ 196 $ - $ 196 $ - $ 166 $ $ 166 (a) FPL Energy's interestcharges are based on an assumed capital structure of 50% debt for operatingprojects and 100% debt for projects under construction.

(b) includes merger-relatedexpense recognized in 2001 and 2000 totaling $19 million after-tax and $41 million after-tax, respectively, of which $16 million and $38 million was recognized by FPL, none and $1 million by FPL Energy and $3 million and $2 million by Corporateand Other (see Note 11).

(c) The following nonrecurringitems affected 1999 net income: FPL settled litigationfor $42 million after-tax (seeNote 12); FPL Energy recorded$104 million after-tax impairmentloss (see Note 13); and Corporateand Other divested its cable investments resulting in a $162 million after-tax gain (seeNote 14).

(d)Includes an $8 million net positive effect of applying FAS 133.

FPL Group 2001 Annual Report / page 48 / FINANCIAL INFORMATION

17. Summarized Financial Information of FPL Group Capital FPL Group Capital, a 100% owned subsidiary of FPL Group, provides funding for and holds ownership interest in FPL Group's operating subsidiaries other than FPL. FPL Group Capital's debentures are fully and unconditionally guaranteed by FPL Group. Condensed consolidating J

financial information is as follows:

Condensed Consolidating Statements of Income (millions)

Years ended December 31, *pi2000 1999 FPL FPL Group FPL FPL Group FPL FPL Group FPL Group Consoli- FPL Group Consoli- FPL Group Consoli Group Capital Other(,' dated Group Capital Ot h e r" dated Group Capital OtherFa dated Operating revenues $ - $999 $7,476 $8,475 $ - $721 $6,361 $7,082 $ - $380 $6,058 $6,438 Operating expenses - (879) (6,199) (7,078) - (632) (5,210) (5,842) - (533) (4,985) (5,518)

Interest charges (29) (136) (159) (324) (31) (102) (145) (278) (32) (59) (131) (222)

Divestiture of cable investments - - - - - - - - 257 - 257 Other income (deductions) - net 788 147 (848) 87 726 135 (783) 78 712 108 (755) 65 Income before income taxes 759 131 270 1,160 695 122 223 1,040 680 153 187 1,020 Income tax expense (benefit) (22) 18 383 379 (9) 4 341 336 (17) 15 325 323 Net income (loss) $781 $113 $ (113) $ 781 $704 $118 $ (118) $ 704 $697 $138 $ (138) $ 697 (a)Represents FPL and consolidatingadjustments.

J I+ III

FINANCIAL INFORMATION / page 49 / FPL Group 2001 Annual Report Condensed Consolidating Balance Sheets (millions)

December 31, .1*, 2000 FPL FPL Group FPL FPL Group FPL Group Consoli- FPL Group Consoli Group Capital Other(, dated Group Capital Other") dated PROPERTY, PLANT AND EQUIPMENT Electric utility plant in service and other property $ -- $3,606 $19,782 $23,388 $ -- $1,984 $19,038 $21,022 Less accumulated depreciation and amortization - (246) (11,480) (11,726) - (170) (10,918) (11,088)

Total property, plant and equipment -net - 3,360 8,302 11,662 - 1,814 8,120 9,934 CURRENT ASSETS Cash and cash equivalents - 81 1 82 12 51 66 129 Receivables 7 442 331 780 56 418 409 883 Other - 114 626 740 - 66 703 769 Total current assets 7 637 958 1,602 68 535 1,178 1,781 OTHER ASSETS Investment in subsidiaries 6,485 - (6,485) - 5,967 - (5,967)

Other 108 2,066 2,025 4,199 141 1,365 2,079 3,585 Total other assets 6,593 2,066 (4,460) 4,199 6,108 1,365 (3,888) 3,585 TOTAL ASSETS $6,600 $6,063 $ 4,800 $17,463 $6,176 $3,714 $ 5,410 $15,300 CAPITALIZATION Common shareholders' equity $6,015 $1,040 $ (1,040) $ 6,015 $5,593 $ 935 $ (935) $ 5,593 Preferred stock of FPL without sinking fund requirements - - 226 226 - - 226 226 Long-term debt - 2,279 2,579 4,858 - 1,400 2,576 3,976 Total capitalization 6,015 3,319 1,765 11,099 5,593 2,335 1,867 9,795 CURRENT LIABILITIES Accounts payable and short-term debt - 1,815 640 2,455 - 705 1,017 1,722 Other 484 284 416 1,184 467 186 388 1,041 Total current liabilities 484 2,099 1,056 3,639 467 891 1,405 2,763 OTHER LIABILITIES AND DEFERRED CREDITS Accumulated deferred income taxes and unamortized tax credits - 513 1,017 1,530 - 399 1,248 1,647 Other 101 132 962 1,195 116 89 890 1,095 Total other liabilities and deferred credits 101 645 1,979 2,725 116 488 2,138 2,742 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES $6,600 $6,063 $ 4,800 $17,463 $6,176 $3,714 $ 5,410 $15,300 (a) Represents FPL and consolidatingadjustments.

