ML043580287

Price Anderson Guarantees/Annual Financial Report

ML043580287
Person / Time
Site:	Turkey Point, Saint Lucie
Issue date:	12/20/2004
From:	Stall J Florida Power & Light Co
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
-RFPFR, L-2004-291, FOIA/PA-2015-0150
Download: ML043580287 (155)

Text

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I P.O. Box 14000, Juno Beach, FL 33408-0420 DEC 2 0 2004 L-2004-291 10 CFR 140.21 10 CFR 50.71 (b)

U. S. Nuclear Regulatory Commission Attn: Document Control Desk Washington, DC 20555 Re:

Turkey Point Units 3 and 4 Docket Nos. 50-250 and 50-251 St. Lucie Units 1 and 2 Docket Nos. 50-335 and 50-389 Price Anderson Guarantees/

Annual Financial Report In accordance with 10 CFR 140.21, Florida Power and Light Company (FPL) submits the attached financial information.

FPL FORM 10-K, the most recent annual financial report (fiscal year ended December 31, 2003),

is attached as Exhibit 1. The most recent quarterly financial report, FORM 10-Q (September 30, 2004), appears as Exhibit 2. Exhibit 3 gives the Company's internal cash flow excluding retained earnings for the 12 months ended September 30, 2004, and for the projected 12 months ending September 30, 2005. The format of Exhibit 3 is based on the NRC's suggested format for a cash flow statement as published in the September 1978 Regulatory Guide 9.4, "SUGGESTED FORMAT FOR CASH FLOW STATEMENTS SUBMITTED AS GUARANTEES OF PAYMENT OF RETROSPECTIVE PREMIUMS."

Exhibit 1 is also submitted to satisfy the annual financial reporting requirement of 10 CFR 50.71 (b).

Should there be any questions on this information, please contact Bill Guldemond at (561) 691-7495.

Very truly yours, J. A. STALL Senior Vice President, Nuclear and Chief Nuclear Officer Attachments an FPL Group company

EXHIBIT 1

GROUP FPL UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K pq ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2003 OR

[]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission Exact name of registrants as specified In their IRS Employer File charters, address of principal executive offices and Identifcation Number registrants' telephone number Number

.8841 FPL GROUP, INC.

59-2449419 1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 State or other jurisdiction of incorporation or organization:

Florida Name of exchange on which registered Securities registered pursuant to Section 12(b) of the Act:

FPL Group, Inc.:

Common Stock, $0.01 Par Value and Preferred Share Purchase Rights New York Stock Exchange Corporate Units New York Stock Exchange 8% Corporate Units New York Stock Exchange Florida Power & Light Company: None Securities registered pursuant to Section 12(g) of the Act:

FPL Group, Inc.:

None Florida Power & Light Company: Preferred Stock, $100 Par Value Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days.

Yes A.

No _

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K Is not contained herein, and will not be contained, to the best of registrants knowledge, In definitive proxy or Informiation statements Incorporated by reference In Part Ill of this Form 10-K or any amendment to this Form 10-K [I]

Indicate by check mark whether FPL Group. Inc. is an accelerated filer (as defined In Rule 12b-2 of the Securities Exchange Act of 1934).

Yes X Noq_

Indicate by check mark whether Florida Power & Light Company Is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes _

No 2t Aggregate market value of the voting stock of FPL Group, Inc. held by non-affiliates as of June 30.2003 (based on the closing market price on the Composite Tape on June 30, 2003) was $12,239,608,950 (determined by subtracting from the number of shares outstanding on that date the number of shares held by directors and officers of FPL Group, Inc.).

There was no voting stock of Florida Power & Light Company held by non-affiliates as of June 30, 2003.

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

2004: 184,362.113 shares.

As of January 31, 2004, there were issued and outstanding 1.000 shares of Florida Power & Light Company common stock, without par value, all of which were held.

beneficially and of record, by FPL Group, Inc.

DOCUMENTS INCORPORATED BY REFERENCE Portions of FPL Group. Inc.'s Proxy Statement for the 2004 Annual Meeting of Shareholders are incorporated by reference In Part IlIl hereof.

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

DEFINITIONS Acronyms and defined terms used In the text Include the following:

Term Meaning AFUDC allowance for funds used during construction ASLB Atomic Safety and Licensing Board capacity clause capacity cost recovery clause, as established by the FPSC-charter restated articles of incorporation, as amended, of FPL Group or FPL, as the case may be DOE U.S. Department of Energy EMF electric and magnetic fields EMT Energy Marketing & Trading environmental clause environmental compliance cost recovery clause, as established by the FPSC ERCOT Electric Reliability Council of Texas EPA U.S. Environmental Protection Agenicy FAS Statement of Financial Accounting Standards No.

FASB Financial Accounting Standards Board FDEP Florida Department of Environmental Protection FERC Federal Energy Regulatory Commission FGT Florida Gas Transmission Company FIN FASB Interpretation No.

FMPA Florida Municipal Power Agency FPL Florida Power & Ught Company FPL Energy FPL Energy, LLC FPL FiberNet FPL FiberNet, LLC FPL Group FPL Group, Inc.

FPL Group Capital FPL Group Capital Inc FPSC Florida Public Service Commission fuel clause fuel and purchased power cost recovery clause, as established by the FPSC GridFlorida-GridFlorida LLC Gulfstream Gulfstream Natural Gas System, LL.C.

Holding Company Act Public Utility Holding Company Act of 1935, as amended IARC' International Agency for Research on Cancer IRS Internal Revenue Service-ISO :

Independent system operator kv kilovolt kwh kilowatt-hour Ibs/mwh pounds per megawatt hour LIBOR London InterBank Offered Rate MAIN Mid-America Interconnected Network Management's Discussion Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations MAPP Mid-Continent Area Power Pool mortgage FPLs mortgage'and deed of trust dated as of January 1, 1944, as supplemented and amended mw

-megawatt(s)

>~

NEPOOL-New England Power Pool NERC North American Electric Reliability Council Note _

note __to consolidated financial statements NRC U.S. Nuclear Regulatory Commission Nuclear Waste Policy Act Nuclear Waste Policy Act of 1982 NYPP New York Power Pool O&M expenses

" 'other operations and maintenance expenses in the consolidated statements of income PFS Private Fuel Storage, LLC PJM PJM Interconnection, LLC.

PMI FPL Energy Power Marketing, Inc.

Public Counsel s::

Stat6eof Florida Office of Public Counsel PURPA Public Utility Regulatory Policies Act of 1978, as amended qualifying facilities non-utility power production facilities meeting the requirements of a qualifying facility under the

-PURPA Reform Act Private Securities LItigation Reform Act of 1 995 RFP request for proposal ROE return on common equity RTOs regional transmission organizations Seabrook Seabrook Station

t. <

i-SEC U.S. Securities and Exchange Commission SERC Southeastern Electric Reliability Council SPP Southwest Power Pool storm fund storm and property Insurance reserve fund VIE variable interest entity :

WECC Western Electricity Coordinating Council White Paper White Paper on Wholesale Power Market Platform 2

CAUTIONARY STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS In connection with the safe harbor provisions of the Reform Act, FPL Group and FPL are hereby filing cautionary statements Identifying Important factors that could cause FPL Group's or FPLs actual results to differ materially from those projected In forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this combined Form 10-K, in presentations, In response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking.

Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements: are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically In connection with such forward-looking statements) that could cause FPL Group's or FPLs actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and FPL Any forward-looking statement speaks only as of the date on which such. statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.. New factors emerge from time to time and it Is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

The following are some Important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL Group's and FPLs actual results or outcomes to differ materially from those discussed in the forward-looking statements:

FPL Group and FPL are subject to changes in laws or regulations, including the PURPA, and the Holding Company Act, changing governmental policies and regulatory actions, Including, those of the FERC, the FPSC and the, utility commissions of other states in which FPL Group has operations, and the NRC, with respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, operation and construction of plant facilities, operation and construction of transmission facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, return on common equity and equity ratio limits, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs). The FPSC has the authority to disallow recovery by FPL of costs that it considers excessive or Imprudently incurred.

The regulatory process generally restricts FPLs ability to grow earnings and, does not provide any assurance as to achievement of earnings levels.

FPL Group and FPL are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife mortality, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.

FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, Including deregulation of the production and sale of electricity. FPL Group and its subsidiaries will need to adapt to these changes and may face increasing competitive pressure.

FPL Group's and FPLs results of operations could be affected by their ability to renegotiate franchise agreements with municipalities and counties In Florida.

The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters such as hurricanes), as well as the risk of performance below expected levels of output or efficiency. This could result in lost revenues and/or increased expenses.

Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. In addition to these risks, FPL Group's and FPLs nuclear units face certain risks that are unique to the nuclear Industry Including the ability to dispose of spent, nuclear fuel, as well as additional regulatory actions up to and including shutdown of the units stemming from public safety concerns, whether at FPL Group's and FPLs plants, or at the plants of other nuclear operators. Breakdown or failure of an FPL Energy operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result In termination of the agreement or Incurring a liability for liquidated damages.

3

FPL Group's and FPL's ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin construction or capital improvements to existing facilities Is contingent upon many variables and subject to substantial risks. Should any such efforts be unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of their investment In the project or Improvement.

FPL Group and FPL use derivative Instruments, such as swaps, options, futures and forwards to manage their commodity and financial market risks, and to a lesser extent, engage In limited trading activities. FPL Group could recognize financial losses as a result of volatility in the market values of these contracts, or If a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. In addition, FPL's use of such Instruments could be subject to prudency challenges and if found Imprudent, cost recovery could be disallowed by the FPSC.

There are other risks associated with FPL Group's non-rate regulated businesses, particularly FPL Energy. 1i addition'to risks discussed elsewhere, risk factors specifically affecting FPL Energy's success In competitive wholesale markets Include the ability to efficiently develop and operate generating assets, the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of fuel, transmission constraints, competition from new sources of generation, excess generation capacity and demand for power. There can be significant volatility In market prices for fuel and electricity, and there are other financial, counterparty and market risks that are beyond the control of FPL Energy. FPL Energy's inability or failure to effectively hedge its assets or positions against changes in commodity prices,' interest rates, counterparty credit risk or other risk measures could significantly Impair its future financial results. In keeping with industry trends, a portion of FPL Energy's power generation facilities operate wholly or partially without long-term power purchase agreements. As a result, power from these facilities Is sold on the spot market or on a short-term contractual basis, which may affect the volatility of FPL Group's financial results..In addition, FPL Energy's business depends upon transmission facilities owned and operated by others; If transmission is disrupted or capacity Is inadequate or unavailable, FPL Energy's ability to sell and deliver its wholesale power may be limited.

FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power Industry. In addition, FPL Group may be unable to Identify attractive acquisition opportunities at favorable prices and to successfully and timely complete and Integrate them.

FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows. The inability of FPL Group and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms, particularly during times of uncertainty In the capital markets which, In turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely increase interest costs.

FPL Group's and FPL's results of operations can be affected by changes In the weather. Weather conditions directly Influence the demand for electricity and natural gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities. In addition, severe weather can be destructive, causing outages and/or property damage, which could require additional costs to be Incurred.

- FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, Investigations and claims, as well as the effect of new, or changes in, tax rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.

FPL Group and FPL are subject to direct and Indirect effects of terrorist threats and activities.- Generation and transmission facilities, in general, have been Identified as potential targets. The effects of terrorist threats and activities Include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline In the U.S. economy, delay in economic recovery in the United States, and the Increased cost and adequacy of security and insurance.

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

FPL Group and FPL are subject to employee workforce factors, Including loss or retirement of key executives, availability of qualified personnel, collective bargaining agreements with union employees or work stoppage. -

The Issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face.

Additional issues may arise or become material as the energy Industry evolves. The risks and uncertainties associated with these additional Issues could Impair FPL Group's and FPLs businesses In the future;-

4

PART I Item 1. Business FPL GROUP FPL Group is a public utility holding company, as defined in the Holding Company Act, exempt from substantially all of the provisions of the Holding Company Act. It was incorporated in 1984 under the laws of Florida. FPL Group's principal subsidiary, FPL, is a rate-regulated utility engaged in the generation, transmission, distribution and sale of electric energy.

FPL Group Capital. a wholly-owned subsidiary of FPL Group, holds the capital stock and provides funding for the operating subsidiaries other than FPL The business activities of these operating subsidiaries primarily consist of FPL Energy's non-rate regulated power projects. For financial information regarding FPL Group's business segments, see Note 18. At December 31, 2003, FPL Group and its subsidiaries employed approximately 11,500 persons.

Website Access to SEC Filings. FPL Group and FPL make their annual report on Form 10-K, quarterly reports on Form 10-0, current reports on Form 8-K, and any amendments to those reports, available free of charge on the intemet website, www.folgrouo.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC.

FPL OPERATIONS General. FPL was incorporated under the laws of Florida in 1925 and is a wholly-owned subsidiary of FPL Group. FPL supplies electric service to a population of more than eight million throughout most of the east and lower west coasts of Florida. During 2003, FPL served approximately 4.1 million customer accounts. The percentage of FPL's operating revenues by customer class was as follows:

Years Ended December 31, 2003 2002 2001 Residential 56%

55%

56%

Commercial 37 36 38 Industrial 3

3 3

Other, including the provision for retail rate refund and the net change in unbilled revenues 4

6 3

100%

100%

100%,

FPL currently holds 173 franchise agreements to provide electric service in various municipalities and counties in Florida with varying expiration dates through 2034. Of the 173 franchise agreements, one expires in August 2004, eight expire in 2005-2006 and 99 expire in 2007-2013. Ongoing negotiations are taking place to renew upcoming expirations. FPL considers its franchises to be adequate for the conduct of its business.

Regulation. FPLs retail operations provided approximately 99% of FPLs 2003 operating revenues. Retail operations are regulated by the FPSC which has jurisdiction over retail rates, service territory, issuances of securities, planning, siting and construction of facilities and other matters. FPL is also subject to regulation by the FERC in various respects, including the acquisition and disposition of facilities, interchange and transmission services and wholesale purchases and sales of electric energy.

FPL's nuclear power plants are subject to the jurisdiction of the NRC. NRC regulations govern the granting of licenses for the construction, operation and retirement of nuclear power plants and subject these plants to continuing review and regulation.

Environmental. Federal, state and local environmental laws and regulations cover air and water quality, land use, power plant and transmission line siting, EMF from power lines and substations; oil discharge from transformers, lead paint, asbestos, noise and aesthetics, solid waste, natural resources, wildlife mortality and other environmental matters. Compliance with these laws and regulations increases the cost of electric service by requiring, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities.

During 2003, FPL spent approximately $23 million on capital additions to comply with environmental laws and regulations.

FPL's capital expenditures to comply with environmental laws and regulations are estimated at $212 million for 2004 through 2006, including approximately $79 million in 2004, and are included In projected capital expenditures set forth In Capital Expenditures below. Environmental regulations are subject to change. The following Is a discussion of emerging federal initiatives that could potentially affect FPL.

Climate Change - In 2002, President Bush announced new climate change Initiatives for the United States, among which is a voluntary commitment to reduce the greenhouse gas intensity of United States' emissions by 18% by 2012. The Bush Administration Is currently seeking commitments from various industrial sectors and individual companies to reach this goal.

FPL Group has responded to the administration's request by becoming a charter signatory to the Administration's Climate Leaders Program. As a participant in this voluntary program, FPL Group has Inventoried its greenhouse gas emission rates and has committed to a 2008 reduction target of 18% below a 2001 baseline emission rate. FPL Group believes that the planned operation of its generating portfolio, along with its current efficiency Initiatives, greenhouse gas management efforts and increased use of renewable energy will allow it to achieve this target.

5

In addition to the voluntary initiative, the U.S. Congress Is considering several legislative proposals that would establish new mandatory regulatory requirements and reduction targets for greenhouse gases. Based on reference data from government sources, FPL Group is among the lowest emitters of greenhouse gases measured by its rate of emissions to generation (lbs/mwh). However, these legislative proposals have differing methods of Implementation and the Impact on FPL Group's generating units and/or the financial Impact to FPL Group and FPL could be material (either positive or negative), depending on the eventual structure of a mandatory program.

Multi-Pollutant Legislation - The U.S. Congress and the Bush Administration are considering several legislative proposals that would establish new regulatory requirements and reduction targets for sulfur dioxide, nitrogen oxide, mercury, and in some proposals, carbon dioxide. Based on reference data from government sources, FPL Group is among the lowest generators of these emissions when measured by Its -rate of emissions to generation (Ibs/mwh). However, these multi-pollutant proposals have differing methods of Implementation and the Impact on FPL Group's generating units and/or the financial impact to.FPL Group and FPL could be material (either positive or negative), depending on the eventual structure of any legislation enacted.

Retail Ratemaking. The underlying concept of utility. ratemaking Is to set rates at a level that allows the utility the opportunity to collect from customers total revenues (revenue requirements) equal to Its cost of providing service, Including a reasonable rate of return on Invested capital. To accomplish this, the FPSC uses various ratemaking mechanisms.

The basic costs of providing electric service, other than fuel and certain other costs, are recovered through base rates, which are designed to recover the costs of constructing, operating and maintaining the utility system. These basic costs include O&M expenses, depreciation and taxes, as well as a return on -FPL's Investment In assets used and useful in providing electric service (rate base). The rate of return on rate base approximates FPL's weighted-average cost of capital, which Includes Its costs for debt and preferred stock and, typically, an allowed ROE. The FPSC monitors FPL's actual ROE through a surveillance report that Is filed monthly by FPL with the FPSC.,The FPSC does not provide assurance that an allowed ROE will be achieved. Base rates are determined In rate proceedings, which occur at Irregular intervals at the Initiative of FPL, the FPSC, Public Counsel or a substantially affected party.

In March 2002, the FPSC approved a new rate agreement regarding FPL's retail base rates, which became effective April 15, 2002 and expires December 31, 2005. The 2002-2005 rate agreement replaced a rate agreement that was effective April 15, 1999 through April 14, 2002. Both agreements include a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from retail base operations In excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold are required to be refunded 100% to retail customers.

The 1999-2002 rate agreement allowed FPL at its discretion to recover, as special depreciation, up to $100 million In each year of the three-year agreement period. The additional depreciation recovery was required to be applied to nuclear and/or fossil generating assets based on future depreciation studies. See Note.1 -

Revenues and Rates and Electric Plant, Depreciation and Amortization. During the term of the' agreement, FPLs ROE was from time to time outside the 10%-12%

authorized range. However, the revenue sharing mechanism described above was specified as the appropriate and exclusive mechanism to address that circumstance. The agreement Included provisions which limited depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to the then approved levels and limited amounts recoverable under the environmental clause during the term of that agreement.

The 2002-2005 rate agreement provides for a $250 million annual reduction In retail base revenues allocated to all customers by reducing customers' base rates and service charges by approximately 7%. The revenue sharing thresholds specified In the 2002-2005 rate agreement are as follows:

Years Ended December 31, 2002 ('

2003 2004 2005 6

2%

t(millions)

-66 2/3% to customers 3580

$ 3,680

$ 3,780 S 3,880 100% to customers

$ 3,740'

$ 3,840'

$ 3,940

$ 4.040

Refund was Gmited to 71.5% (representing the period April 15 Asugh December 31, 2002) of Mhe revenues from base ratde roperatons exceedng te' ttvesholds.

During the term of the 2002-2005 rate agreement, FPL will not have an authorized regulatory ROE range for the purpose of addressing earnings levels. However, FPL will continue to file monthly earnings surveillance reports with the FPSC and If the reported ROE falls below 10% during the term of the 2002-2005 rate agreement, FPL may petition the FPSC to amend Its base rates. The 2002-2005 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 - Revenues and Rates. Under the 2002-2005 rate agreement, depreciation will be reduced on FPLs plant In service by $125 million In each year 2002 through 2005. See Note Regulation and Electric Plant, Depreciation and Amortization.