FPL Group 2001 Annual Report / page 50 / FINANCIAL INFORMATION Condensed Consolidating Statements of Cash Flows (millions)

Years ended December 31, 2001 2000 1999 FPL FPL Group FPL FPL Group FPL FPL Group FPL Group Consoli- FPL Group Consoli- FPL Group Consoli Group Capital Other(, dated Group Capital Other(') dated Group Capital Other(, dated NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

$769 $ 15 $1,158 $1,942 $959 $159 $ (142) $ 976 $594 $ 56 $913 $1,563 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures and independent power investments - (1,977) (1,154) (3,131) - (507) (1,299) (1,806) - (1,540) (861) (2,401)

Capital contributions to FPL Group Capital and FPL (400) - 400 - (418) - 418 - (127) - 127 Other-- net (4) (59) (75) (138) 3 (34) (106) (137) (18) 313 (66) 229 Net cash used in investing activities (404) (2,036) (829) (3,269) (415) (541) (987) (1,943) (145) (1,227) (800) (2,172)

CASH FLOWS FROM FINANCING ACTIVITIES Issuances of long term debt - 920 - 920 - 947 947 1,385 224 1,609 Retirements of long-term debt - (21) (66) (87) - - (515) (515) - (130) (454) (584)

Increase (decrease) 3 in short-term debt - 1,152 (328) 824 - 353 466 819 - 135 94 229 Capital contributions from FPL Group - - - - 18 (18) - - 127 (127)

Repurchases of common stock - - (150) - - (150) (116) - - (116)

Dividends (377) - - (377) (366) (314) 314 (366) (355) - - (355)

Net cash provided by (used in) financing activities (377) 2,051 (394) 1,280 (516) 57 1,194 735 (471) 1,517 (263) 783 Net increase (decrease) in cash and cash equivalents (12) 30 (65) (47) 28 (325) 65 (232) (22) 346 (150) 174 Cash and cash equivalents at beginning of year 12 51 66 129 (16) 376 1 361 6 30 151 187 Cash and cash equivalents at end of year $- $ 81 $ 1 $ 82 $12 $ 51 $ 66 $ 129 $(16) $ 376 $ 1 $ 361 (a) Represents FPL and consolidatingadjustments.

18. Subsequent Events Base Rate Proceeding - On March 22, 2002, the FPSC approved an agreement regarding FPL's retail base rates. The new rate agreement resolves all matters in FPL's base rate proceeding and will be effective April 15, 2002 through December 31, 2005.

The new rate agreement provides for an additional $250 million annual reduction in retail base revenues allocated to all customers by reduc ing customers' rates by approximately 7%. Accordingly, for the period April 15 through December 31, 2002, the effect of the rate reduction on revenues is estimated to be $178 million. Additionally, the new rate agreement continues the revenue sharing mechanism in FPL's current rate agreement, whereby revenues from retail base operations in excess of a stated threshold will be shared with customers on the basis of two-thirds refunded to customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold will be refunded 100% to customers. The refund thresholds are as follows:

I* I III

FINANCIAL INFORMATION / page 51 / FPL Group 2001 Annual Report I (millions)

Years ended December 31, 20021"' 2003 2004 2005 66%% to customers $3,580 $3,680 $3,780 $3,880 100% to customers $3,740 $3,840 $3,940 $4,040 (a) Refund will be limited to 71.5% (April 15 through December 31, 2002) of the revenues from base rate operations exceeding the thresholds.

In addition to the reduction in retail base revenues, the new rate agreement specifies that FPL will effect a $200 million reduction of fuel clause recoveries for the remainder of calendar year 2002 effective April 15, 2002, based on projected over-recoveries under the current fuel clause charges.

The fuel clause will continue to operate as normal, including but not limited to any additional mid-course adjustments that may become necessary and the calculation of true-ups to actual fuel clause expenses.

Under the terms of the new rate agreement, depreciation may be reduced on FPL's generating plants by up to $125 million annually, and FPL's petition for an increase in the storm fund will be withdrawn.

The revenue sharing mechanism described above will be the appropriate and exclusive mechanism to address earnings levels. However, if FPL's regulatory return on equity, as reported in FPL's monthly earnings surveillance report, falls below 10% during the term of the new rate agreement, FPL may petition the FPSC to amend its base rates. The new rate agreement would terminate on the effective date of any final order issued in a proceeding that changes FPL's base rates. See Note 1 - Revenue and Rates.