6

In April 2002, the South Florida Hospital and Healthcare Association and certain hospitals filed a joint notice of administrative appeal with the FPSC and the Supreme Court of Florida appealing the FPSC's approval of the 2002-2005 rate agreement.

The appellants contend that the FPSC rushed to judgment and approved the settlement without the benefit of any evidentiary record to support its actions, and requested that the Supreme Court remand the case to the FPSC for additional proceedings.

In November 2003, the Florida Supreme Court heard oral arguments In the appeal. There Is no specified time by which the Supreme Court of Florida must rule. FPL Intends to continue to vigorously contest this appeal and believes that the FPSC's decision approving the 2002-2005 rate agreement will be upheld.

Fuel costs are recovered from customers through levelized charges per kwh established under the fuel clause. These charges are calculated annually based on estimated fuel costs and estimated customer usage for the following year, plus or minus a true-up adjustment to reflect the variance of actual costs and usage from the estimates used in setting the fuel adjustment charges for prior periods. An adjustment to the levelized charges may be approved during the course of a year to reflect a projected variance based on actual costs and usage. In 2003, approximately $3.3 billion of costs were recovered through the fuel clause. During 2003, the FPSC approved fuel adjustment increases of $347 million effective April 1, 2003 and $214 million effective July 31, 2003, both of which were recovered In 2003. These Increases were due to higher than projected oil and natural gas prices. During 2002, the FPSC approved a risk management fuel procurement program which became effective January 1, 2003. The program is intended to reduce the risk of unexpected fuel price volatility by locking in fuel prices for a portion of FPL's fuel requirements. The results of the program are reviewed by the FPSC as part of the annual review of fuel costs. See Energy Marketing and Trading, Management's Discussion - Results of Operations, Note 1 -

Regulation and Note 3.

Capacity payments to other utilities and generating companies for purchased power are recovered from customers through the capacity clause and base rates. In 2003, approximately $595 million of costs were recovered through the capacity clause.

Costs associated with implementing energy conservation programs totaled approximately $169 million in 2003 and were recovered from customers through the energy conservation cost recovery clause. Costs of complying with federal, state and local environmental regulations enacted after April 1993 are recovered through the environmental clause to the extent not Included in base rates. The 1999-2002 rate agreement limited recovery of costs through the environmental clause. There Is no similar provision In the 2002-2005 rate agreement; consequently prudent environmental costs Incurred during this period and not included In base rates are recoverable under the environmental clause. In 2003, approximately $18 million was recovered from customers through the environmental clause.

The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred. Such costs may include, among others, O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable and costs associated with the construction or acquisition of new facilities.

Competition. FPL currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups, primarily industrial customers. In 2003, operating revenues from wholesale and Industrial customers combined represented approximately 4% of FPL's total operating revenues. Various states, other than Florida, have enacted legislation or have state commissions that have issued orders designed to allow retail customers to choose their electricity supplier. This regulatory restructuring is expected to result In a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers.

Although the legislation and initiatives vary substantially, common areas of focus Include when market-based pricing will be available for wholesale and retail customers, what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It is generally believed transmission and distribution activities would remain regulated. Recently, these state restructuring efforts have diminished, and several states have delayed the Implementation or reversed previously approved restructuring legislation and rules. Management believes it is unlikely there will be any state actions to restructure the electric industry in Florida in the near future.

The FPSC promotes competition for building major new steam generating capacity by requiring investor-owned electric utilities, such as FPL, to issue an RFP. The RFP process allows Independent power producers and others to bid to supply the needed generating capacity. If a bidder has the most cost-effective alternative, meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and/or operating generation capacity of the type proposed, the Investor-owned electric utility would seek to negotiate a power purchase agreement with the selected bidder and request that the FPSC authorize the construction of the bidder's generation capacity under the terms of the. power purchase agreement. In 2003, FPL issued an RFP for additional power resources of approximately 1,100 mw beginning in June 2007. In January 2004, after evaluating alternative proposals, FPL concluded that its plan to build a new natural gas-fired plant at its Turkey Point site was the best and most cost-effective option to provide the 1,100 mw. In March 2004, FPL plans to file a petition for approval of this alternative with the FPSC. A decision Is expected by mid-2004. This alternative will also be subject to approval by a Siting Board (comprised of the governor and cabinet) under the Florida Electrical Power Plant Siting Act.

The FERC has jurisdiction over potential changes which could affect competition in wholesale transactions. In 1999~, the FERC issued its final order on RTOs which, under a variety of structures, provides for the independent operation' of transmission systems for a given geographic area. In March 2001, the FERC approved GridFlorida (FPL's, Progress Energy Florida, Inc.'s and Tampa Electric Company's proposed RTO) as the RTO for peninsular Florida. In December 2001, the FPSC determined that the RTO as proposed was not in the best interest of Florida customers and required the companies to develop a modified proposal. In March 2002, FPL, Progress Energy Florida, Inc. and Tampa Electric Company filed a modified RTO proposal with the FPSC changing the structure of GridFlorida from a for-profit transmission company to a non-7

profit ISO. Under the proposal, FPL'would continue to own Its transmission lines and the ISO would manage them. In September 2002, the FPSC approved many of the aspects of the modified RTO proposal, allowing recovery of GridFlorida's Incremental costs through the capacity clause. In October 2002, the Public Counsel filed a notice of administrative appeal with the Supreme Court of Florida seeking an appeal of the FPSCs order. In June 2003, the Florida Supreme Court dismissed the Public Counsel's -appeal of the FPSCs approval of GridFlorida without prejudice concluding that the appeal was premature because the FPSC proceedings had not yet been completed and not all aspects of the FPSC's order on appeal were considered final agency action. The FPSC has restored the GridFlorida docket to active status and in December 2003 Issued a procedural order establishing a series of workshops through 2004 to address GridFlorida issues.

In July 2002, the FERC Issued a notice of proposed rulemaking to reform public utilities'transmission tariffs and Implement a standardized design for electric markets In the United States. The proposed rule would, among other things, require FERC regulated entities, Including FPL, that own, control or operate transmission facilities to hire an Independent transmission provider, which can be an RTO such as GridFlorida for the operation of those facilities. The proposed rule also will require the independent transmission provider to administer various spot markets for the sale of electricity and ancillary services and to manage congestion on the transmission system using financial congestion rights. Legislators and regulators from the southeast and western states have expressed strong reservations about the FERC's proposal. In April 2003, the FERC issued a White Paper responding to comments on Its proposed rule. The White Paper Indicates that the FERC intends to be more flexible on how and when the final rule will be implemented, defer to regional state committees to address significant RTOAISO features, require regulated utilities to join RTOs or ISOs and require RTOs to implement spot markets. While a moratorium on further action by the FERC was included In the proposed Energy Policy Act, the status of that legislation is uncertain. FPL Is evaluating the proposed FERC rule and Is currently unable to determine its effects, if any, on FPL's operations.

In the event the basis of regulation for some or all of FPLs business changes from cost-based regulation, existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund. Further,-other aspects of the business, such as generation assets and long-term power purchase commitments, would need to be reviewed to assess their recoverability In a changed regulatory environment. See Note 1 - Regulation.

System Capability and Load. During 2003, FPL completed the addition of two new gas-fired combustion turbines at its Fort Myers site and the repowering of Sanford Unit No. 4, totaling approximately 1,300 mw. In addition, FPL is constructing approximately 1,900 mw of natural gas combined cycle generation at Its Martin and Manatee sites with a planned in-service date of June 2005. In January 2003, CPV Gulfcoast, Ltd. filed a notice of appeal with the Supreme Court of Florida challenging the FPSC's 2002 approval of the Martin and Manatee expansion and in April 2003, filed Its initial brief. In May 2003. FPL filed Its answer brief, which Included a request for dismissal. The Supreme Court of Florida will not hold oral arguments. There Is no specified time by which the Supreme Court of Florida must rule. See Competition regarding plans for an additional 1,100 mw beginning In June 2007.

As of December 31,'2003, FPLs resources for serving load consisted of 22,197 mw, of which 19,056 mw are from FPL-owned facilities (see Item 2. Properties - Generating Facilities) and 3,141 mw are obtained through purchased power contracts. See Note 17 - Contracts. FPLs projected reserve margin for the summer of 2004 Is 20%. This reserve margin will be achieved through the combination of output from FPL's generating units, purchased power contracts and the capability to reduce peak demand through the Implem-entation of load management, which was estimated to be 1,533 mw at Dec6inber 31, 2003. Customer usage and operating revenues are-typically higher during the summer months largely'due to the prevalent use of air conditioning In FPL's service territory.- FPL set an all-time record summer energy peak on July 9,'2003, of 19,668 mw. Occasionally, unusually cold temperatures during the winter months result In significant increases In electricity usage for short periods of time. The highest energy peak FPL has served to date was a winter peak of 20,190 mw, which occurred on January 24, 2003. FPL had adequate resources available at the time of these peaks to meet customer demand.-

Capital Expenditures. Capital expenditures at FPL consist of the cost for construction or acquisition of additional facilities and equipment to meet customer demand, as well as capital Improvements to and maintenance of existing"facilities. FPL's capital expenditures totaled $1.4 billion in 2003 (including AFUDC of approximately $18 million), $1.3 billion in 2002 and $1.1 billion in 2001. Capital expenditures for 2004 through 2008 are estimated to be as follows:

2004 2005 2006 2007 2008 Total FPL:

(millions)

Generation: ' -

New'-

S -385

$ 290

$ 265

$105

$1,045 Existing 430 430 355 455 270 1,940 Transmission and distribution 605 700 690 700 715 3,410

-Nuclear fuel

--95 75' 80 f 100 80 430 Generalandother -

130

'155 175 L 180 165 805 -

Total

$1,645

$1,650

$ 1,565 S 1,540

$1,230

$7,630 Includes AFUDC of approximatelyS61 million, $52 million. $39 milion, $59 million and $71 million In 2004,2005,2006.2007 and 2008. respectively.

b)

Includes generating structures, transmission Interconnection and Integration, licensing and AFUDC.

These estimates are subject to continuing review and adjustment and actual capital expenditures may vary from this estimate.

See Management's Discussion - Liquidity and Capital Resources and Note 17 - Commitments.

8

Nuclear Operations. FPL owns and operates four nuclear units, two at Turkey Point and two at St. Lucie. The Turkey Point Units Nos. 3 and 4 received operating license extensions in 2002, which give FPL the option to operate these units until 2032 and 2033, respectively. The NRC extended the operating licenses for St. Lucie Units Nos. 1 and 2 during 2003, which give FPL the option to operate these units until 2036 and 2043, respectively. The original license expiration dates for Turkey Point Units Nos. 3 and 4 and St. Lucie Units Nos. 1 and 2 are 2012, 2013, 2016 and 2023, respectively. FPL has not yet decided to exercise the option to operate past the original license expiration dates, although FPL is continuing to take actions to ensure the long-term viability of the units in order to preserve this option. The decision will be made for Turkey Point Units Nos. 3 and 4 by 2007 and for St. Lucie Units Nos. 1 and 2 by 2011. Any adjustment to depreciation and decommissioning rates would require FPSC approval. The nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications. Scheduled nuclear refueling outages typically require the unit to be removed from service for approximately 30 days. Scheduled nuclear refueling outages by unit are as follows:

Refueling Outage Unit Most Recent Next Scheduled St. Lucie Unit No. 1 Fall 2002 Spring 2004 St. Lucie Unit No. 2 Spring 2003 Winter 2004 Turkey Point Unit No. 3 Spring 2003 Fall 2004 (a)

Turkey Point Unit No. 4 Fall 2003 Spring 2005 (a)

FPL anticipates replacing the reactor vessel head during this outage. which will extend the amount of days the unit will be removed from service to approximately 65 days.

The NRC's regulations require FPL to submit a plan for decontamination and decommissioning five years prior to the projected end of plant operation. FPL's current plans, under the existing operating licenses, provide for prompt dismantlement of Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013, respectively. Current plans provide for St. Lucie Unit No. 1 to be mothballed beginning in 2016 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 beginning in 2023. See estimated decommissioning cost data in Note 1 - Decommissioning of Nuclear Plant.

In 2003, the NRC issued an order, subsequent to a previously issued NRC bulletin, requiring all pressurized water reactor licensees, including FPL, to perform visual and volumetric inspections of reactor vessel heads at each unit's scheduled

.refueling outage to identify if degradation such as cracking or corrosion has occurred. During the scheduled refueling outages for St. Lucie Unit No. 1 in October 2002, Turkey Point Unit No. 3 in March 2003 and Turkey Point Unit No..4 In October 2003, FPL performed visual and volumetric inspections and found no degradation associated with the reactor vessel heads. In late April and early May 2003, while volumetric inspections of the reactor vessel head at St. Lucie Unit No. 2 were being performed during a scheduled refueling outage, two control rod drive mechanism (CRDM) nozzles were found with one small crack in each. Both cracks were less than 50% through the thickness of the CRDM nozzle. No leakage was observed and both cracks were repaired during the outage. Also during the St. Lucie Unit No. 2 scheduled refueling outage, the steam generators were inspected and more tubes had to be plugged than anticipated. The inspection results were evaluated and revised tube plugging projections developed. Management intends to replace the steam generators at St. Lucie Unit No. 2 in 2007 and will delay the reactor vessel head replacement for St. Lucie Unit No. 2 until 2007 to coincide with the steam generator replacement. FPL anticipates replacing the reactor vessel heads at Turkey Point Units Nos. 3 and 4 during their next scheduled refueling outage and at St. Lucie Unit No. 1 during a scheduled refueling outage in the fall of 2005. Reactor vessel head replacements for these three units are expected to add approximately 35 days to the number of days a unit is removed from service during a typical scheduled refueling outage. The cost for the reactor vessel heads and steam generators is included In FPL's estimated capital expenditures above.

In 2003, the NRC issued a bulletin recommending that utilities with bottom mounted instrumentation penetrations perform visual inspections. Visual Inspections of the bottom mounted instrumentation penetrations were performed in 2003 during Turkey. Point Unit No. 4's scheduled refueling outage, and no evidence of leakage from these penetrations was noted. A visual inspection of Turkey Point Unit No. 3's bottom mounted instrumentation penetrations will be performed at its next scheduled refueling outage in the fall of 2004. St. Lucie Units Nos. 1 and 2 do not have bottom mounted instrumentation penetrations.

Fuel. FPL's generating plants use a variety of fuels. See Item 2. Properties - Generating Facilities and Note 17 - Contracts.

The diverse fuel options, along with purchased power, enable FPL to shift between sources of generation to achieve an economical fuel mix.

FPL has four firm transportation contracts in place with FGT and one firm transportation contract with Gulfstream that together will satisfy substantially all of the anticipated needs for natural gas transportation at its existing units and the units currently under construction. The four existing FGT contracts expire in 2015, 2021 and 2022, while the Gulfstream contract expires in 2028. Two of the contracts expiring in 2015 may each be extended by FPL until 2030. To the extent desirable, FPL can also purchase interruptible gas transportation service from FGT and Gulfstream based on pipeline availability. FPL has several short-and medium-term natural gas supply contracts to provide a portion of FPL's anticipated needs for natural gas. The remainder of FPL's gas requirements are purchased under other contracts and in the spot market.

9

FPL has, through its joint ownership Interest in St. Johns River Power Park (SJRPP) Units Nos. 1 and 2, long-term coal supply and transportation contracts for a portion of the fuel needs for those units. All of the transportation requirements and a portion of the fuel supply needs for Scherer Unit No. 4 are covered by a series of annual and long-term contracts. The remaining fuel requirements will be obtained in the spot market. FPL's oil requirements are obtained under short-term contracts and in the spot market.

FPL leases nuclear fuel for all four of Its nuclear units. See Note 1 - Nuclear Fuel. On July 1, 2003, FPL Group and FPL began consolidating the lessor entity in accordance with FIN 46, 'Consolidation of Variable Interest Entities." See Note 10 -

FPL. The contracts for the supply, conversion, enrichment and fabrication of FPL's nuclear fuel have expiration dates ranging from 2006 through 2013. Currently, FPL is storing spent fuel on site pending Its removal by the DOE. Under the Nuclear Waste Policy Act, the DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants. Through December 2003, FPL has paid approximately $496 million In such fees to the DOE's nuclear waste fund. The DOE did not meet Its statutory obligation for disposal of spent nuclear fuel under the Nuclear Waste Policy Act. In 1997, a court ruled, In response to petitions filed by utilities, state governments and utility commissions, that the DOE could not assert a claim that ts delay was unavoidable In any defense against lawsuits by utilities seeking money damages arising out of the DOE's failure to perform Its obligations. -In 1998, FPL filed a lawsuit against the DOE seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from FPL's nuclear power plants. The matter is pending. In the interim, FPL is Investigating other altematives to provide adequate storage capacity for all of its spent nuclear fuel. Based on current projections, FPL will lose Its ability to store spent fuel on site for, St. Lucie Unit No. 1 in 2005, St. Lucie Unit No. 2 In 2007, Turkey Point Unit No. 3 in 2007 and Turkey Point Unit No. 4 In 2009. In addition, degradation In a material used In the spent fuel pools at St. Lucie Unit No. 1 and Turkey Point Units Nos. 3 and 4 could result In Implementation of alternative-spent fuel storage options sooner than projected. FPL Is pursuing various approaches to further expand spent fuel storage at the sites, Including Increasing rack space In its existing spent fuel pools and/or developing the capacity to store spent fuel in dry storage containers. FPL has submitted license amendment requests to the NRC for approval of additional storage racks. Approval of these requests Is expected by May 2004. Once Installed, these racks will extend the storage capacity such that the ability to store spent fuel will not be lost until 2008 at St. Lucie Unit No. 1, 2010 at St. Lucie Unit No. 2, 2010 at Turkey Point Unit No. 3 and 2012 at Turkey Point Unit No. 4. If approved, the dry storage containers could be located at FPL's nuclear plant sites and/or at a facility operated by PFS In Utah. PFS is a consortium of eight utilities seeking to license, construct and operate an Independent spent fuel storage facility. FPL joined the consortium In May 2000. PFS has filed a license application with the NRC and hearings on the application have been completed. In March 2003, PFS requested that the NRC review the ASLB's decision that requires PFS to address the consequences of a hypothetical military aircraft accident into its proposed facility before such facility Is licensed. PFS has also initiated further proceedings before the ASLB to address the consequences of such an accident. Licensing on other environmental Issues litigated during the hearings remain pending before the ASLB. In addition, the State of Utah has appealed certain decisions of the ASLB.

In April 2002, the governor of Nevada submitted a Notice of Disapproval to Congress regarding President Bush's recommendation to develop Yucca Mountain as a nuclear waste depository. The Yucca Mountain site is the DOE's recommended location to store and dispose of spent nuclear fuel and high-level radioactive waste. During May and July 2002, Congress overrode the Notice of Disapproval through a majority vote of both houses. The President signed the joint resolution of Congress Into law on July 23, 2002. The State of Nevada has Initiated legal actions to attempt to block the project.

Energy Marketing and Trading. EMT, a division of FPL, buys and sells wholesale energy commodities, such as natural gas, oil and electric power. EMT procures natural gas and oil for FPL's use in power generation and sells excess gas and electric power. EMT also uses derivative Instruments, such as swaps, options, futures and forwards to manage the commodity price risk inherent in fuel purchases and blectricity sales and purchases. Substantially all of the results of EMT's activities are passed through to customers In the fuel or capacity clauses. See Retail Ratemaking, Management's Discussion

- Energy Marketing and Trading and Market Risk Sensitivity and Note 3.

Electric and Magnetic Fields. In recent years, public, scientific and regulatory attention has been focused on possible adverse health effects of EMF. These fields are created whenever electricity flows through a power line or an appliance.

Several epidemiological (i.e., statistical) studies have suggested'a linkage between EMF and certain types of cancer, Including childhood leukemia and adult lymphoma:'associated with occupational exposure; other studies have been inconclusive, contradicted earlier studies or have shown no such linkage. Neither these epidemiological studies nor clinical studies have produced any conclusive evidence that EMF does or does not cause adverse health effects. In 1999, the National Institute of Environmental Health Sciences, at the culmination of alfive-year 'federally supported research effort, pronounced that the scientific support for an EMF-cancer link is marginal and concluded that the probability that EMF exposure Is truly a health hazard Is small but cannot be completely discounted. In 2001, the IARC conducted an evaluation of power frequency EMF and cancer, it classified power frequency magnetic fields as 'possibly carcinogenic' based on -an association with childhood leukemia reported In some epidemiology studies. The IARC did not conclude that power frequency EMF cause or contribute to the development of childhood leukemia or any other cancer.

In 2002, the Califomia Department of Health Services submitted its EMF Risk Evaluation report to the California Public Utility Commission. -The report concludes. In part that 'EMFs can cause some degree of Increased risk of childhood leukemia, adult brain cancer, Lou Gehrig's Disease and miscarriage. The report also finds that the risk, while potentially low across the entire population, nonetheless may be sufficient to warrant regulatory attention..

10

Florida has had EMF regulations in place for many years, and FPL believes it is in compliance with the FDEP regulations regarding EMF levels within and at the edge of the rights of way for transmission lines. Future changes In the FDEP regulations could require additional capital expenditures by FPL for such things as increasing the width of right of way or relocating or reconfiguring transmission facilities. It is not presently known whether any such expenditures will be required. Currently, there are no such changes proposed to the FDEP regulations.

Employees. FPL had approximately 9,600 employees at December31, 2003. Approximately 32% of the employees are represented by the International Brotherhood of Electrical Workers (IBEW) under a collective bargaining agreement with FPL that will expire on October 31, 2004.

FPL ENERGY OPERATIONS General. FPL Energy, a wholly-owned subsidiary of FPL Group Capital, was formed in 1998 to aggregate FPL Group's existing non-rate regulated energy-related operations. It is a limited liability company organized under the laws of Delaware.

FPL Energy owns, develops, constructs, manages and operates domestic electric-generating facilities in wholesale energy markets. FPL Energy manages or participates In the management of approximately 82% of its projects, which represent approximately 96% of the net generating capacity in which FPL Energy has an ownership interest. At December 31, 2003, FPL Energy had net generating capability totaling 11,041 mw, all of which consisted of ownership interests in operating independent power projects (see Item 2. Properties - Generating Facilities). Generation capacity spans various regions thereby reducing seasonal volatility on a portfolio basis. At December 31, 2003, the percentage of capacity by NERC region or power pool was:

NERC Region/Power Pool Percentage of Generation Capacity NEPOOUNYPP 26%

MAPP/MAIN/SPP/ERCOT 38%

SERC/PJM 18%

WECC 18%

Fuel sources for these projects were as follows:

Fuel Source Percentage of Generation Capacity Natural Gas 55%

Wind 25%

Nuclear 9%

Oil 6%

Hydro 3%

Other 2%

FPL Energy's capital expenditures and investments totaled approximately $1.6 billion, $2.1 billion and S2.0 billion In 2003, 2002 and 2001, respectively. Capital expenditures for 2004 through 2008 are estimated to be as follows:

2004 2005 2006 2007 2008 Total (millions)

FPL Energy: )

Gas 140 5

$ 145 Nuclear fuel and other 85 35 60 60 15 255 Total S 225 40 60 60 15 S 400 is Estimated capital expenditures exclude estimates for the development of new wind projects pending the enactment of legislation reestablishing the production tax credits for new wind facilities.

FPL Energy is currently constructing a gas-fired power plant with a total capacity of approximately 744 mw. The plant is expected to be in operation in the second half of 2004. During 2002, FPL Energy was engaged In the development of various other natural gas projects. As a result of depressed economic conditions coupled with an oversupply of energy generating facilities in certain markets, projected profit margins for these projects declined and were not sufficient to cover the cost of capital. Therefore, FPL Energy made a strategic decision during 2002 to substantially exit the fossil-fueled greenfield merchant power plant development business for the foreseeable future. As a result, development costs associated with these abandoned projects were written off to expense. Furthermore, FPL Energy realigned its organizational structure during 2002 to lower general and administrative expenses and took other actions associated with the restructuring. See Management's Discussion - Results of Operations - FPL Energy and Note 6 - FPL Energy. FPL Energy expects its future portfolio capacity growth to come from a mix of asset acquisitions and wind development, assuming pending legislation reestablishing the production tax credits for new wind facilities is enacted, either of which would Increase estimated capital expenditures.

Energy Marketing and Trading. PMI, a subsidiary of FPL Energy, buys and sells wholesale energy commodities, such as natural gas, oil and electric power. PMI procures natural gas and oil for FPL Energy's use in power generation and sells any excess gas. PMI also sells the output from FPL Energy's plants which has not been sold under long-term contracts and purchases replacement power. PMI uses derivative instruments, such as swaps, options, futures and forwards to manage the risk associated with fluctuating commodity prices and to optimize the value of FPL Energy's power generation assets. To a lesser extent, PMI engages In limited energy trading activities to take advantage of expected future favorable price 11

movements. The results of PMI's activities are recognized In FPL Energy's operating results. See Management's Discussion

- Energy Marketing and Trading and Market Risk Sensitivity, Note 1 - Energy Trading and Note 3.

Employees. FPL Energy had approximately 1,800 employees at December 31, 2003. The IBEW and the Utility Workers Union of America (UWUA) represented approximately 5% and 12%, respectively, of FPL Energy's employees. The collective bargaining agreement between an FPL Energy subsidiary and the IBEW expires In February 2008 and the collective bargaining agreement between an FPL Energy subsidiary and the UWUA expires In September2008.

Regulation. Currently, approximately 6% of FPL Energy's net generating capacity has qualifying facility status under PURPA. FPL Energy's qualifying facilities generate electricity from wind, solar, fossil fuels, biomass or waste-product combustion. Qualifying facility status exempts the projects from, among other things, the application of the Holding Company Act, many provisions of the Federal Power Act, and state laws arid regulations relating to rates and financial or organizational regulation of electric utilities. FPL Energy also has ownership Interests in operating independent power projects that have received exempt wholesale generator status as defined under the Holding Company Act, which represent approximately 94%

of FPL Energy's net generating capacity. Exempt wholesale generators own or operate a facility exclusively to sell electricity to wholesale customers. They are barred from selling electricity directly to retail customers. FPL Energy's exempt wholesale generators produce electricity from wind, hydropower, fossil fuels and nuclear facilities. While projects with qualifying facility and exempt wholesale generator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including those regarding siting, construction, operation, licensing, pollution abatement and other environmental laws.

FPL Energy continues to evaluate the FERC's proposed rule on standard market design in areas where It Is not already in effect. See FPL Operations - Competition. California Is scheduled to implement standard market design In the first quarter of 2007. ERCOT Is considering adopting standard market design, or portions thereof,'with potential Implementation as soon as 2006. In both markets, the final market design Is not fully known at this time and FPL Energy Is currently unable to determine the effects, if any,'on its operation'resulting from the Implementation of standard market design.' :

Environmental. FPL Energy Is subject to the same environmental laws and regulations and Is affected by the same emerging Issues Included In the discussion of FPL's business. See FPL Operations -

Environmental. During 2003, FPL Energy spent approximately $14 million on capital additions to comply with environmental laws and regulations. FPL Energy's capital additions to comply with environmental laws and regulations are estimated to total $25 million for 2004 through 2006, Including approximately $4 million In 2004, and are Included In estimated capital expenditures set forth In General above.

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

Expanded competition in, a relaxed regulatory environment presents both opportunities and risks for FPL. Energy.

Opportunities exist for the selective acquisition of -generation assets divested under deregulation plans and for the construction and operation of efficient plants that can sell power in competitive markets., Wholesale energy markets have experienced lower demand and lower wholesale electricity prices as a result of weather and economic conditions and the oversupply of generation In certain regions. FPL Energy seeks to reduce Its market risk by having a diversified portfolio, by fuel type and location, as well as by contracting for the sale of a significant amount of the electricity output of Its plants. As of December31, 2003, FPL Energy had 74% of Its on-peak capacity:under contract for 2004.' Over the last several years, contracting for the sale of electricity output has become more difficult, as a result of overcapacity In certain regions and diminished market liquidity due to fewer creditworthy counterparties.' Given current market conditions, when FPL Energy's existing power sales agreements expire, more of the energy produced may be sold through shorter-term contracts and Into competitive wholesale markets.

Portfolio by Category. FPL Energy's assets can be categorized Into the following three groups: wind assets, non-wind assets under long-term contract and merchant assets.

12

As of December 31, 2003, FPL Energy's capacity under contract for 2004 was as follows:

Available

% MW Asset Class MW a Under Contract Wind 2,719 99%

Non-wind assets under long-term contract 1,255 98%

Merchant:

Seabrook 1,024 97%

NEPOOUPJINNYPP 1,879 34%°)

ERCOT 3,009 65%(b)

Other (WECC/SERC) 1,345 60%(b)

Total portfolio 11.231 74%

('

Weighted to reflect In-service dates and planned maintenance.

(b Represents on-peak mw under contract Wind Assets During 2003, FPL Energy added 14 wind projects to its portfolio, totaling approximately 975 mw. Project additions also included the construction of 811 mw of new capacity and the acquisition of 164 mw of operating plants.

At December 31, 2003, FPL Energy had ownership Interests in 42 operating wind plants, with a combined capacity of approximately 2,719 mw (net ownership). FPL Energy operates all but ten of these wind facilities. Approximately 88% of FPL Energy's net ownership in wind facilities has received exempt wholesale generator status as defined under the Holding Company Act. The remaining facilities have qualifying facility status under PURPA. These facilities are located in fifteen states, thereby reducing weather-related performance risk on a portfolio basis. In 2004, essentially all wind energy has been contracted with utilities and power marketers under fixed-price agreements with expiration dates ranging from 2011 to 2028.

Non-Wind Assets Under Long-Term Contract At December 31, 2003, FPL Energy had 1,255 mw of non-wind assets under long-term contract. Essentially all of these non-wind assets were under long-term power sales contracts with utilities, with contract expiration dates ranging from 2008 to 2021 and have firm fuel and transportation agreements with expiration dates ranging from 2011 to 2017. Approximately 1,096 mw of this capacity is gas-fired generation. The remaining 159 mw uses a variety of fuels and technologies such as waste-to-energy, solar, coal and petroleum coke. Of these facilities 32% have qualifying facility status under PURPA and 68% have received exempt wholesale generator status under the Holding Company Act.

Merchant Assets Merchant assets are plants that have not sold the majority of their output under long-term contracts. The output from these merchant plants is sold through a combination of short-to medium-term contracts and sales in wholesale markets. Beginning In 2003, FPL Energy began providing load-following services to distribution utilities in NEPOOL Load-following services require the supplier of energy to vary the quantity delivered based on the load demand needs of the customer. The vast majority of the merchant assets have firm gas supply agreements or a combination of firm gas supply and transportation agreements to cover on-peak gas requirements. PMI uses derivative instruments (primarily swaps, options, futures and forwards) to lock in pricing and manage the commodity price risk inherent in power sales and fuel purchases.

At December 31, 2003, FPL Energy's portfolio of merchant assets includes 7,067 mw of owned nuclear, natural gas, oil and hydro generation of which 2,973 mw is located in ERCOT, 2,590 mw in NEPOOL, 839 mw in SERC, 507 mw in WECC and 158 mw in other regions. The merchant assets include 1,653 mw of peak generating facilities. In addition, there are approximately 744 mw of gas-fired generation under construction in PJM that are expected to be in operation in the second half of 2004.

Nuclear Operations. In November 2002, an FPL Energy subsidiary purchased an 88.23% undivided interest in Seabrook, located in New Hampshire. FPL Energy's net ownership interest in Seabrook's capacity consists of 1,024 mw of nuclear generation. FPL Energy is responsible for all plant operations. The current operating license for Seabrook expires in 2026.

FPL Energy intends to seek approval from the NRC to extend the unit's license to recapture the period of non-operation from 1986 to 1990, in addition to a 20-year license extension. If granted, these approvals would extend the term of the NRC operating license for Seabrook to 2050. Preparations are in progress for a power uprate at Seabrook that is expected to increase plant capability by approximately 100 mw; the cost of which are included in FPL Energy's capital expenditure table above. This uprate will be implemented in two phases and requires approval by the NRC and the New England ISO. The main portion of the uprate Is expected to be implemented in the spring of 2005 and the final portion in the fall of 2006. At the time of the Seabrook acquisition, FPL Energy assumed responsibility for the ultimate decommissioning of the plant, the cost of which will be shared on a pro-rata basis by the joint owners. See estimated decommissioning cost data in Note 1 -

Decommissioning of Nuclear Plant.

13

In 2003, the NRC issued an order, subsequent to a previously issued NRC bulletin, requiring all pressurized water reactor licensees, Including Seabrook, to perform visual and volumetric inspections of reactor vessel heads to Identify if degradation such as cracking or corrosion has occurred. Seabrook will be required to perform 100% visual and volumetric Inspections In 2006, and subsequently, visual inspections every third outage and volumetric inspections every fourth outage. In 2003, the NRC issued a bulletin 'recommending that utilities. with bottom mounted instrumentation penetrations perform visual Inspections. In October 2003, visual inspections of the bottom mounted Instrumentation penetrations were performed during Seabrook's scheduled refueling outage, and no evidence of leakage from these penetrations was noted. The next refueling outage is scheduled to be performed In April 2005.

Seabrook has several contracts for the supply, conversion,'enrichment and fabrication of nuclear fuel with expiration dates ranging from 2004 to 2014. See Note 17 -,Contracts.

Currently, Seabrook is storing spent fuel on site pending its removal by the DOE. Under the Nuclear Waste Policy Act, the DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants. From the time of the acquisition of Seabrook through December 2003, FPL Energy has paid approximately $8 million in such-fees to the DOE's nuclear waste fund. For details on the current status of permanent fuel storage with the DOE see FPL Operations - Fuel. Based on current projections, FPL Energy will lose its ability to store spent fuel at Seabrook as early as 2009. FPL Energy is Investigating other alternatives to expand Its spent nuclear fuel storage capacity at Seabrook.

OTHER FPL GROUP OPERATIONS FPL Group's Corporate and Other segment represents other business activities, primarily FPL FiberNet, that are not separately reportable. See Note 18.

FPL FiberNet FPL FiberNet was formed in January 2000 to enhance the 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. FPL FiberNet is a limited liability company organized under the laws of Delaware. FPL FiberNet leases wholesale fiber-optic network capacity and dark fiber to FPL and other new and existing customers, primarily telephone, Internet and other telecommunications companies. Dark fiber In the metro market Is also sold to third parties.

FPL FiberNet's primary business focus Is the Florida metro market. Metro networks cover Miami, Ft. Lauderdale, West Palm Beach, Tampa, St. Petersburg, Orlando and Jacksonville. -.FPL FiberNet also has 'a long-haul network within Florida that leases bandwidth at wholesale rates.- At December 31, 2003, FPL FiberNet's network consisted of approximately 2,500 route miles, which interconnected major cities 'throughout Florida. During 2003, FPL FiberNet added the latest generation of Ethernet services which provides the option for its customers to upgrade their existing telecommunications network. Due to the changing telecommunications market, FPL FiberNet completed valuation studies to assess the recoverability of its assets and as a result, in 2002, wrote off some of these assets to expense. This write off represents an Impairment charge related to property, plant and equipment, the fair value of which was determined based on a discounted cash flow analysis. Additionally, FPL FiberNet decided not to pursue the planned build-out of metro fiber rings In certain cities, and restructuring charges were recognized In 2002 related to the write-off of development costs and inventory. See Management's Discussion - Results of Operations - Corporate and Other and Note 6 - Corporate and Other.

At December 31, 2003, FPL Group's Investment in FPL FiberNet totaled approximately $240 million. FPL FiberNet invested approximately $10 million during 2003 and plans to invest a total of $50 million over the next five years to sustain its fiber-optic network and meet customers specific requirements.

14

EXECUTIVE OFFICERS OF THE REGISTRANTS '-

Name Dennis P. Coyle Age Position Effective Date Paul I. Cutler K. Michael Davis Moray P. Dewhurst Lewis Hay III Lawrence J. Kelleher Robert L McGrath Amiando J. Olivera James L Robo Antonio Rodriguez John A. Stall 65 General Counsel and Secretary of FPL Group General Counsel and Secretary of FPL 44 Treasurer and Assistant Secretary of FPL Group Treasurer and Assistant Secretary of FPL 57 Controller and Chief Accounting Officer of FPL Group Vice President, Accounting, Controller and Chief Accounting Officer of FPL 48 Vice President, Finance and Chief Financial Officer of FPL Group Senior Vice President, Finance and Chief Financial Officer of FPL 48 President and Chief Executive Officer of FPL Group Chairman of the Board of FPL Group Chairman of the Board and Chief Executive Officer of FPL 56 Vice President, Human Resources of FPL Group Senior Vice President, Human Resources and Corporate Services of FPL 50 Senior Vice President, Engineering and Construction of FPL 54 President of FPL 41 President of FPL Energy 61 Senior Vice President, Power Generation Division of FPL 49 Senior Vice President, Nuclear Division of FPL June 1,1991 July 1, 1991 February 19, 2003 February 18,2003 May 13,1991 July 1, 1991 July 17, 2001 July 19,2001 June 11, 2001 January 1, 2002 January 1,2002 May 13, 1991 July 1, 1999 November 15,2002 June 24, 2003 July 26, 2002 July 1, 1999 June 4, 2001 Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors. Except as noted below, each officer has held his present position for five years or more and his employment history Is continuous. The business experience of the executive officers is as follows: Mr. Cuter was assistant treasurer of FPL Group from May 1997 to May 1998 and from May 1999 to February 2003. He was assistant treasurer of FPL from May 1997 to February 2003. Mr. Cutler has served as assistant secretary of FPL Group and FPL since December 1997. Mr. Dewhurst was senior partner of Dean & Company, a management consulting and Investment firm that he co-founded In 1993. Mr. Hay was president of FPL Energy from March 2000 to December 2001. From July 1999 to March 2000, he was vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL From May 1999 to July 1999, Mr. Hay was president of LSME Acquisition Co., LLC, a specific purpose acquisition company. Prior to that, he was executive vice president and chief financial officer of U.S. Foodservice, Inc., a food service distributor. Mr. Kelleher was senior vice president, human resources of FPL from July 1991 to July 1999. Mr. McGrath was treasurer of FPL Group and FPL from January 2000 to November 2002. He was also vice president, finance and chief financial officer of FPL Energy from June 2000 to November 2002. Prior to that, Mr. McGrath was assistant treasurer of FPL Group and FPL Mr. Olivera was senior vice president, power systems of FPL from July 1999 to June 20o3. Prior to that Mr. Olivera was vice president, distnbution of FPL from February 1997 to July 1999. Mr. Robo was vice president of corporate development and strategy of FPL Group from March 2002 to July 2002. He was president and CEO of TIP, a GE Capital Company that provides trailer and storage equipment services, and GE Capital Modular Space, a supplier of mobile and modular buildings, from December 1999 to March 200Z Prior to that, Mr. Robo was president and CEO of GE Mexico. Mr. Rodriguez was vice president, power delivery of FPL from February 1997 to July 1999. Mr. Stall was vice president of nuclear engineering of FPL from January 2000 to June 2001. Prior to that, he was plant vice president at St. Lucie.