RTO - In March 2002, FPL filed a modified RTO proposal with the FPSC changing the structure from a for-profit transmission company to a non profit independent system operator (ISO). Under the proposal, FPL would continue to own the transmission lines and the ISO would manage them.

See Note 1 - Regulation.

Income Taxes - In March 2002, the IRS conceded the issues being challenged by FPL Group related to the amount of the deductible loss from the disposition of an FPL Group Capital subsidiary in a prior year. Accordingly, FPL Group will recognize approximately $30 million of net tax benefits in the first quarter of 2002. See Note 9.

Litigation - On March 8, 2002, William M. Klein, by Stephen S. Klein under power of attorney, on behalf of himself and all others similarly situated, filed suit against FPL Group (as nominal defendant); its current and certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Paul J. Evanson, Lewis Hay Illand Dennis P.Coyle. The lawsuit alleges that the payments made to certain officers under FPL Group's LTIP upon shareholder approval of the proposed merger with Entergy were improper and constituted corporate waste because the merger was not consummated. The suit alleges that the LTIP required consummation of the merger as a condition to the pay ments. The plaintiff seeks the return to FPL Group of the payments received by the officers; contribution, restitution and/or damages from the individ ual defendants; and attorneys' fees. The plaintiff had made a demand in January 2002 that the directors of FPL Group take action to obtain the return of the payments to the officers. The plaintiff was promptly notified that this demand was being referred to a special committee of FPL Group's board of directors that was established to investigate a demand by another shareholder that the board take action to obtain the return of the payments made to the officers. The defendants intend to file a motion to stay this lawsuit pending the outcome of the special committee's investigation. FPL Group believes that it has meritorious defenses to the pending litigation discussed above and is vigorously defending this suit. Accordingly, manage ment does not anticipate that the liabilities, if any, arising from this proceeding would have a material adverse effect on the financial statements.

Also in March 2002, the conditions of the June 2001 agreement between SCE and the partnerships were fully satisfied. See Note 15 - Litigation.

19. Quarterly Data (Unaudited)

Condensed consolidated quarterly financial information is as follows:

(millions,except per share amounts) II 2000 March 31': June 30' September 30' December 31' March 31' June 30' September 30" December 31' Operating revenues $1,941 $2,166 $2,529 $1,839 $1,468 $1,670 $2,087 $1,857 Operating income $ 240b) $ 380 $ 540 $ 237 $ 237 $ 347 $ 511 $ 145('

Netincome $ 110"b'11 $ 219"'1 $ 334c $ 118"1 $ 121 $ 204 $ 314 $ 65"'

Earnings per share:""

Basic $ 0.65""' $ 1.301c $ 1.98"1) $ 0.70"' $ 0.71 $ 1.20 $ 1.85 $ 0.39"')

Assuming dilution $ 0.65*"" $ 1.30"1 $ 1.98"c $ 0.7011 $ 0.71 $ 1.20 $ 1.84 $ 0.38""

Dividends per share $ 0.56 $ 0.56 $ 0.56 $ 0.56 $ 0.54 $ 0.54 $ 0.54 $ 0.54 High-low common stock sales prices $71.63-54.81 $63.15-54.55 $60.50-51.21 $57.28-52.16 $48.25-36.38 $50.81-41.81 $67.13-47.13 $73.00-59.38 (a) In the opinion of FPL Group, all adjustments, which consist of normal recurring accruals necessary to present a fair statement of the amounts shown for such periods, have been made. Results of operations for an interim period may not give a true indication of results for the year (b) Includes merger-relatedexpenses.

(c) includes the net effects of applying FAS 133.

(d) The sum of the quarterlyamounts may not equal the total for the year due to rounding.

Officers S FPL Group, Inc.

Lewis Hay III Chairman, Presidentand Chief Executive Officer Dennis R Coyle General Counsel and Secretary Moray IRDewhurst Vice President, reance, and Chief FinancialOfficer K. Michael Davis Controllerand Chief Accounting Officer James R Higgins Vice President, Tax Lawrence J. Kelleher Vice President, Human Resources Mary Lou Kromer Vice President CorporateCommunications Florida Power & Light Company Lewis Hay III Chairman and Chief Executive Officer Paul J. Evanson President Dennis P. Coyle General Counsel and Secretary Moray R Dewhurst S