15

Item 2. Properties FPL Group and'its'subsidiaries maintain properties which are adequate for their operations. At December31, 2003, the electric generating, transmission, distribution and general facilities of FPL represented approximately 44%, 12%, 36% and 8%, respectively, of FPL's gross Investment In electric utility plant in service.

Generating Facilities. At December 31, 2003, FPL Group had the following generating facilities:

FPL Faclitles Location Nulear St Lucie Turkey Point Steam turbire Cape Canaveral Cutler Manatee Martin Port Everglades Riviera St Johns River Power Park Sanford Scherer Turkey Point Combnedret ccd Fort Myers Lauderdale Martin Putnam Sanford Simple-cycle combustion turbines Fort Myers Martin Gas turbines/diesels Fort Myers Lauderdale Port Everglades Turkey Point TOTAL No. of Units 2

2 Fuel Nuclear Nuclear Hutdcinson Island, FL Florida City, FL Cocoa, FL Miami, FL Parrish, FL Indiantown, FL Port Everglades, FL RMera Beach, FL Jacksonville, FL Lake Monroe, FL Mwe County, GA Florida City, FL Fort Myers, FL Dania, FL Indiantown, FL Palatka, FL Lake Monroe, FL Fort Myers, FL Indiantw, FL 2

Ol/Gas 2

Gas 2

01/Gas 2

OIVGas 4

Oil/Gas 2

Oil/Gas 2

Coal/Petroleum Coke 1

Oi/Gas 1

Coal

2.

Oil/Gas 1 -

Gas 2

Gas/lil 2

Gas 2

Gas/Oil 2

Gas 1

Gas/Oil 1

GasAOil Net Capability (mw)')

1,386 814 206 1,628 1.649

- 1,233 565 254(c) 138 658" 807 1,423 859 943 498

• 1,880 328 314 Fort Myers. FL Dania, FL Port Everglades. FL Florida City, FL 12 Oil 24 Oil/Gas 12 Oil/Gas 5

01

- 648 840 420 12 19,056('

4' Represents FPL's net ownership Interest In plant capacity.

Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of SL Lucie Unit No. 2.

()

Represents FPL's 20% ownership Interest In each of St Johns River Power Park Units Nos. 1 and 2, wthich are jointly owned with JEA.

X Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with JEA.

Substantially all of FPL's properties are subject to the Den of FPLs mortgage. FPL expects to add 74 mw by mid-2004 as a result of performance efficiencies. After

( ) including the 74 mw, FPL's expected net capability to meet summer peak demand In 2004 will be 19,130 mw.

-16

I FPL Energy Facilities Cabazon Cerro Gordo (

Delaware Mountain Gray County Green Mountain Green Power Hancock County' High Winds '

Indian Mesa King Mountain Lake Benton II r' Meyersdale Mill Run Montfort (

Mountaineer New Mexdro ('

North Dakota Oklahoma / Sooner Sky River t' Somerset Wind Power South Dakota Southwest Mesa e' Stateline'° Vansycle Victory Garden Waymart Woodward Mountain Wyoming Investments in joint ventures Total Wind Non-Wind er Lono-Term Contract Investments in joint ventures Total Non-Wind Under Long-Term Contract Merchan Bayswater ('

Blythe Energy Calhoun I' Doswell - Expansion Forney Jamaica Bay ('

Lamar Power Partners Maine Maine Marcus Hook 50 RISEP "'

Seabrook Investment in joint venture Total Merchant TOTAL Location Riverside County, CA Cerro Gordo County, IA Culberson County, TX Gray County. KS Somerset County; PA Riverside County. CA Hancock County, IA Solano County, CA Upton County, TX Upton County, TX Pipestone County, MN Somerset County. PA Fayette County, PA Iowa County, WI Preston & Tucker Counties, WV Ouay & Debaca Counties. NM LaMoure County, ND Harper & Woodward Counties, OK Kern County, CA Somerset County, PA Hyde County, SD Upton & Crockett Counties, TX Umatilla County, OR and Walla County. WA Umatilla County, OR Kem County, CA Ware County, PA Upton & Pecos Counties, TX Uinta County, WY Various No. of Units Fuel 53 55 40 170 8

22 148 90 125 215 138 40 10 20 44 136 41 68 342 6

27 107 454 38 96 43 242 80 3,797 Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind Wind oe Net Capability (mw)'

40 41 30 112 10 17 98 162 83 281 104 30 15 30 66 204 62 102 77 9

41 75 300 25 22 65 160 144 314 2,719 708 547 Ashland, VA Various 4

Gas/Oil 13 Far Rockaway, NY Blythe, CA Eastaboga, AL Ashland, VA Forney, TX Far Rockaway. NY Paris, TX Various - ME Various - ME Marcus Hook, PA Johnston, RI Seabrook, NH Cedar Creek, TX 1

Gas I

Gas 4

Gas 1

Gas/Oil 2

Gas 1

OiVGas 2

Gas 6

Oil 83 Hydro I

Gas 1

Gas I

Nuclear 2

Gas 54 507 668 171 1,700 54 990 656

360 50 550 1.0240 283 7,067 11,041 Represents FPL Energys net ownership interest in plant capacity.

These consolidated generating facilities, as well as a 744 mw gas-fired plant under construction, are encumbered by liens against their assets securing various financings.

t Represents plants with no more than 50% ownership using wind technology.

'a Represents plants with no more than 50% ownership using fuels and technologies such as gas, waste-to-energy, solar, coal and petroleum coke.

° Excludes 10 other energy-related partners combined share of 38.22%.

Excludes Massachusetts Municipal Wholesale Electric Company's, Taunton Municipal Ughting Plants and Hudson Ught & Power Departments combined share n

of 11.77%.

Transmission and Distribution. At December 31, 2003, FPL owned and operated 529 substations and the following electric transmission and distribution lines:

Nominal Voltage 500 kv 230 kV 138 kv 115 kV 69 kv Less than 69 kv Total Overhead Lines Pole Miles 1,1051' 2,350 1,456 671 164 40,897 46,643 Trench and Submarine Cables Miles 31 49 14 22,217 22,311

"' Includes approximately 75 miles owned Jointly with JEA.

17

Character of Ownership. Substantially all of FPL's properties -are subject to the lien of FPL's mortgage, which secures most debt securities Issued by FPL. The majority of FPL Group's principal properties are held by FPL In fee and are free from other encumbrances, subject to minor exceptions, none of which Is of such a nature as to substantially Impair the usefulness to FPL of such properties. Some of FPL's electric lines are located on land not owned in fee but are covered by necessary consents of governmental authorities or rights obtained from owners of private property. Several of FPL Energy's generating facilities are encumbered by liens against their assets securing various financings. See Generating Facilities and Note 1 -

Electric Plant, Depreciation and Amortization.

Item 3. Legal Proceedings In November 1999, the Attorney General of the United States, on behalf of the EPA, brought an action In the U.S. District Court for the Northern District of Georgia against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Prevention of Significant Deterioration (PSD) provisions and the New Source Performance Standards (NSPS) of the Clean Air Act. In May 2001, the EPA amended its complaint. The amended complaint alleges, among other things, that Georgia Power Company constructed and Is continuing'to operate Scherer Unit No. 4, in which FPL owns a 76% Interest, without obtaining a PSD permit, without complying with NSPS requirements, and without applying best

-available control technology for nitrogen oxides, sulfur dioxides and particulate matter as required by the Clean Air Act. It also alleges that unspecified major modifications have been made at Scherer Unit No. 4 that require Its compliance with'the aforementioned Clean Air Act provisions. The-EPA seeks injunctive relief requiring the Installation of best available control technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after June 1, 1975 through January 30,1997 and $27,500 per day for each violation thereafter. Under a proposed EPA-rule, the maximum penalty would increase to $32,500 per day for each violation after publication of the final rule. Georgia Power Company has answered the amended complaint, asserting that It has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff Is entitled to any of the relief that it seeks and raising various other defenses. In June 2001, the federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery In several Clean 'Air Act cases that was filed with a Multi-District Utigation (MDL) panel. In August 2001, the MDL panel denied the motion for consolidation' In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery.' Georgia Power Company opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals rules on the Tennessee Valley Authoritys (TVA) appeal of an EPA administrative compliance order relating to legal Issues that are also central to this case. In August 2002, the federal district court denied without prejudice the EPA's motion to reopen; In June 2003,'the Eleventh Circuit Issued Its order dismissing the TVA's appeal because It found the provision of the Clean Air Act allowing the EPA to Issue binding administrative compliance orders was unconstitutional, and hence found that the TVA order was a non-final order that courts of appeal do'not have jurisdiction to review. In September 2003, the Eleventh Circuit denied the EPA's motion for rehearing, and the EPA Is now evaluating whether to seek review of the Eleventh Circuit decision by the U.S. Supreme Court. The EPA has not yet moved to reopen the Georgia Power'Company case.-

In November 2001, J. W. and Ernestine M. Thomas, Chester and Marie Jenkins, and Ray Norman and Jack Teague, as Co-Personal Representatives on behalf of the Estate of Robert L. Johns, served FPL Group;- FPL, FPL FiberNet, FPL Group Capital and FPL Investments, Inc. (FPL Investments) as defendants In a civil action filed In the Circuit Court for Suwanee County,-Florida. This action Is purportedly on behalf of all property owners In Florida (excluding railroad and public rights of way) whose property is encumbered by easements In favor of FPL, and on whose property defendants have Installed or intend to Install fiber-optic cable which defendants currently lease, license or convey or Intend to lease, 'license or convey for non-electric transmission or distribution purposes. The lawsuit alleges that FPL's easements do not permit the Installation and use of fiber-optic cable for general communication purposes. The plaintiffs have asserted claims for unlawful detainer, unjust enrichment and constructive trust and seek Injunctive relief and compensatory damages. In May 2002, plaintiffs filed an amended complaint, adding allegations regarding the Installation of wireless communications equipment on some easements, and adding a claim for declaratory relief. In August 2002, Hazel and Lamar Jenkins were substituted for Chester and Marie Jenkins as plaintiffs. Defendants filed an answer and affirmative defenses to the amended complaint In August 2002. The parties are now pursuing discovery. In September 2003, FPL Group Capital and FPL-Investments moved for summary judgment as to all claims asserted against them. Additionally, In October 2003, FPL Group moved for summary judgment as to all claims asserted against It. These motions have been granted and FPL Group, FPL Group Capital and FPL Investments have been dismissed from this lawsuit. The court Is currently scheduled to hear argument on whether this case will proceed as a class action sometime In late June 2004.

In August 2001, FMPA filed with the U.S. Court of Appeals for the District of Columbia (DC Circuit) a petition for review asking the DC Circuit to reverse and remand orders of the FERC denying FMPA's request for credits'for transmission facilities owned by FMPA members. The transmission credits sought by FMPA would offset the transmission charges that FPL bills FMPA for network transmission service to FMPA's member cities.' FMPA member cities have been taking network transmission service under FPL's open access transmission tariff since 1996.' In the orders appealed by FMPA, FERC ruled that FMPA would be entitled to credits for any FMPA facilities that were.integrated' with the FPL transmission system. Based on the evidence submitted, FERC concluded that none of the FMPA facilities met the Integration test and, therefore, FMPA was not entitled to credits against FPL's charges for transmission service. In January 2003, the DC Circuit upheld FERC's order denying FMPA credits for its facilities; In March 2003, the DC Circuit denied FMPA's rehearing request of the DC Circuit's decision; and In October 2003, the U.S. Supreme Court denied FMPA's petition for review of the DC Circuit's decision. FMPA also' has requested that FERC decide the crediting Issue again In a separate FERC proceeding. That proceeding dates back to a filing by FPL In 1993 of a comprehensive restructuring of Its then-existing tariff structure. All Issues In that case are settled except for three Issues reserved by FMPA,- one of which Is the crediting Issue. FPL previously estimated the exposure for the 18

crediting issue at $65 million. With the passage of time, the exposure has grown to $71 million as of December 31, 2003. However, in December 2003, FERC issued a ruling on the three reserved issues. With respect to the crediting issue, FERC stated that it had previously determined that FMPA was not entitled to credits for its facilities in the related proceeding discussed above and saw no persuasive reason to revisit that determination in this proceeding. With respect to the second issue, FERC directed FPL to make a compliance filing of a proposed rate schedule that does not Include those facilities of FPL that fail to meet the same integration test applied to the FMPA facilities. With respect to the third reserved Issue, FERC affirmed its previous ruling against FMPA. In January 2004, FMPA requested a 'conditional rehearing on the Commission's failure to order rate credits solely in the event that Commission does not adequately reduce FPL's rate base to achieve comparability." On January 30, 2004, FPL filed an answer to FMPA's request for rehearing, asking that the request be denied. Unless FERC accepts and responds favorably to FMPA's rehearing request, FPLs exposure will be limited to refunds arising from the exclusion of FPL facilities that fail to meet the integration test from its rate schedule.

In February 2003, Scott and Rebecca Finestone brought an action on behalf of themselves and their son Zachary Finestone in the U.S. District Court for the Southern District of Florida alleging that their son has developed cancer (neuroblastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant The complaint includes counts against FPL for strict liability for allegedly engaging in an ultra-hazardous activity and for alleged negligence in operating the plant in a manner that allowed emissions of the foregoing materials and failing to limit its release of nuclear fission products as prescribed by federal and state laws and regulations. The plaintiffs seek damages in excess of $1 million. FPL moved to dismiss the complaint In September 2003, the court entered an order denying FPL's motion to dismiss.

Following FPL's motion for reconsideration in the Blake and Lowe lawsuit, discussed below, the court entered a similar order vacating its order denying the motion to dismiss the count for strict liability, and upon reconsideration granted FPL's motion to dismiss the count for strict liability.

In May 2003, Tish Blake and John Lowe, as personal representatives of the Estate of Ashton Lowe, on behalf of the estate and themselves, as surviving parents, brought an action in the U.S. District Court for the Southern District of Florida alleging that their son developed cancer (medulo-blastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The allegations, counts and damages demanded in the complaint are virtually identical to those contained in the Finestone lawsuit described above. FPL moved to dismiss the complaint. In September 2003, the court entered an order denying FPL's motion to dismiss. FPL moved for reconsideration of the court's order as to the count for strict liability. The court then entered an order vacating the order denying the motion to dismiss as to the count for strict liability, and upon reconsideration granted FPLs motion to dismiss the count for strict liability.

In March 2003, James J. and Lori Bradstreet brought an action on behalf of themselves and their son, Matthew Bradstreet, in the Circuit Court of the l8e Judicial Circuit in and for Brevard County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, the American Dental Association, the Florida Dental Association, FPL and the Orlando Utilities Commission (OUC), alleging that their son has suffered toxic neurological effects from mercury poisoning. An amended complaint was filed in May 2003. The sources of mercury exposure are alleged to be vaccines containing a preservative called thimerosal that were allegedly manufactured and distributed by the drug companies, mercury amalgam dental fillings, and emissions from FPL and OUC power plants in Florida, including Brevard County. The complaint includes counts against all defendants for civil battery and against FPL for alleged negligence in operating the plants such that the son was exposed to mercury and other heavy metals emissions. The damages demanded from FPL are for injuries and losses allegedly suffered by the son as a result of his exposure to the plants' mercury emissions and the parents' alleged pain and suffering, medical expenses, loss of wages, and loss of their son's services and companionship.

No amount of damages is specified. FPL has moved to dismiss the complaint. In July 2003, the Bradstreets brought an identical action in the same court on behalf of themselves and their daughter, Elizabeth Bradstreet. FPL has moved to dismiss the complaint.

In June 2003, Monty and Kathryn Wooldridge brought an action on behalf of themselves and their son, Kevin Allen Wooldridge, in the Circuit Court of the 9h Judicial Circuit in and for Orange County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, the American Dental Association, the Florida Dental Association, FPL and the OUC, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in the complaint are virtually identical to those contained in the Bradstreet lawsuits described above. FPL has moved to dismiss the complaint.

In August 2003, Pedro C. and Emilia Roig brought an action on behalf of themselves and their son, Pedro Anthony Roig, in the Circuit Court of the 1 1t" Judicial Circuit in and for Miami-Dade County, Florida (the state court), which was removed in October 2003 to the U.S. District Court for the Southern District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies and FPL, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in the complaint with respect to FPL are virtually Identical to those contained in the Bradstreet and Wooldridge lawsuits described above. The plaintiffs have moved to remand the action back to the state court. The motion has been briefed by both parties and is pending in the U.S. District Court, which has stayed all discovery in the action. FPL will be moving to dismiss the case once the remand motion is decided.

In December 2003, Edward and Janis Shiflett brought an action on behalf of themselves and their son, Phillip Benjamin Shiflett, in the Circuit Court of the le8 Judicial Circuit in and for Brevard County, Florida, against Aventis Pasteur and a 19

number of other named and unnamed drug manufacturing and distribution companies, FPL and the OUC, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in the complaint with respect to FPL are virtually identical to those contained In the Bradstreet, Wooldridge and Roig lawsuits. FPL anticipates removing the action to the U.S. District Court for the Middle District of Florida, and will be moving to dismiss the case.

In January 2004, the Center For Biological Diversity, Inc. (Center) filed a lawsuit against FPL Group, FPL Energy and Its subsidiaries ESI Bay Area GP, Inc., Green Ridge Power LLC and Altamont Power, LLC, as well as other defendants, In the U.S. District Court for the Northern District of California. The complaint alleges violations of certain sections of the California Business and Professions Code, unjust enrichment and certain violations of the Lanham Act. The complaint alleges that numerous birds have died as the result of collisions with wind turbines owned and operated by subsidiaries of FPL Energy In the Altamont area. The complaint requests injunctive relief, restitution, penalties, forfeiture of the wind turbines, disgorgement of profits and attorneys' fees. As of February 26, 2004, none of the FPL Group-related entities named In the lawsuit have been served with this complaint.

i On February 13, 2004, Albert Utter Studios, Inc. Instituted an action against FPL in the Circuit Court of the 1 1th Judicial Circuit in and for Miami-Dade County, Florida, seeking damages on behalf of itself, and purportedly on behalf of all other similarly situated commercial entities In Florida. The plaintiff asserts that FPL's Intentional use of allegedly defective thermal demand meters has resulted in overcharging It and certain other commercial customers millions of dollars and constitutes an unfair and/or deceptive practice in violation of the Florida Deceptive and Unfair Trade Practices Act, breach of an Implied contract, and in breach of a duty of good faith and fair dealing. The complaint seeks damages in excess of $15,000, representing the amount of the alleged overcharges, interest, and such other relief as the court may order.-, FPL had determined in 2002 that, based on sample testing of the approximately 3,900 -1V thermal demand meters in service, the demand component of Its 1V meter population was exceeding allowable tolerance levels established by FPSC rules. In 2002, FPL proposed to replace and test all of the 1V meters in service and to Issue refunds, as appropriate, within certain parameters. FPL was given administrative approval from the FPSC staff to proceed with the replacement of the 1V meters. By early 2003, all 1V meters had been replaced. Testing of all 1V meters disclosed that approximately 15% of the 3,900 meters were outside of allowed tolerances, with 10% under-registering and 5% over-registering electricity usage.' In November 2003, the FPSC, as proposed agency action, approved a method for testing the meters and calculating refunds. On December 10, 2003,-Southeastem Utility Services, Inc., on behalf of several commercial customers, filed a protest to the proposed agency action and requested a hearing. Southeastern Utility Services, Inc. alleges that, among other things, the proposed method for computing the amount of the refund is flawed. Discovery is proceeding and no hearing date has been set.

In the event that FPL Group and FPL do not prevail in these lawsuits, there may be a material adverse effect on their financial statements. However, FPL Group and FPL believe that they have meritorious defenses to the pending litigation discussed above and are vigorously defending the lawsuits. Management does not anticipate that the liabilities, if any, arising from the proceedings would have a material adverse effect on the financial statements.

In January 2002, Roy Oorbbek'and Richard Berman filed suit in the U.S. District Court for the Southern District of Florida against FPL Group (as an individual and nominal defendant); all Its current directors (except James L Camaren, Michael H.

Thaman and Frank G. Zarb); certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Lewis Hay Ill, Dennis P. Coyle, Paul J. Evanson and Lawrence J. Kelleher. In March 2002, William M.

Klein, by Stephen S. Klein under power of attorney, on behalf of himself and all others similarly situated, filed suit In the U.S.

District Court for the Southern District of Florida against FPL Group (as nominal defendant); all Its current directors (except James L. Camaren, Michael H. Thaman and Frank G. Zarb); certain former directors; and certain current and former officers of FPL Group and FPL, Including James L. Broadhead, Paul J. Evanson, Lewis Hay IlIl and Dennis P. Coyle. In February 2003, Donald E. and Judith B. Phillips, represented by the same attorneys who represent Klein, filed suit in the same court against the same defendants as the Klein lawsuit (plus Lawrence J. Kelleher). All three suits have been consolidated., In February 2004, by stipulation of the parties, FPL Group was removed as a defendant.

L The lawsuits, taken together, allege that the proxy statements' relating to shareholder approval of FPL Group's Long Term Incentive Plan (LTIP) and FPL Group's proposed, but unconsumrnated, merger with Entergy Corporation (Entergy) were false and misleading because they did not affirmatively state that payments made to certain officers under.FPL Group's LTIP upon shareholder approval of the merger would be retained by the officers even if the merger with Entergy was not consummated and did not state that under some circumstances payments made pursuant to FPL Group's LTIP might not be deductible by FPL Group for federal income tax purposes. They also allege that FPL Group's LTIP required either consummation of the merger as a condition to the payments or the return of the payments if the transaction did not close, and that the actions of the director defendants in approving the proxy statements, causing the payments to be made, and failing to demand their return constitute corporate waste and a breach of fiduciary duties by those Individual defendants. The plaintiffs seek to have the shareholder votes approving FPL Group's LTIP and the merger declared null and void, the return to FPL Group of $62 million of payments received by the officers, compensatory damages of $92 million (including the $62 million of payments received by the officers) from all defendants (except FPL Group) and attorneys' fees.

A special committee of non-management directors of FPL Group conducted an investigation of the claims made in the Oorbeek and Klein lawsuits and reported thereon to FPL Group's board of directors. The report concluded that pursuit of the claims is not In the best Interest of FPL Group or its shareholders generally, and recommended that FPL Group seek dismissal of the lawsuits. After reviewing the special committee's report, FPL Group's board of directors (with only non-management directors participating) concluded likewise and filed with the court a statement of position setting forth the special committee's and the board's conclusions and authorizing the filing of a motion to dismiss the lawsuits, which motion 20

was filed in October 2002. Messrs. Zarb, Camaren and Thaman joined the board in August 2002, October 2002 and July 2003, respectively, and did not participate in the proceedings relating to the statement of position or the filing of the motion to dismiss. On January 20, 2004, the court issued an order denying FPL Group's motion to dismiss the lawsuits.

FPL Group's above-referenced statement of position reported that during the course of the special committee's investigation of the allegations in the lawsuits a separate question arose concerning the interpretation of the provisions of FPL Group's LTIP pursuant to which the payments to eight current and former senior officers were calculated. A change from the original interpretation could result In a repayment to FPL Group of up to approximately $9 million. FPL Group and the eight senior officers have entered into a binding arbitration agreement in order to resolve the Issue.

In May 2003, the plaintiffs attorneys in the Klein lawsuit sent a new letter to FPL Group's board of directors (the May 2003 Letter) demanding, among other things, that the board take action (i) to recover from the persons who approved such payments andlor otherwise breached their fiduciary duties, all of the above-described $92 million of LTIP payments made to officers and employees of FPL Group, allegedly on the grounds that the payments constituted a breach of fiduciary duty, bad faith, corporate waste and other unspecified wrongs, (ii) to investigate whether the proposed merger with Entergy was a plan by FPL Group's officers and directors to enrich themselves at the expense of the company, (iii) to seek the return of certain LTIP awards made in replacement of accelerated LTIP awards, (iv) to take immediate actions to secure the return of up to approximately $9 million in LTIP payments which is subject to an interpretation question under the LTIP, (v) to investigate and seek the return of stock options and restricted stock paid to Mr. Broadhead in January 2002 in connection with a consulting agreement and his retirement from FPL Group in December 2001, and (vi) to Investigate whether punitive damages may be sought. In July 2003, FPL Group's board of directors appointed a special committee, composed of James L. Camaren and Michael H. Thaman, to investigate the matters raised in the May 2003 Letter and to make a determination as to how FPL Group should respond to the matters raised therein. In August 2003, the plaintiffs attorney in the Klein lawsuit sent a letter to FPL Group's board of directors purporting to 'withdraw" the May 2003 Letter.

In addition to those legal proceedings discussed herein, FPL Group and its subsidiaries, including FPL, are involved in a number of other legal proceedings and claims in the ordinary course of their businesses. In addition, generating plants in which FPL Group or FPL have an ownership interest are Involved in legal proceedings and claims, the liabilities from which, if any, would be shared by FPL Group or FPL While management is unable to predict with certainty the outcome of these other legal proceedings and claims, it is not expected that their ultimate resolution, individually or collectively, will have a material adverse effect on the financial statements.

Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for the Registrants' Common Equity and Related Stockholder Matters Common Stock Data. All of FPL's common stock is owned by FPL Group. FPL Group's common stock is traded on the New York Stock Exchange. The high and low sales prices for the common stock of FPL Group as reported in the consolidated transaction reporting system of the New York Stock Exchange for each quarter during the past two years are as follows:

2003 2002 Quarter High Low High Low First

$ 63.77

$ 53.55

$ 60.10

$ 51.13 Second

$ 68.08

$ 57.74

$ 65.31

$ 56.30 Third

$ 67.66

$ 60.01

$ 60.08

$ 45.00 Fourth

$ 65.98

$ 62.65

$ 61.40

$ 48.35 Approximate Number of Stockholders. As of the close of business on January 30, 2004, there were 35,076 holders of record of FPL Group's common stock.

Dividends. Quarterly dividends have been paid on common stock of FPL Group during the past two years in the following amounts:

Quarter 2003 2002 First

$ 0.60

$ 0.58 Second S 0.60

$ 0.58 Third S 0.60

$ 0.58 Fourth S 0.60

$ 0.58 21

The amount and timing of dividends payable on FPL Group's common stock are within the sole discretion of FPL Group's board of directors. The board of directors reviews the dividend rate at least annually (in February) to determine Its appropriateness In light of FPL Group's financial position and results of operations, legislative and regulatory developments affecting the electric utility industry In general and FPL In particular, competitive conditions and any other factors the board deems relevant. The ability of FPL Group to pay dividends on Its common stock Is dependent upon dividends paid to It by its subsidiaries, primarily FPL. In February 2004, FPL Group announced that It would increase its quarterly dividend on Its common stock from $0.60 to $0.62 per share. There are no restrictions in effect that currently limit FPL's ability to pay dividends to FPL.Group. See Management's Discussion - Uquidity and Capital Resources for a description of the dividend restrictions and Note 13 - Common Stock Dividend Restrictions regarding dividends paid by FPL to FPL Group.

Item 6. Selected Financial Data SELECTED DATA OF FPL GROUP (mnillons, except per share amounts):

Operating revenues Income before cumulative effect of changes in accounting princrles Cumulative effect o adopting FAS 14Z net of Income taxes of $143 Cumulative effecd of adopting FIN 46, net of incone taxes of $2 Net Income Earnings per share of common stock:

Earnings per share before cumulative effect of changes In accounting princiles Cumulative effect of changes In accounting pnncipies Earrings per share Earrings per share of common stock -assuming dilution:

Earnings per share before cumulative effect of changes In accounting principles Cumulative effect of changes in accounting principles Earnings per share Divicbnds paid per share of common stock Total assets e Long-term debt excluding current maturibes Obligations of FPIL under capital lease, excluding current maturities SELECTED DATA OF FPL (millions):

Operabng revenues Net Income available to FPL Group Total assets ° Long-term debt, excluding current maturities ° Energy sales (kwh)

Energy sales:

Residential Commercial Industrial Interchange power sales Other t Total Years Ended December31,

• 2003 2002 -

2001 2000 1999 S

9,630 893( '

S S

(3)

S 890M S

5.031) 002 8,173 S

695s)

(222)

S 4 73 °) $

4.02° $

(1.28)

S 2-74tg) $

4.01 W) S (1.28)_$S 2.73w $

2.32 23,185 5.790 140 5.02° $

I (0.02 S

5 5.00Y 2.40 S

26.935 S

S 8,723 S

S 8.217 S

781' i

S 781" S

4.63") $

46-t4.r30~ 5 4.62)

S i

S 4.62(c) S 2.24 20,713 4,858 S

133 S

7.477 S

679° $

15,174 2,579 S

93,488 50.9%

40.6 4.4 2.2.

1.9 100.0%

6,920 S

704 " S S

• S 704" S

4.14" S

S 4.14° S 4.14" S

S i.14" S'

2.16 S

18,355 --. S 3,976 S

127 6,361 60710 $

15,075 S

,577 s

91,969 6,438 697(*)

6971 4.07(*)

4.070) 4.07'0 4.07 2.08 16,220 3,478 157 6,057

'576(a 13,387 2,079 88,067 8,293 733 17,817 S

3,074.

103,202 7,378 S

717

• S 16,032 S

S Z364 98,605 51.6%

40.6 4.1.:

1.8 1.9 100.0%

51.8%

40.1 I

3.9 2.3

.:1.9 100.0%

50.4%

50.2%

40.2 40.3 4.1 4.5 3.1 3.0 2.2 2.0 100.0%

100.0%

Approximate 60-minute peak load (mw): ()h Summerseason 19.6W8 19.219 18,754 17,808 17.615 Winter season 14,723 20,190 17,585 18,219 17,057 Average number of customer accounts (thousands):

Residential 3,6S3

-3,566 3,491 3,414 3,332 Commercial 445 435 427 415 405 Industrial 17 16 15 16 16 Other232 O-

2.

3 2

3 3

Total

-1.

-17 4,020 3,935 3848 3,756 Average price per kwh (cents) 795, -

7.32 8.05 -

--. 6.86 6.87 i Includes net unrealized mark4tonarket gains associated with non-qualfying hedges.

lb) Includes ripairment and restructuring charges, charges related to certain wind projects and leveraged leases, a favorable settlement of litigation with the IRS anrd net unreafeed mark-lo-market gains associated with non-qualifying hedges.

k Includes merger-related expenses and net unrealized mark4-omarket gains associated with non-quarifying hedges.

I Includes merger-related expenses.

' Includes effects of gains on divestiture of cable Investments, Inpaimment loss and ltigation settlemenL

' Includes the cumulative effect of an accounting change and net unrealized mark4tomarket gains associated with non-qualifying hedges.

b Includes the cumulative effect of an accounting change. Impairment arnd restructuring charges, charges related to certain wind projects and leveraged leases, a favorable settlement of litigation with the IRS and net unrearized marko-market gains associated with non-quaiying hedges.

Reflects the adoption of FIN 46 In July 2003. See Note 10.

" Reflects the adoption of FAS 142 hI January2002. See Note S.

c Includes the net change In unbilled sales.

k Winter season includes November and December of the current year and January to March of the following year.

° Excludes interchange power sales, net change In unbtiled revenues, deferraWrecoveries under cost recovery clauses and a provision, If any, for retail rate refund:.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read In conjunction with the Notes to Consolidated Financial Statements contained herein. An the discussion of Results of Operations below, all comparisons are with the corresponding Items In the prior year.

22

Results of Operations Overview-FPL Group's net income for the years ended December 31, 2003, 2002 and 2001 was $890 million, $473 million and $781 million, respectively. See Note 18 for segment information. FPL obtains its operating revenues primarily from the retail sale of electricity and, in 2003, accounted for more than 80% of FPL Group's net income. FPL Energy derives the majority of its operating revenues through wholesale electricity sales and provided continued growth to FPL Group primarily due to the expansion of its diverse portfolio, industry leading position in wind generation and moderate risk approach. FPL Group's net Income for the year ended December 31, 2003 benefited from improved results at both FPL and FPL Energy. FPL's results primarily improved as a result of strong revenue growth from retail base operations. FPL Energy's results improved due to over 3,900 mw of new generation capacity being added In 2003 and the absence of certain write-offs recorded in 2002. FPL Group's effective tax rate for the years ended December 31, 2003 and 2002 reflects production tax credits for wind projects at FPL Energy. The effective tax rate for the year ended December 31, 2002 was further reduced by the gain from an income tax settlement referenced below. Net income reflects the following items which increased (decreased) reported results:

Years Ended December 31, 2003 2002 2001 (millions)

FPL:

Merger-related costs S

(16)

FPL Energy:

Cumulative effect of changes in accounting principles (3)

$ (222)

Restructuring and other charges (73)

Unrealized gains from non-qualifying hedges 22 1

8 Corporate and Other Impairment, restructuring and other charges (94)

S Gain from income tax settlement 30 Merger-related costs S

(3)

FPL Group's management uses earnings excluding these items (adjusted eamings) internally for financial planning, for reporting of results to the Board of Directors and for FPL Group's employee incentive compensation plan. FPL Group also uses adjusted earnings when communicating its earnings outlook to analysts and investors. FPL Group's management believes adjusted earnings provide a more meaningful representation of the company's fundamental earnings power. Although the excluded items are properly included in the determination of net income in accordance with generally accepted accounting principles, both the size and nature of such items make period to period comparisons of operations difficult and potentially confusing.

Beginning in 2002, FPL Group segregated unrealized mark-to-market gains and losses on derivative transactions into two categories. Prior year amounts were reclassified into these categories. The first category, referred to as trading and managed hedge activities, represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts. The unrealized mark-to-market gains (losses) from trading and managed hedge activities were $(1) million, $8 million and $0 for the years ended December 31, 2003, 2002 and 2001, respectively, and are reported net In operating revenues. The second category, referred to as non-qualifying hedges, represents the net unrealized effect of derivative transactions entered into as economic hedges (but which do not qualify for hedge accounting under FAS 133, "Accounting for Derivatives and Hedging Activities," as amended, and do not qualify for the normal purchases and sales exception) and the ineffective portion of transactions accounted for as cash flow hedges. The unrealized gains from non-qualifying hedges were $37 million, $1 million and $12 million for the years ended December 31, 2003, 2002 and 2001, respectively, and are reported in the same line item as the related realized amounts in FPL Group's consolidated statements of income. These transactions have been entered into to reduce FPL Group's aggregate risk. Any position that is moved between non-qualifying hedge activity and trading and managed hedge activity is transferred at its fair value on the date of reclassification. For additional Information regarding derivative instruments, see Critical Accounting Policies and Estimates - Accounting for Derivatives and Hedging Activities and Note 3.

In May 2003, FPL Group announced it would begin using the fair value based method of accounting for stock-based compensation beginning in 2004. Based on the stock options outstanding at December 31, 2003, the implementation of the fair value based method is expected to reduce FPL Group's net income by approximately $4 million in 2004. See Note 1 -

Stock-Based Compensation.

FPL - FPLs net Income available to FPL Group for 2003, 2002 and 2001 was $733 million, $717 million and $679 million, respectively. During 2003, FPLs net income benefited from higher revenues from retail base operations. However, higher O&M expenses, depreciation expense and property taxes partially offset these higher revenues. FPLs 2003 net Income also reflects a loss related to the redemption of preferred stock, which was substantially offset by tax benefits related to the favorable settlement of tax audit issues with the IRS. During 2002, higher revenues from retail base operations and lower depreciation and interest charges were partially offset by higher O&M expenses. Also in 2001, FPL recorded merger-related expenses totaling S26 million ($16 million after tax). For additional information regarding merger-related expenses, see Note 7.

23

In March 2002, the FPSC approved a new rate agreement regarding FPLs retail base rates, which became effective April 15, 2002 and expires December 31, 2005. The 2002-2005 rate agreement replaced a rate agreement that was effective April 15, 1999 through April 14, 2002. Both agreements include a revenue sharing mechanism for each of the twelve-month periods covered by the agreements, whereby revenues from retail base operations In excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL Revenues from retail base operations In excess of a second threshold are required to be refunded 100% to retail customers.

The 1999-2002 rate agreement allowed FPL at its discretion to recover, as special depreciation, up to $100 million In each year of the three-year agreement period. The additional depreciation recovery was required to be applied to nuclear and/or fossil generating assets based on future depreciation studies. See Note 1 -

Revenues and Rates and Electric Plant, Depreciation and Amortization. During the term of the agreement, FPL's ROE was from time to time outside the 10%-12%

authorized range. However, the revenue sharing mechanism described above was specified as the appropriate and exclusive mechanism to address that circumstance. The agreement Included provisions which limited depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to the then approved levels and limited amounts recoverable under the environmental clause during the term of that agreement.

The 2002-2005 rate agreement provides for a $250 million annual reduction in retail base revenues allocated to all customers by reducing customers' base rates and service charges by approximately 7%. The revenue sharing thresholds specified in the 2002-2005 rate agreement are as follows:

Years Ended December 31, 2002('a 2003 2004 2005 (millions) 66 2/3% to customers

$ 3,580'* $ 3,680

$ 3,780

$ 3,880 100% to customers

$ 3,740

$ 3,840

$3,940

$ 4,040 1' Reun-d was limited to 71.5% (representing the period April15 through December 31, 2002) of the revenues from base rate operafions exceeding the thresholds.

During the term of the 2002-2005 rate agreement, FPL will not have an authorized regulatory ROE range for the purpose of addressing earnings levels. However, FPL will continue to file monthly earnings surveillance reports with the FPSC and if the reported ROE falls below 10% during the term of the 2002-2005 rate agreement, FPL may petition the FPSC to1amend Its base rates. The 2002-2005 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 - Revenues and Rates. In addition, depreciation rates will not be changed during the term of the agreement; however, FPL will reduce Its recorded depreciation expense by $125 million annually.

During 2002, FPL reclassified certain amounts that were previously classified within accumulated depreciation to a regulatory liability. The reclassifications were made as a result of the terms of the 2002-2005 rate agreement, as well as other FPSC actions with regard to accumulated nuclear amortization. The amounts reclassified Included $170 million of' special depreciation and $99 million of nuclear amortization. During 2003 and 2002, FPL credited depreciation expense for $125 million as permitted under the rate'agreement. The $125 million annual credit to depreciation went first to offset the $170 million of special depreciation and the remainder to accumulated depreciation. The $99 million of nuclear amortization is being credited to depreciation expense ratably over the remaining life of the plants, based on the term of the existing operating licenses of the plants, at a rate of $7 million per year. The regulatory liability balances at December 31, 2003 and 2002 are Included In other liabilities on FPL Group's and FPL's consolidated balance sheets. See Note 1 - Regulation and Electric Plant, Depreciation and Amortization.

In April 2002, the South Florida Hospital and Healthcare Assoclation and certain hospitals filed a joint notice of administrative appeal with the FPSC and the Supreme Court of Florida appealing the FPSC's approval of the 2002-2005 rate agreement.

The appellants contend that the FPSC rushed to judgment and approved the settlement without the benefit of any evidentiary record to support Its actions, and requested that the Supreme Court remand the case to the FPSC for additional proceedings.