Senior Vice President Finance, and Chief FinancialOfficer Lawrence J. Kelleher Senior Vice President, Human Resources and CorporateServices Armando J. Olivera Senior Vice President Power Systems Antonio Rodriguez Senior Vice President Power Generation Division John A. Stall Senior Vice President, Nuclear Division FPL Energy, LLC Lewis Hay III Chairman and Chief Executive Officer Ronald F Green President Michael L. Leighton Senior Vice Presidentand Chief Operating Officer Mark Maisto President, Power Marketing, Inc Robert L. McGrath Vice President, Finance Michael O'Sullivan Senior Vice President, Development FPL FiberNet, LLC Neil Flynn President C- -

INVESTOR INORMATION / page 53 / FPL Group 2001 Annual Report Shareholder Inquiries News and Financial Information Corporate Offices Communications concerning transfer Investors can get the latest news and FPL Group, Inc.

requirements, lost certificates, dividend financial information about FPL Group 7 0 0 "-'

Un ive rs e Blv d .

checks, address changes, stock accounts through our Shareholder Direct toll-free line PO. Box 14000 and the dividend reinvestment plan at (888) 375-1329. In addition to hearing Juno Beach, FL 33408-0420 should be directed to EquiServe: recorded announcements, you can request (888) 218-4392 or www.equiserve.com information to be sent via mail, fax or e-mail.

Exchange Listings Common Stock Other shareholder communications to: Analyst Inquiries New York Stock Exchange Shareholder Services

Contact:

Ticker Symbol: FPL (800) 222-4511 Investor Relations (561) 694-4694 (561) 694-4697 Options (561) 694-4620 (Fax) (561) 694-4620 (Fax)

Philadelphia Stock Exchange Dividend Reinvestment Plan News Media Inquiries Newspaper Listing FPL Group offers a low-cost plan for holders

Contact:

Common Stock: FPL Gp of common stock and FPL preferred stock to Corporate Communications reinvest their dividends or make optional P.O. Box 029100 Registrar, Transfer, and Paying Agents cash payments for the purchase of additional Miami, FL 33102-9100 FPL Group Common Stock and (305) 552-3888 FPL Preferred Stock common stock. Enrollment materials may be obtained by calling EquiServe. (305) 552-2144 (Fax)

FPL Group, Inc.

c/o EquiServe Online Investor Information Certified Public Accountants PO. Box 43010 Up-to-the-minute information on FPL Group Deloitte & Touche LLP Providence, RI 02940-3010 and its subsidiaries is just a mouse click 200 S. Biscayne Boulevard, Suite 400 (888) 218-4392 away, 24 hours2.777778e-4 days <br />0.00667 hours <br />3.968254e-5 weeks <br />9.132e-6 months <br /> a day, seven days a week. Miami, FL 33131-2310 Florida Power & Light Co. Visit our expanded investor information site Form 10-K First Mortgage Bonds at www.investor.fplgroup.com to get stock quotes, earnings reports, financial releases The Form 10-K annual report for

_ Bankers Trust Company and other news. You can also request and 2001 as filed with the Securities and Security Holder Relations receive information via e-mail. Shareholders Exchange Commission is available PO. Box 305050 without charge by writing to Nashville, TN 37230-5050 of record can receive secure online account access through a link to our transfer agent, FPL Group, Shareholder Services.

(800) 735-7777 EquiServe.

Annual Meeting Duplicate Mailings Electronic Proxy Material May 24, 2002, 10 a.m.

Financial reports must be mailed to each Registered shareholders may receive proxy PGA National Resort account unless you instruct us otherwise. 400 Avenue of the Champions If you wish to discontinue multiple mailings materials electronically by contacting www.econsent.com/fpl. Beneficial sharehold Palm Beach Gardens, FL to your address, please call EquiServe.

ers should contact their brokerage firm to Direct Deposit of Dividends determine the availability of electronic proxy Cash dividends may be deposited directly material distribution.

to personal accounts at financial institutions.

Direct deposit expedites payments and eliminates lost checks. Call EquiServe for authorization forms.

Proposed 2002 Common Stock Dividend Dati Optional Cash Payment Dates Qtr./Ynr. Acceptance begins Must be received by Declaration Ex-Dividend Record Payment 2nd/02 May 15 June 10 February 22 March 15 February 11 February 20 September 9 June 17 3rd/02 August 15 May 24 June 5 June 7 4th/02 November 15 December 9 August 16 August 28 August 30 September 16 1st/03 February 14 March 10 November 26 November 29 December 16 October 18 on the assumption that past patterns will prevail.

• Declarationof dividends and dates shown are subject to the discretion of the board of directors of FPL Group. Dates shown are based

LFL Oroup, inc.

700 Universe Boulevard Juno Beach, Florida 33408 Pnnted on reyled paper 0732 AR 02