In November 2003, the Florida Supreme Court heard oral arguments In the appeal.-There Is no specified time by which the Supreme Court of Florida must rule. FPL Intends to continue to vigorously contest this appeal and believes that the FPSC's decision approving the 2002-2005 rate agreement will be upheld. -

FPL's operating revenues consisted of the following:

Y Ec

-Years Ended December 31, 2003 2002 200D1

-(millions)

Retail base operations S 3,680- $ 3,603

$ 3,616 Revenue refund provision (3)

(34)

(110)

Cost recovery clauses and other pass-through costs 4,558 3,793

- 3,955 Other 58

16.

16 Total

$ 8,293 S 7,378

$ 7,477 For the year ended December 31, 2003, the Increase In retail base revenues was primarily due to an increase In customer accounts and an Increase In usage per retail customer. The Increase In 2003 was partially offset by the effect of the 7% base reduction In retail rates, or $62 million, pursuant to the 2002-2005 rate agreement that was effective in mid-April 2002. A 2.4% Increase In the number of retail customer accounts Increased revenues by $85 million, while the balance of the 24

increase, or $54 million, was primarily due to a 1.7% increase in usage per retail customer. Based upon econometric models, management estimates about half of the growth in usage for the year was associated with higher per capita income and the remainder is due to weather related usage and price elasticity associated with lower rates.

The increase in retail base revenues in 2002 (net of the revenue refund provision discussed above) was due to a 2.1%

increase in retail customer accounts which contributed $78 million to revenues while the balance of the increase, or $112 million, was primarily due to a 3.5% increase in electricity usage per retail customer. The 7% rate reduction caused a $203 million reduction in retail base revenues.

Revenues from cost recovery clauses and other pass-through costs, such as franchise fees and revenue taxes, do not significantly affect net income; however, under-or over-recovery of such costs can significantly affect FPL Group's and FPL's operating cash flows. Fluctuations in these revenues, as well as in fuel, purchased power and interchange expense are primarily driven by changes in energy sales, fuel prices and capacity charges. Ordinarily, the fuel charge Is set annually based on estimated fuel costs and estimated customer usage, plus or minus a true-up for prior period estimates. During 2003, the FPSC approved fuel adjustment increases of $347 million effective April 1, 2003 and $214 million effective July 31, 2003 both of which were recovered in 2003. These increases were due to higher than projected oil and natural gas prices. During 2002, the FPSC approved a risk management fuel procurement program which became effective January 1, 2003. The program is intended to reduce the risk of unexpected fuel price volatility by locking in fuel prices for a portion of FPL's fuel requirements. The results of the program are reviewed by the FPSC as part of the annual review of fuel costs. The increase in revenues from cost recovery clauses and other pass-through costs for the year ended December 31, 2003, was primarily due to higher fuel costs. Higher than projected fuel costs resulted in an underrecovery, which increased deferred clause expenses on FPL Group's and FPL's consolidated balance sheets and negatively affected FPL Group's and FPL's cash flows from operations for the twelve months ended December 31, 2003. During 2002, clause revenues (primarily fuel-related) declined due to lower fuel costs. FPL's annual fuel filing for 2001, as approved by the FPSC, included approximately

$518 million of under-recovered fuel costs from 2000, of which one-half ($259 million) was recovered in 2001 and the balance was recovered in 2002. FPL agreed to this two-year recovery, rather than the typical one-year time frame, to ease the impact on customers' bills. FPL also agreed that, instead of receiving a return at the commercial paper rate through the fuel clause, the under-recovery would be included as a rate base regulatory asset over the two-year recovery period. See Note 1 -

Regulation.

FPL's O&M expenses increased $25 million in 2003 primarily due to a $29 million increase in nuclear maintenance expenses associated with more comprehensive inspections of the reactor vessel heads at FPL's nuclear facilities as ordered by the NRC, as well as increased outage and plant maintenance costs. In 2003, the NRC issued an order, subsequent to a previously issued NRC bulletin, requiring all pressurized water reactor licensees, Including FPL, to perform visual and volumetric inspections of reactor vessel heads at each unit's scheduled refueling outage to identify if degradation such as cracking or corrosion has occurred. During the scheduled refueling outages for St. Lucie Unit No. 1 in October 2002, Turkey Point Unit No. 3 in March 2003 and Turkey Point Unit No. 4 In October 2003, FPL performed visual and volumetric inspections and found no degradation associated with the reactor vessel heads. In late April and early May 2003, while volumetric inspections of the reactor vessel head at St. Lucie Unit No. 2 were being performed during a scheduled refueling outage, two CRDM nozzles were found with one small crack in each. Both cracks were less than 50% through the thickness of the CRDM nozzle. No leakage was observed and both cracks were repaired during the outage. Also during the St. Lucie Unit No. 2 scheduled refueling outage, the steam generators were inspected and more tubes had to be plugged than anticipated. The inspection results were evaluated and revised tube plugging projections developed. Management intends to replace the steam generators at St. Lucie Unit No. 2 in 2007 and will delay the reactor vessel head replacement for St. Lucie Unit No. 2 until 2007 to coincide with the steam generator replacement. FPL anticipates replacing the reactor vessel heads at Turkey Point Units Nos. 3 and 4 during their next scheduled refueling outage and at St. Lucie Unit No. 1 during a scheduled refueling outage in the fall of 2005. Reactor vessel head replacements for these three units are expected to add approximately 35 days to the number of days a unit is removed from service during a typical scheduled refueling outage. The cost for the reactor vessel heads and steam generators is estimated to be $525 million and is included in FPL's estimated capital expenditures. See Note 17 - Commitments. The cost of performing inspections and any necessary repairs until the reactor vessel heads are replaced is being recognized as expense on a levelized basis over a five-year period beginning in 2002, as authorized by the FPSC, and amounted to $13 million in each of 2003 and 2002.

In 2003, the NRC issued a bulletin recommending that utilities with bottom mounted instrumentation penetrations perform visual inspections. Visual inspections of the bottom mounted instrumentation penetrations were performed in 2003 during Turkey Point Unit No. 4's scheduled refueling outage, and no evidence of leakage from these penetrations was noted. A visual inspection of Turkey Point Unit No. 3's bottom mounted instrumentation penetrations will be performed at its next scheduled refueling outage in the fall of 2004. St. Lucie Units Nos. 1 and 2 do not have bottom mounted instrumentation penetrations.

In addition to the increase in nuclear O&M expenses in 2003, employee benefit costs, primarily medical-related, increased

$17 million and property and liability Insurance costs increased $17 million due to higher Insurance premiums combined with lower refunds under nuclear insurance policies. These cost pressures are expected to continue in 2004. The 2003 cost increases were partially offset by the absence of the storm fund accrual of $35 million (discussed below) recorded In 2002, as well as productivity improvements In other areas. FPL's O&M expenses Increased $143 million in 2002. Approximately $42 million was attributable to higher nuclear costs associated with more comprehensive inspections of the reactor vessel heads at FPL's nuclear facilities. In addition to the Increase in nuclear O&M expenses in 2002, employee benefit costs increased

$15 million and property insurance costs Increased $9 million. Also in December 2002, the FPSC approved a one-time $35 25

million addition to the storm fund reserve. The balance of the Increase In 2002 O&M expenses primarily related to costs associated with work force reductions, overhaul of fossil plants and system reliability efforts.

Depreciation and amortization expense Increased from $831 million In 2002 to $898 million In 2003 primarily due to FPLs investment in generation and distribution expansion to support customer growth and demand which Included the completion of the Fort Myers'and Sanford repowering projects. The decrease in depreciation expense during 2002 reflects the $125 million credit to depreciation expense authorized under the.2002-2005 rate agreement.' This credit was partially offset by higher depreciation expense associated with the amortization of a' regulatory asset recorded as a result of a litigation settlement. The amortization approximates $44 million annually and Is being recovered over a 5-year period, beginning In January 2002, through the fuel and capacity clauses.

The Turkey Point Units Nos. 3 and'4 received operating license-extensions In 2002, which give FPL the option to operate these units until 2032 and 2033, respectively. The NRC extended the operating licenses for St. Lucie Units Nos. 1 and 2 during 2003, which give FPL the option to operate these units until 2036 and 2043, respectively. The original license expiration dates for Turkey Point Units Nos. 3 and 4 and for St. Lucie Units Nos. 1 and 2 are 2012, 2013, 2016 and 2023, respectively. FPL has not yet decided to exercise the option to operate past the original license expiration dates, although FPL is continuing to take actions to ensure the long-term viability of the units In order to preserve this option. The decision will be made for Turkey Point Units Nos. 3 and 4 by 2007 and for St. Lucie Units Nos. 1 and 2 by 2011. Any adjustment to depreciation and decommissioning rates would require FPSC approval.

Interest charges for 2003 increased primarily due to higher.average debt balances used to fund Increased Investment In generation, transmission and distribution expansion and under-recovery of fuel costs. -This increase was partially offset by a decline In average Interest rates of approximately 80 basis points In 2003 as compared to 2002. In 2002,!the decrease In interest charges was primarily due to lower average Interest rates, as well as lower average debt balances as a result of the recovery of previously under-recovered fuel costs.

FPL currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups, primarily Industrial customers. In 2003, operating revenues from wholesale and Industrial customers combined represented approximately 4% of FPLs total operating revenues. Various states, other than Florida, have enacted legislation or have state commissions that have Issued orders designed to allow retail customers to choose their electricity supplier. This regulatory restructuring Is expected to result In a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers. Although the legislation and initiatives vary substantially, common areas of focus Include when market-based pricing will be available for wholesale and retail customers, what existing prudently Incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It Is generally believed transmission and distribution activities would remain regulated. Recently, these state restructurirng efforts have diminished, and several states.have delayed the Implementation or reversed previously approved restructuring legislation and rules.

Management believes it Is unlikely there will be any state actions to restructure the electric Industry In Florida in the near future.

The FPSC promotes competition for building major new steam generating capacity by requiring investor-owned electric utilities, such as FPL, to Issue an RFP. The RFP process allows Independent power producers and others to bid to supply the needed generating capacity. If a bidder has the most -cost-effective alternative, meets other criteria such-'as financial viability and demonstrates adequate expertise and experience,in ibuilding and/or operating generation capacity of the type proposed, the investor-owned electric utility would seek to negotiate a power purchase agreement with the selected bidder and request that the FPSC authorize the construction of the bidders generation capacity under the terms of the power purchase agreement. In 2003, FPL Issued an RFP for additional power resources of approximately 1,100 mw beginning in June 2007. In January 2004, after evaluating alternative proposals, FPL concluded that Its plan to build a new natural gas-fired plant at its Turkey Point site was the best and most cost-effective option to provide the 1,100 mw.- In March 2004, FPL plans to file a petition for approval of this alternative with the FPSC. A decision Is expected by mid-2004. This alternative will also be subject to approval by a Siting Board (comprised of the governor and cabinet) under the Florida Electrical Power Plant Siting Act.

The FERC has jurisdiction over potential changes whichcould affect competition In wholesale transactions. In 1999, the FERC Issued Its final order on RTOs which, under a variety of structures, provides for the Independent operation of transmission systems for a given geographic area. In March 2001, the FERC approved GridFlorida (FPL's, Progress Energy Florida, Inc.'s and Tampa Electric Company's proposed RTO) as the RTO for peninsular Florida. In December 2001, the FPSC determined that the RTO as proposed was not In the best Interest of Florida customers and required the companies to develop a modified proposal. In March 2002, FPL, Progress Energy Florida, Inc. and Tampa Electric Company filed a modified RTO proposal with the FPSC changing the structure of GridFlorida from a for-profit transmission company to a non-profit ISO. Under the proposal, FPL would continue to.own Its transmission lines and the ISO would manage them. In September 2002, the FPSC approved many of the aspects of the modified RTO proposal, allowing recovery of GridFlorida's Incremental costs through the capacity clause. In October 2002, the Public Counsel filed a notice of administrative appeal with the Supreme Court of Florida seeking an appeal of the FPSC's order. In June 2003, the Florida Supreme Court dismissed the Public Counsel's appeal of the FPSC's approval of GridFlorida without prejudice concluding that the appeal was premature because the FPSC proceedings had not yet been completed and not all aspects of the FPSCs order on appeal were considered final agency action. The FPSC has restored the GridFlorida docket to active status and In December 2003 Issued a procedural order establishing a series of workshops through 2004 to address GridFlorida Issues.

26

In July 2002, the FERC issued a notice of proposed rulemaking to reform public utilities' transmission tariffs and implement a standardized design for electric markets in the United States. The proposed rule would, among other things, require FERC regulated entities, Including FPL, that own, control or operate transmission facilities to hire an independent transmission provider, which can be an RTO such as GridFlorida for the operation of those facilities. The proposed rule also will require the Independent transmission provider to administer various spot markets for the sale of electricity and ancillary services and to manage congestion on the transmission system using financial congestion rights. Legislators and regulators from the southeast and western states have expressed strong reservations about the FERCs proposal. In April 2003, the FERC issued a White Paper responding to comments on its proposed rule. The White Paper indicates that the FERC Intends to be more flexible on how and when the final rule will be implemented, defer to regional state committees to address significant RTO/lSO features, require regulated utilities to join RTOs or ISOs and require RTOs to implement spot markets. While a moratorium on further action by the FERC was included in the proposed Energy Policy Act, the status of that legislation Is uncertain. FPL is evaluating the proposed FERC rule and Is currently unable to determine its effects, if any, on FPLs operations.

In the event the basis of regulation for some or all of FPL's business changes from cost-based regulation, existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund. Further, other aspects of the business, such as generation assets and long-term power purchase commitments, would need to be reviewed to assess their recoverability in a changed regulatory environment. See Note 1 - Regulation.

In addition, FPL is constructing approximately 1,900 mw of natural gas combined cycle generation at its Martin and Manatee sites with a planned in-service date of June 2005. In January 2003, CPV Gulfcoast, Ltd. filed a notice of appeal with the Supreme Court of Florida challenging the FPSC's 2002 approval of the Martin and Manatee expansion and in April 2003, filed its initial brief. In May 2003, FPL filed its answer brief, which included a request for dismissal. The Supreme Court of Florida will not hold oral arguments. There is no specified time by which the Supreme Court of Florida must rule.

FPL Energy - FPL Energy's net income (loss) for 2003, 2002 and 2001 was $194 million, $(169) million and $113 million, respectively. FPL Energy's net income has become a greater portion of FPL Group's consolidated net income increasing from I % in 1997 to 22% in 2003. Net income reflects the following items which increased (decreased) reported results:

Years Ended December 31, 2003 2002 2001 (millions)

Cumulative effect of changes in accounting principles (3)

$ (222)

Restructuring and other charges S

(73)

Unrealized gains from non-qualifying hedges 22 1

8 Net income for 2003 included a charge of $3 million after tax due to a change in accounting principle (see Note 10) and a net unrealized gain of $22 million after tax associated with the mark-to-market effect of non-qualifying hedges. The net loss for 2002 was the result of FPL Energy recording impairment and other charges totaling $485 million ($295 million after tax). The impairment and other charges consisted of a goodwill impairment charge of $365 million ($222 million after tax) representing the cumulative effect of adopting FAS 142, 'Goodwill and Other Intangible Assets," and restructuring and other charges totaling $120 million ($73 million after tax) due to the unfavorable market conditions in the wholesale energy market. For further discussion of FAS 142, see Note 5, and for the restructuring and other charges, see below. In addition, during 2002, FPL Energy recorded less than $1 million of after-tax net unrealized mark-to-market gains from non-qualifying hedges compared to gains of $8 million during 2001. For further discussion of derivative instruments, see Note 3.

In 2002, as a result of depressed economic conditions coupled with an oversupply of energy generating facilities in certain markets, projected profit margins for certain natural gas projects had declined and were not sufficient to cover the cost of capital. Therefore, FPL Energy made a strategic decision during 2002 to substantially exit the fossil-fueled greenfield merchant power plant development business for the foreseeable future and, as a result, recorded restructuring and impairment charges in FPL Group's consolidated statements of income totaling $103 million ($63 million after tax). See Note 6 - FPL Energy.

Also in 2002, FPL Energy recorded a charge of approximately $17 million ($10 million after tax) against its investment in two wind projects due to regulatory issues associated with another investor in the projects. The resulting expense is included in equity in earnings of equity method investees in FPL Group's consolidated statements of income. After resolving the regulatory issues, in December 2003, FPL Energy purchased the remaining interests in these wind projects and began consolidating their operations.

FPL Energy's 2003 net income benefited from the full year effect of 2,235 mw of generation added in 2002, the majority of which was added in the fourth quarter of 2002, as well as 3,904 mw added in 2003. The 2002 additions include the purchase of an 88.23% interest in Seabrook as well as wind and natural gas-fired assets. During 2003, FPL Energy added 975 mw of wind generation and 2,929 mw of natural gas-fired assets. In aggregate, 2002 and 2003 project additions contributed $82 million to 2003 net income. FPL Energy's operating revenues and operating expenses for the year ended 2003 Increased $561 million and $352 million, respectively, primarily driven by project additions. In addition, restructuring and impairment charges discussed above added $103 million to operating expenses in 2002. Operating revenues net of operating expenses, primarily fuel, were essentially flat In the balance of the portfolio. Both the ERCOT and NEPOOL regions experienced higher energy prices offset by lower generation and higher fuel costs. Construction is underway on another gas-fired power plant that will add 744 mw of generation in PJM in the last half of 2004. FPL Energy expects its future portfolio growth to come from a mix 27

of asset acquisitions and wind development, assuming pending legislation reestablishing the production tax credits for new wind facilities is enacted.

Earnings from Investments In partnerships and joint ventures for the twelve months ended December 31, 2003, presented as equity In earnings of equity method investees, increased $13 million from the prior year reflecting an Increase in unrealized gains associated with the mark-to-market effect of non-qualifying hedges and a $17 million charge against its Investment in two wind projects recorded In 2002 (discussed above). In addition, equity In earnings of equity method Investees reflects lower gains from contract restructurings and lower earnings from a project In Califomia,-as well as lower project earnings due to higher fuel prices in the ERCOT and NEPOOL regions.

FPL Energy's net income for the year ended 2003 also reflected higher Interest expense of approximately $38 million associated with increasing average debt balances due to growth in the business partially offset by a decline In average Interest rates of approximately 30 basis points compared with same period in 2002. FPL Energy's net income in 2002 also Included the positive effects of a $10 million Insurance settlement.

In 2003, the NRC Issued an order, subsequent to a previously Issued NRC bulletin, requiring all pressurized water reactor licensees, including Seabrook, to perform visual and volumetric Inspections of reactor vessel heads to Identify If degradation such as cracking or corrosion has occurred. Seabrook will be required to perform 100% visual and volumetric inspections In 2006, and subsequently, visual Inspections every third outage and volumetric inspections every fourth outage.' In 2003, the NRC issued a bulletin recommending that utilities with bottom mounted instrumentation penetrations perform visual inspections. In October 2003, visual inspections of the bottom mounted Instrumentation penetrations were performed during Seabrook's scheduled refueling outage, and no evidence of leakage from these penetrations was noted. The next refueling outage Is scheduled to be performed In April 2005.

FPL Energy's 2002 net income benefited from project additions, primarily wind assets In the central and western regions of the United States, and the purchase of an 88.23% Interest In Seabrook in November 2002, as well as a natural gas-fired power plant that began operations during the fourth quarter of 2002. Project additions totaling 'more than 1,000 mw in 2001 and more than 2,200 mw in 2002 contributed $41 million to 2002 net income, $22 million coming from the full-year effect of new wind projects that came on line In the second half of 2001 and 324 mw of new wind generation added in 2002, and the balance from earnings from other project additions, Including Seabrook. For additional Information concerning the Seabrook acquisition, see Note 9 - FPL Energy. FPL Energy's operating revenues and operating expenses for 2002 Increased $80 million and $220 million, respectively, primarily driven by project additions coupled with the previously discussed restructuring charges that added $103 million to operating expenses In 2002. Increased revenues from project additions were partially offset by lower revenues from the balance of the consolidated portfolio primarily due to reduced energy prices driven by new entrants In the market, as well as mild weather In the Northeast, including drought conditions which had a negative Impact on the performance of the hydro assets.

Earnings from Investments in partnerships and joint ventures, presented as equity In earnings of equity method investees, declined $5 million In 2002 reflecting the $17 million charge recorded against Investments In two wind projects discussed above and a gain of $23 million on the restructuring of a gas supply contract that was renegotiated to yield lower fuel costs and Is expected to improve future cash flows, as well as Improve equity In earnings'from the project. In addition, equity in earnings of equity method Investees In 2001 Included a gain of $34 million resulting from the sale of a partnership interest In'a geothermal project. This gain was almost entirely offset by the write-off of affiliate debt associated with the partnership interest, which was included In other - net. The remaining increase in 2002 equity in earnings is primarily due to increased contract prices, as the majority of the output of the projects was sold under long-term contracts.

Interest charges Increased $12 million during 2002 associated with higher debt balances due to growth in the business, partly offset by lower average Interest rates. Interest income in 2002 declined approximately $14 million and includes, In 2001, Interest from a favorable settlement with the IRS. In addition, the decline in Interest Income reflects lower Interest rates in 2002.

Over the last several years, there has been a general decline In the wholesale energy market, including deterioration in forward prices and reduced liquidity, as well as Increasing credit concerns that have limited the number of counterparties with which FPL Energy does business. These market conditions have made it more difficult for FPL Energy to manage the risk associated with fluctuating commodity prices, to optimize the value of its assets and to contract the output of its plants. Any uncontracted output from the plants has been and will be sold Into the market place at prevailing prices when economical. Given current market conditions, when FPL Energy's existing power sales agreements expire, more of the energy produced may be sold through shorter-term contracts and into competitive wholesale markets. :

Competitive wholesale markets In the United States continue to evolve and vary by geographic region. Expanded competition In a relaxed regulatory environment presents both opportunities and risks for FPL Energy. Some of the factors affecting success In these markets are the ability to operate generating assets efficiently and reliably, the price and supply of fuel, transmission constraints, wind and hydro resources (weather conditions), competition from new sources of generation, effective risk management, demand growth and exposure to legal and regulatory changes. Opportunities exist for the selective acquisition of generation assets divested under deregulation plans and for the construction and operation of efficient plants that can sell power in competitive markets. Wholesale energy markets have experienced lower demand and lower wholesale electricity prices as a result of weather and economic conditions and the oversupply of generation In certain regions. FPL Energy seeks to reduce Its market risk by having a diversified portfolio, by fuel type and location, as well as by contracting for the sale of a significant amount of the electricity output of Its plants.

28

FPL Energy's 2004 earnings are subject to variability due to, among other things, commodity price exposure, counterparty performance, weather conditions and project restructuring activities. FPL Energy's exposure to commodity price risk is reduced by the high degree of contract coverage obtained for 2004. As of December 31, 2003, FPL Energy's capacity under contract for 2004 is as follows:

Available

% MW Asset Class MW "

Under Contract Wind 2,719 99%

Non-wind assets under long-term contract 1,255 98%

Merchants:

Seabrook 1,024 97%

NEPOOUPJMiNYPP 1,879 34%'

ERCOT 3,009 65%'

Other (WECC/SERC) 1,345 60%('

Total portfolio 11,231 74%

(X Weighted to reflect in-service dates and planned maintenance.

(bl Represents on-peak mw under contract FPL Energy's results are affected by natural fluctuations in weather. In addition to the effect of temperature, which is reflected in commodity prices and demand, changes in weather affect the wind portfolio as well as the hydro units in Maine.

In managing its exposure to commodity prices, FPL Energy is dependent upon its counterparties to perform under their contractual obligations. FPL Energy actively manages the trade-off between market risk and credit risk, as well as exposure with individual counterparties as a function of their creditworthiness. Substantially all of FPL Energy's 2004 contracted revenues are with investment grade counterparties.

Corporate and Other-Corporate and Others net loss for 2003, 2002 and 2001 was $37 million, $75 million and $11 million, respectively. Net loss reflects the following items which Increased (decreased) reported results:

Years Ended December 31, 2003 2002 2001 (millions)

Impairment, restructuring and other charges (94)

S Gain from income tax settlement 30 Merger-related costs S

(3)

Corporate and Other is primarily comprised of FPL FiberNet and other corporate income and expenses, such as interest income and interest expense. Results from Corporate and Other for 2003 primarily reflect higher interest charges and the absence of restructuring and impairment charges recorded in 2002. For the year ended December 31, 2002, losses at Corporate and Other reflect impairment and other charges totaling $94 million after tax as a result of declines in the telecommunications market (see Note 6 - Corporate and Other) and reserves against certain leveraged lease investments (see Note 17 - Other Contingencies). These charges were partially offset by a $30 million gain in the first quarter of 2002 from the resolution of an income tax matter. The impairment and other charges were recorded as a result of declines in the telecommunications market. FPL FiberNet completed valuation studies to assess the recoverability of its assets and as a result, in 2002, recorded charges of approximately $104 million ($64 million after tax). Of this amount, $85 million ($52 million after tax) represents an impairment charge related to property, plant and equipment, the fair value of which was determined based on a discounted cash flow analysis. Additionally, FPL FiberNet decided not to pursue the planned build-out of metro fiber rings in certain cities, and restructuring charges of $19 million ($12 million after tax) were recognized related to the write-off of development costs and Inventory. These charges are included in restructuring and Impairment charges in FPL Group's consolidated statements of income.

Although the demand for telecommunication capacity continues to grow, many telecommunication companies have filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11) as market conditions deteriorated. This has caused customer credit to become a primary focus for the industry as credit downgrades have increased. Most of FPL FiberNets customers are required to pay in advance and past due amounts are closely monitored and actively pursued.

Several of FPL FiberNet's customers have filed for bankruptcy protection under Chapter 11 and reserves for any prepetition receivables due to FPL FiberNet have been established. As a result of this deterioration and general economic conditions, FPL FiberNet has experienced a slowdown In its longhaul (intercity transport) business. FPL FiberNet's metropolitan network continues to benefit from an expanding customer base and increasing use of FPL FiberNet's network by its existing customers. FPL FiberNet's capital expenditure forecast for 2004-2008 is approximately $50 million.

Subsidiaries of FPL Group, other than FPL, have investments in several leveraged leases, two of which are with MCI Telecommunications Corporation (MCI). In July 2002, MCI filed for bankruptcy protection under Chapter 11. Due to the uncertainty of collectibility associated with these leveraged leases, FPL Group recorded reserves totaling approximately $48 million ($30 million after tax) in the third quarter of 2002. At December 31, 2003, investments in leveraged leases with MCI totaled approximately $15 million and related deferred tax liabilities totaled approximately $11 million. An agreement has been reached with MCI that will consolidate and amend the leases upon the effective date of MCI's reorganization plan. On September 2, 2003, MCI was authorized by the bankruptcy court to assume the consolidated and amended lease, cure any 29

prepetition arrearages and take all further action necessary or appropriate to effectuate the amended lease upon the effective date of MCI's reorganization plan. The amended lease would be classified as an operating lease and Is not expected to have a significant effect on FPL Group's financial statements. In October 2003, the bankruptcy court approved MCI's reorganization plan which Is expected to become effective in early 2004.

In connection with the redemption In 1999 of Its one-third ownership Interest In Olympus Communications, L.P. (Olympus), an Indirect subsidiary of FPL Group holds a note receivable from a limited partnership, of which Olympus Is a general partner.

The note receivable Is secured by a pledge of the redeemed ownership Interest. Olympus Is an Indirect subsidiary of Adelphla Communications Corp.. (Adelphia). In June 2002, Adelphia and a number of Its subsidiaries, Including Olympus, filed for bankruptcy protection under Chapter 11. The note receivable plus accrued Interest totaled approximately $127 million at December 31, 2003 and are Included In other Investments on FPL Group's consolidated balance sheets. The note was due on July 1, 2002 and is currently In default.

Based on the most recent publicly available financial Information set forth in Olympus' Quarterly Report on Form 10-0 for the quarterly period ended September 30,- 2001, total assets of Olympus exceeded liabilities by approximately $3.6 billion and Olympus served 1,787,000 basic subscribers. Olympus has not filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2001 or any subsequent Quarterly Reports on Form 10-0 or Annual Reports on Form 10-K with the SEC, and consequently the September 30, 2001 financial information may not be Indicative of Olympus' current financial position.: Olympus has stated publicly that It expects to restate Its financial statements for the years ended December 31, 2000 and 1999, and its Interim financial statements for 2001 and possibly other periods. In addition, current management of Olympus believes that other public Information provided by the Rigas family, which controlled Adelphla, was unreliable. In July 2002, the SEC filed suit against Adelphia and certain of its officers alleging that Adelphia fraudulently excluded billions of dollars of debt from its financial statements, misstated Its financial and operating results and concealed rampant self-dealing by the Rigas family. In October 2003, Olympus filed certain limited financial Information as required by orders of the bankruptcy court. However, such information was not useful to FPL Group In its evaluation of the collectibility of the note receivable. In January 2004, the FPL Group subsidiary filed its proof of claims with the bankruptcy court.

In August 2002, an affidavit was filed In the bankruptcy court proceedings by a director of Lazard Freres & Co. LLC stating that, based on his analysis, the market value of FPL Group's secured interest in Olympus exceeded the carrying value of the note receivable plus accrued Interest. In February 2003, FPL Group obtained an evaluation of the Olympus assets from -an independent third party. The results of the evaluation, which was based on the limited Information available, indicated that there was no Impairment.--

On February 25, 2004, Adelphia and certain of Its affiliates and subsidiaries, Including Olympus; filed a disclosure statement (Disclosure Statement) and plan of reorganization (Plan). The Disclosure Statement provides for the "deemed consolidation' of the Adelphia debtors into ten separate groups for purposes'of voting, confirmation and distribution under the Plan. The note receivable has been classified under the Plan by the Adelphia debtors as one of those groups and, under the proposed treatment under the Plan, the note receivable will be satisfied with shares of common stock of a reorganized Adelphia.'

FPL Group believes that the Disclosure Statement and the Plan have misclassified the note receivable and anticipates filing appropriate objections. FPL Group cannot predict whether Its objection to the Plan will result in changes to the Plan or whether the Plan will be approved. As such, the ultimate collectibility of the note receivable cannot be assured.

Liquidity and Capital Resources FPL Group and Its subsidiaries, Including FPL, require funds to support and grow their businesses. These funds are used for working capital, capital expenditures, Investments In or acquisitions of assets and,businesses,, to pay maturing debt obligations and, from time to time, to redeem outstanding debt and preferred stock. It Is 'anticipated that these requirements will be satisfied through a combination of internally generated funds and the Issuance, from time to time, of debt and equity securities, consistent with FPL Group's and FPL's objective of maintaining, on a long-term basis, a capital structure that will support a strong Investment grade credit rating. Credit ratings can affect FPL Group's and FPL's ability to obtain short-and long-term financing, the cost of such financing and the execution of their financing strategies. Absent new Investment opportunities In 2004, management expects cash to be available to FPL Group in excess of needs that are presently Identified.

FPL Group and Its'subsidiaries, including FPL, have $3.0 billion ($2.0 billion for FPL Group Capital and $1.0 billion for FPL) of bank lines of credit currently available. Half of these credit facilities expire In October 2004 with a one-year term-out option.

The other half of the credit facilities expire In October 2006 and provide for the Issuance of letters of credit of up to $500 million'for' FPL Group Capital and up to $250 million for FPL subject to the aggregate commitment ($1.0 billion for FPL Group Capital and $500 million for FPL) under the applicable facility. These credit facilities are available to support the companies commercial paper programs and to provide additional liquidity in the-event of a Transmission and Distribution property loss (in the case of FPL), as well as for general corporate purpboses. At December 31, 2003, letters of credit totaling $85 million and

$0 were outstanding under the FPL Group Capital and FPL credit facilities, respectively. In addition, FPL Group Capital and FPL each have a promissory note with a bank under which they may borrow up to $200 million and $500 million, respectively.

Borrowings under both promissory notes may be used for general corporate purposes. As of December 31, 2003, FPL Group Capital had $200 million outstanding under Its promissory note and Is Included in notes payable on FPL Group's consolidated balance sheets. FPL had no amounts outstanding under Its promissory note. FPL Group (which guarantees payment of FPL Group Capital's credit facilities and promissory note) Is required to maintain a minimum ratio of funded debt to capitalization and a minimum Interest coverage ratio under the terms of FPL Group Capital's credit facilities.. FPL Is required to maintain a 30

minimum ratio of funded debt to capitalization under FPL's credit facilities. At December 31, 2003, FPL Group and FPL were in compliance with their respective ratios.

During 2003, FPL Group and its subsidiaries obtained debt financing totaling approximately $3.1 billion; approximately $894 million at FPL, $1.1 billion at FPL Group Capital and $1.1 billion at FPL Energy. During 2003, FPL Group also raised approximately $73 million of equity through Its dividend reinvestment plan and employee thrift plans. The proceeds from FPL's debt were used to repay a portion of short-term borrowings, redeem higher interest rate debt and for other corporate purposes. In addition, FPL redeemed preferred stock with an aggregate par value of $221 million during 2003. FPL Group Capital's debt proceeds were used to repay a portion of commercial paper Issued to fund investments in independent power projects. Subsidiaries of FPL Energy that issued debt used the proceeds to either fund, or return to FPL Energy a portion of the indirect investment it made for the development, acquisition and/or construction of independent power projects, as well as to fund operations and debt service.

In addition, effective July 1, 2003, FPL Group and FPL consolidated certain ViEs in accordance with FIN 46. FPL consolidated $135 million of 2.34% senior secured notes maturing in June 2006. The notes were issued by a VIE in June 2003 and the proceeds were used by the VIE to refinance its existing debt and for the procurement of nuclear fuel and related general corporate purposes. In 2003, this consolidated VIE also established a $65 million senior secured revolving credit facility which expires in June 2004 to provide backup support to the VIE's commercial paper program. FPL has provided an unconditional guarantee of the payment obligations of the VIE under the notes and credit facility, which are included in the table of commitments below. At December 31, 2003. the VIE had no outstanding borrowings under the revolving credit facility and approximately $19 million under the commercial paper program. In addition, FPL Energy consolidated approximately

$360 million variable rate notes payable Issued by a VIE in June 2002 and maturing in December 2007. At December 31, 2003, the balance of the notes payable was approximately $356 million. The proceeds of the notes were used by the VIE to complete the acquisition, development and construction of a power generation plant. FPL Group Capital has guaranteed certain obligations under the debt agreement. This VIE also entered into two identical interest rate swap agreements in 2002 with an aggregate original notional amount of $106 million to fix the interest rate on a portion of this debt at 4.41%. The interest rate swap agreements expire in December 2007. Quarterly principal payments on the notes began in March 2003. For further discussion of VIEs, see Note 10.

FPL Group and its subsidiaries also entered into five interest rate swap agreements during 2003. The swaps consisted of three variable interest rate swap agreements at FPL Group Capital to protect $475 million of its outstanding fixed rate debentures (with Interest rates ranging from 6 7/8% to 7 5/8%) against changes in fair value due to changes in interest rates and two interest rate swap agreements at FPL Energy to fix the interest rates at rates ranging from 3.557% to 4.245% in order to limit cash flow exposure on a total of $294 million of variable rate debt.

In January 2004, FPL sold 200,000 shares of $100 par value 4 1/2% Series V preferred stock to FPL Group and issued $240 million of 5.65% first mortgage bonds maturing in 2035. Also in January 2004, FPL Group Capital entered into a variable interest rate swap agreement to protect $200 million of its outstanding 1 7/8% fixed rate debentures against changes in fair value due to changes in interest rates. For further discussion of preferred stock and debt activity, see Notes 14 and 15, respectively.

The following provides various metrics regarding FPL Group and FPL's outstanding debt:

FPL Group FPL December 31, December31, 2003 2002 2003 2002 Weighted average annual interest rate 4.9%

5.5%

4.5%

5.3%

Weighted average life (years) {"

7.3 6.0 13.6 10.1 Annual average of floating rate debt to total debt 31 %

29%

33%

34%

i& For x mparablity purposes, 2002 reflects debt related to ViEs consolidated July 1, 203.

FPL Group's charter does not limit the dividends that may be paid on its common stock. As a practical matter, the ability of FPL Group to pay dividends on its common stock is dependent upon dividends paid to it by its subsidiaries, primarily FPL In February 2004, FPL Group announced that it would increase its quarterly dividend on its common stock from $0.60 to $0.62 per share. In 2003, 2002 and 2001, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis. In addition in 2002, FPL paid special dividends totaling $375 million to FPL Group. FPL Group made capital contributions in 2003, 2002 and 2001 to FPL of $600 million, $350 million and $400 million, respectively. FPL's charter and mortgage contain provisions which, under certain conditions, restrict the payment of dividends to FPL Group and the issuance of additional unsecured debt, preferred stock and first mortgage bonds. In light of FPL's current financial condition and level of eamings, management does not expect that planned financing activities or dividends would be affected by these limitations.

Under FPL's charter, dividends may be paid on FPL's common stock only after payment or provision for payment of dividends which are then accrued and owing on FPL's preferred stock, and only to the extent that the payment of such common stock dividends would not cause the common stock equity to be less than 25% of total capitalization of FPL or, if the common stock equity would be less than 20% or 25%, as the case may be, of the total capitalization of FPL, then such dividends may not exceed 50% or 75%, respectively, of the net Income of FPL for the preceding 12 months available for dividends on the common stock. Under this test, FPL could have paid dividends in excess of $3 billion at December 31, 2003 after giving 31

effect to the January 2004 Issuances of the 200,000 shares of $100 par value 4 1/2% Series V preferred stock and the $240 million 5.65% first mortgage bonds maturing In 2035. Under the mortgage securing FPL's first mortgage bonds, In some cases, the mortgage restricts the amount of retained earnings that FPL can use to pay cash dividends on its common stock.

The restricted amount may change based on factors set out In the mortgage. Other than this restriction on the payment of common stock dividends, the mortgage does not restrict FPL's use of retained eamings. As of December 31, 2003, no retained earnings were restricted by these provisions of the mortgage.

While FPL's preferred stock remains outstanding, FPL's charter limits the amount of its unsecured Indebtedness (without the consent of the preferred shareholders), for purposes other than (a) the refunding of outstanding unsecured indebtedness; (b) the reacquisition, redemption or other retirement of any Indebtedness issued or assumed by FPL; or (c) the reacquisition, redemption or other retirement of all outstanding shares of FPL's outstanding preferred stock and all outstanding shares of any other class or series of stock ranking on a parity with the outstanding preferred stock. For other purposes, the allowed aggregate principal amount of unsecured Indebtedness Is 20% of the aggregate of the total principal amount of all bonds or other securities representing secured indebtedness Issued or assumed by FPL and the capital and surplus of FPL. Under this test after giving effect to the January 2004 Issuance of $240 million 5.65% first mortgage bonds maturing In 2035, FPL could have Issued in excess of $450 million of additional unsecured debt at December 31, 2003 for purposes other than those described above:'

Under FPL's charter, the issuance of additional shares of FPL preferred stock (except Junior preferred) Is prohibited unless (a) net Income available for payment of dividends on all the preferred stock Including the shares to be Issued for a period of 12 consecutive months within the last 15 months Immediately preceding the Issuance Is at least twice the annual dividend requirements on all the preferred stock Including the shares to be Issued; and (b) gross Income (after depreciation and taxes) for a period of 12 consecutive months within the 15 months Immediately prior to such Issuance shall have been at least 1.5 times the sum of annual interest charges on all Indebtedness and annual dividend requirements on all the preferred stock (including the shares to be Issued). Currently, the gross income test Is the more restrictive of the two tests, and under that test, after giving effect to the January 2004 Issuances of the 200,000 shares of $100 par value 4 1/2% Series V preferred stock and the $240 million 5.65% first mortgage bonds maturing in 2035, coverage for the 12 months ended December 31, 2003 would have been In excess of 4 times the sum of annual Interest charges on all Indebtedness and annual dividend requirements on all the preferred stock..

FPL may Issue first mortgage bonds under Its mortgage subject to Its meeting an adjusted net eamings test set forth In the mortgage, which generally requires adjusted net earnings to be at least twice the annual interest requirements on, or at least 10% of the aggregate principal amount of, FPL's first mortgage bonds Including those to be Issued and any other non-junior FPL Indebtedness. As of December 31, 2003, after giving effect to the January 2004 Issuance of the $240 million 5.65% first mortgage bonds maturing in 2035, coverage for the 12 months ended December 31, 2003, would have been In excess of 9 times the annual interest requirements and In excess of 5 times the aggregate principal requirements.. New first mortgage bonds are also limited to an amount equal to the sum of 60% of unfunded property additions after adjustments to offset retirements, the amount of retired first mortgage bonds or qualified lien bonds and the amount of cash on deposit with the mortgage trustee. As of December 31, 2003, after giving effect to the Issuance In January 2004 of the $240 million of 5.65%

first mortgage bonds maturing in 2035, FPL could have Issued In excess of $4.5 billion of additional first mortgage bonds based on the unfunded property additions and In excess of $5.5 billion based on retired first mortgage bonds. As of December 31, 2003, no cash was deposited with the mortgage trustee for these purposes.

FPL Group and Its subsidiaries, Including FPL, have no credit rating downgrade triggers that would accelerate the maturity dates of debt outstanding. A change In ratings Is not an event of default under applicable debt Instruments, and while there are conditions to drawing on the credit facilities maintained by FPL Group Capital and FPL, the maintenance of a specific minimum level of credit rating Is not a condition to drawing upon those credit facilities. However, commitment fees and Interest rates on loans under the credit facilities agreements are tied to credit ratings and would Increase or decrease when ratings are changed. A ratings downgrade also could reduce the accessibility and Increase the cost of commercial paper Issuances and additional or replacement credit facilities, and could result In the requirement that FPL Group subsidiaries, Including FPL, post collateral under certain power purchase and other agreements. FPL Group subsidiaries, Including FPL, are regularly required to post collateral In -excess of collateral threshold amounts when FPL Group's exposure to the counterparty under the applicable trading agreement exceeds such threshold.

32

Securities of FPL Group and its subsidiaries are currently rated by Moody's Investors Service, Inc. (Moody's), Standard &

Poors Ratings Services (S&P) and Fitch Ratings (Fitch). At February 26, 2004, Moody's, S&P and Fitch had assigned the following credit ratings to FPL Group, FPL and FPL Group Capital:

FPL Group:

Moodys

S&P W Fitch a' Corporate credit rating N/A A

A FPL Corporate credit rating Al A/A-1 N/A First mortgage bonds Aa3 A

AA-Pollution control, solid waste disposal and industrial development revenue bonds Aa3NVMIG-1 A/A-1 A+

Preferred stock A3 BBB+

A Commercial paper P-1 A-1 Fl FPL Group Capital:

Corporate credit rating N/A ANA-i N/A Debentures A2 A-A Commercial paper P-1 A-1 F1 t

A security rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. The rating Is subject to revision or withdrawal at any time by the assigning rating organization.

The outlook indicated by Moody's for the ratings of FPL Is stable, while the outlook for the ratings of FPL Group Capital is negative reflecting uncertainty in the wholesale generation market. In July 2003, Fitch initiated coverage of FPL Group, FPL and FPL Group Capital and indicated a stable outlook for each company. In October 2003, S&P affirmed the 'A' corporate credit rating for FPL Group and subsidiaries and maintained a negative outlook.

FPL Group's commitments by segment at December 31, 2003 were as follows:

2004 2005 2006 2007 2008 Thereafter Total (millions)

Long-term debt:

FPL

-S 500 $

135 S S

200 $

2,258 $

3,093 FPLEnergy 91 119 116 418 315 705 1,764 Corporate and Other 276 675 1.100 1,075 506 630 4,262 Standby letters of credit:

FPL II II FPL Energy 291 291 Corporate and Other 4

4 Guarantees:

FPL FPL Energy 62 95 17 220 394 Corporate and Other 2

2 Other commitments:

FPL "'

1,645 1,650 1,565 1,540 1,230 7,630 FPLEnergy 0' 171 69 49 64 47 717 1,117 Corporate and Other "N 157 46 203 Total

$ 2.708 S 3,156 $ 2,965 $ 3,114 S 2,298 $

4,530 $ 18,771 Represents estimated capital expenditures through 2008 to meet Increased electricity usage and customer growth, as well as capital improvements to and maintenance of existng facilities. Exdudes capacity payments under purchased power and fuel contracts which are recoverable through various cost recovery clauses.

a' Represents firm commitments primarily in connection with natural gas transportation and storage, firm transmission service, nuclear fe and a portion of its capital expendtures.

W See Note 17 - Commitments.

FPL Group Capital has guaranteed certain debt and other obligations of FPL Energy and its subsidiaries. FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most of those under FPL Group Capital's debt, including all of its debentures and commercial paper issuances, as well as most of its guarantees. See guarantees in table above.

FPL Energy has guaranteed certain performance obligations of a power plant owned by a wholly-owned subsidiary as part of a power purchase agreement (PPA) that expires in 2027. Under the PPA, the subsidiary could Incur market-based liquidated damages for failure to meet contractual minimum outputs. In addition, certain subsidiaries of FPL Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result in the FPL Energy subsidiary incurring specified liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these guarantees Is not material.

FPL self-insures for damage to certain transmission and distribution properties and maintains a funded storm and property insurance reserve to reduce the financial impact of storm losses. The balance of the storm fund reserve at December 31, 33

2003 was approximately $327 million, representing the amount in the storm fund (approximately $200 million) plus related

,deferred income taxes (approximately $127 million). The FPSC has indicated that R would consider future storm losses in excess of the funded reserve for possible recovery from customers. FPL's bank lines of credit discussed above are also

,available if needed to provide cash for storm restoration costs.

New Accounting Rules and Interpretations Accounting or Asset Retirement Obligations - Effective January 1, 2003, FPL Group and FPL adopted FAS 143, 'Accounting for Asset Retirement Obligations." See Note 16.

Variable Interest Entities - In January 2003, the FASB Issued FIN 46, 'Consolidation of Variable Interest Entities,' which was subsequently revised. See Note 10.

Derivative instruments - Effective July 1, 2003, FPL Group and FPL adopted FAS 149, 'Amendment of Statement 133 on Derivative Instruments and Hedging Activities.' There was no financial statement Impact upon adoption of FAS

.149. However, the statement could have a significant future impact on the number of contracts that will be marked to market through earnings: Effective October 1, 2003, FPL Group and FPL adopted Emerging Issues Task Force Issue No. (EITF) 03-11, which provides guidance on whether to report realized gains or losses on physically settled derivative contracts not held for trading purposes on a gross or net basis and requires realized gains or losses on derivative contracts that net settle to be reported on a net basis. In addition, effective October 1, 2003, FPL Group and FPL adopted the SEC staff guidance requiring the realized and unrealized effects of derivative Instruments not accounted for as hedges to be reported within the same caption on the' statements of Income. See Critical Accounting Policies and Estimates -

Accounting for Derivatives and Hedging Activities and Note 3.

Guarantees - Effective January 1, 2003, "FPL Grouptand FPL adopted FIN 45, 'Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.', See Note 17 - Commitments.

Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity - In May 2003, the FASB issued FAS 150 'Accounting for Certain Financial Instruments with Characteristics of both Uabilities and Equity,' which was effective July 1, 2003. The primary charige in accounting for FPL Group resulting from FAS 150 Is the accounting treatment of mandatorily redeemable non-controlling lnterestsiln subsidiaries with finite lives. In October 2003, the FASB deferred indefinitely the adoption of the FAS 150 provisions ielating to mandatorily redeemable non-controlling interests in subsidiaries with finite lives. The remaining provisions of FAS 150 did not have a financial statement impact for the year ended December 31, 2003. In addition, the FASB continues to address other FAS 150 Implementation Issues, none of which affect FPL Group or FPL currently but may affect them in the future.

Pensions and Other Postretirement Benefits - In December 2003, the FASB Issued FAS 132 (revised 2003), 'Employers' Disclosures about Pensions and Other Postretirement Benefits,' which expanded disclosures related to FPL Group's pension and postretirement plans. In January 2004, the FASB Issued Staff Position FAS -106-1, 'Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization-Act of 2003.' See Note 2.

Critical Accountinrgc Policies and Estimates The preparation of financial statements and related disclosures In conformity with generally accepted accounting principles requires management to exercise Judgment and make estimates and assumptions where amounts are not subject to precise measurement or are dependent on future events.

v^-

Critical accounting policies and estimates, which are Important to the portrayal of both FPL Group's and FPL's financial condition and results of operations and which require complex, subjective judgments are as follows:

Accounting for Derivatives and Hedging Activities - On January 1, 2001, FPL Group and FPL ado'pted FAS 133, 'Accounting for Derivatives and Hedging Activities,' as amended. FPL Group and FPL use derivative Instruments (primarily forward purchases and sales, swaps,- options -and futures) to manage the commodity price risk inherent in fuel and electricity

-contracts, as well as to optimize the value of power generation assets and related contracts. To a lesser extent, FPL Group

-also engages In limited energy trading activities to take advantage of expected favorable price movements. These accounting pronouncements, which require the use of fair value accounting If certain conditions are met, apply not only to traditional

,financial derivative instruments, but to any contract having the accounting characteristics of a derivative.

FAS 133 requires that derivative Instruments be recorded on the balance sheet at fair value. Fair values for some of the longer-term contracts where liquid markets are not available are based on Internally developed models. The estimation of fair value for long-term contracts requires the use of Internally developed models based on the forward prices for electricity and fuel. Forward prices represent the price at which a buyer or seller could contract today to purchase or sell a commodity at a future date. In general, the models estimate the fair value of a contract by calculating the present value of the difference between the prices In the contract and the forward prices. The market for electricity In the first one to three years of a contract Is generally liquid and -therefore the prices In the early years-of the forward 'curves reflect observable market quotes. However, In the later years, the market is much 'less liquid and forward price curves must be developed. Factors used In developing forward curves for-electricity Include the forward prices for the commodities used as fuel to generate electricity, the expected system heat rate (which measures the efficiency of power plants in converting fuel to electricity) In the region where the purchase or sale takes place, and a fundamental forecast of expected spot prices based on modeled supply and demand In the region. The assumptions in these models are critical since any changes therein could have a significant

-34

impact on the fair value of the contract. Substantially all changes in the fair value of derivatives held by FPL 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 and capacity clauses. In the non-rate regulated operations, predominantly FPL Energy, changes in the derivatives' fair values are recognized in current earnings, unless certain hedge accounting criteria are met. For those transactions for which hedge accounting can be applied, much of the effects of changes in fair value are reflected in other comprehensive income (OCI), a component of shareholders' equity, rather than being recognized in current earnings.

Since FAS 133 became effective In 2001, the FASB has discussed and, from time to time, issued implementation guidance related to FAS 133. In particular, much of the interpretive guidance affects when certain contracts for the purchase and sale of power and certain fuel supply contracts can be excluded from the provisions of FAS 133. Despite the large volume of implementation guidance, FAS 133 and the supplemental guidance does not provide specific guidance on all contract issues.

As a result, significant judgment must be used in applying FAS 133 and its interpretations. The interpretation of FAS 133 continues to evolve. One possible result of changes in interpretation could be that certain contracts would have to be recorded on the balance sheet at fair value, with changes in fair value recorded in the income statement.

During the fourth quarter of 2003, FPL Group and its subsidiaries adopted EITF 03-11, which precluded certain economic hedging transactions at FPL Energy from qualifying for hedge accounting treatment. Those transactions will now be marked to market and reported in the non-qualifying hedge category and are likely to result in more volatility in the non-qualifying hedge category in the future. The ongoing changes in accounting guidance relating to derivatives confirm management's belief in the importance of segregating the effects of the unrealized mark-to-market impact of non-qualifying hedges. Without any change in FPL Group's economic positions or the timing or amounts of future cash flows, a small change in classification of particular transactions can result In significant changes in net income. This could be significant to FPL Energy's results because the economic offset to the positions which are required to be marked to market (the physical assets themselves) are not marked to market. As a consequence, net income reflects only the movement in one part of economically linked transactions. Because of this, FPL Group's management continues to view results expressed excluding the unrealized mark-to-market impact of the non-qualifying hedges as a meaningful measure of current period performance. For additional information regarding derivative instruments, see Note 3.

Accounting for Pensions and Other Post Employment Benefits -

FPL Group sponsors a noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. In addition, FPL Group sponsors a substantially contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements who elect participation at the time of retirement. The pension plan has a fully funded trust dedicated to providing the benefits. The other benefits plan has a partially funded trust dedicated to providing benefits related to life insurance.

FPL Group's pension income net of the cost of other benefits was approximately $84 million, $82 million and $84 million for the years ended December 31, 2003, 2002 and 2001, respectively. The corresponding amounts allocated to FPL were $64 million, $73 million and S77 million, respectively. Pension income and the cost of other benefits are Included in O&M expenses, and are calculated using a number of actuarial assumptions. Those assumptions include an expected long-term rate of return on qualified plan assets of 7.75% for all years, assumed increases in future compensation levels of 4.5% for 2003 and 5.5% for 2002 and 2001, and a weighted-average discount rate of 6.00%, 6.25% and 6.75% for 2003, 2002 and 2001, respectively. Based on current health care costs (as related to other benefits), the projected 2004 trend assumptions used to measure the expected cost of benefits covered by the plans are 9.5% for all age groups. The rate is assumed to decrease over the next nine years to the ultimate trend rate of 5% for all age groups and remain at that level thereafter. In developing these assumptions, FPL Group evaluated input from its actuaries, as well as information available in the market place. For the expected long-term rate of return on fund assets, FPL Group considered 10-year and 20-year historical median returns for a portfolio with a 50/50 equity/bond asset mix similar to its funds. FPL Group also considered its funds' historical compounded returns. FPL Group believes that 7.75% is a reasonable long-term rate of return on its plans' assets.

FPL Group will continue to evaluate all of its actuarial assumptions, including its expected rate of return, at least annually, and will adjust them as necessary.

FPL Group bases its determination of pension and other benefits expense or income on a market-related valuation of assets, which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five-year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return realized on those assets. Since the market-related value of assets recognizes gains or losses over a five-year period, the future value of assets will be affected as previously deferred gains or losses are recognized. Such gains and losses together with other differences between actual results and the estimates used in the actuarial valuations are deferred and recognized In determining pension and other benefits expense and income only when they exceed 10% of the greater of projected benefit obligations or the market-related value of assets.

Lowering the expected long-term rate of return on plan assets by 0.5% (from 7.75% to 7.25%) would have reduced FPL Group's net income for 2003 by approximately $14 million ($12 million for FPL). Lowering the discount rate assumption by 0.5% would have decreased FPL Group's net income for 2003 by approximately $6 million ($5 million for FPL). Raising the salary increase assumption by 0.5% would have decreased FPL Group's net income for 2003 by approximately $2 million ($2 million for FPL). Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. An increase or decrease of 1% 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 $9 million, respectively.

35

The fair value of plan assets has Increased from $2.4 billion at September 30, 2002 to $2.7 billion at September 30. 2003 for the pension plan and from $45 million at September 30, 2002 to $54 million at September 30, 2003 for other benefits.

Management believes that, based on the actuarial assumptions and the well funded status of the pension plan, FPL Group will not be required to make any cash contributions to the pension plan In the near future. FPL Group anticipates making cash contributions of approximately $27 million to the postretirement plan during 2004 and Is studying the feasibility of transferring pension plan assets to fund claims associated with retiree medical benefits, as allowed by current tax law. See Note 2.

Carrying Value of Long-Lived Assets -

FPL Group evaluates on an ongoing basis the recoverability of its assets for Impairment whenever events or changes In circumstances Indicate that the carrying amount may not be recoverable as described In FAS 144, 'Accounting for the Impairment or Disposal of Long-Lived Assets.'

Under that standard, an impairment loss is required to be recognized if the carrying value of the asset exceeds the undiscounted future net cash flows associated with that asset. The Impairment loss to be recognized Is the amount by which the carrying value of the long-lived asset exceeds the asset's fair value. In most Instances, the fair value Is determined by discounting estimated future cash flows using an appropriate Interest rate.

The amount of future net cash flows, the timing of the cash flows and the determination of an appropriate Interest rate all Involve estimates and judgments about future events. In particular, the aggregate amount of cash flows determines whether an Impairment exists, and the timing of the cash flows Is critical In determining fair value. Because each assessment Is based on the facts and circumstances associated with each'long-lived asset, the effects of changes in assumptions cannot be generalized.

Nuclear Decommissioning and Fossil Dismantlement-For ratemaking purposes, FPL. accrues and funds for nuclear decommissioning costs over the expected service life of each unit based on studies that are filed with the FPSC at least every five years. The most recent studies, which became effective May 2002, Indicate that FPL's portion of the future cost of decommissioning its four nuclear units, Including spent fuel storage, is $6.4 billion, or $2.1 billion in 2003 dollars; Beginning January 1, 2003, FPL began recognizing nuclear decommissioning liabilities In accordance with FAS 143, which requires that a liability for the fair value of an asset retirement obligation (ARO) be recognized In the period in which it is Incurred with the offsetting associated asset retirement cost capitalized as part of the carrying amount of the long-lived asset. At December 31, 2003, $2,009 million was accrued for nuclear decommissioning, of which $1,907 million was recorded as an ARO, $222 million was recorded as a capitalized net asset related to the ARO, $181 million was recorded as a regulatory liability and

$143 million was Included In accrued asset removal costs. See Note 1 -

Decommissioning of Nuclear, Plant and Dismantlement of Fossil Plant and Note 16.

FPL accrues the cost of dismantling its fossil plants over the expected service life of each unit based on studies filed with the FPSC at least every four years. Unlike nuclear decommissioning, fossil dismantlement costs are not funded. The most recent studies, which became effective January 1, 2003, Indicated that FPL's portion of the ultimate cost to dismantle its fossil units Is $668 million. The majority of the dismantlement costs are not considered an ARO under FAS 143. At December 31, 2003, the provision for fossil dismantlement was approximately $274 million and is Included In accrued asset removal costs.

FPL Energy records a liability for the present value of Seabrooks expected decommissioning costs in accordance with FAS 143.

Comprehensive studies are filed with the New Hampshire Nuclear Decommissioning Financing Committee every four years, with updates provided annually. These studies Indicate that FPL Energy's 88.23% portion of the ultimate cost of decommissioning Seabrook, Including costs associated with spent fuel storage, is $1.5 billion, or $553 million In 2003 dollars.

At December 31, 2003, the ARO for Seabrook's nuclear decommissioning totaled approximately $163 million. See Note 1 -

Decommissioning of Nuclear Plant and Dismantlement of Fossil Plant and Note 16.

The calculation of the future cost of retiring long-lived assets, including nuclear decommissioning and fossil dismantlement costs, involves the use of estimates and judgments concerning the amount and timing of future expenditures and whether or not such costs are considered a legal obligation under FAS 143. FPL Group and FPL also make Interest rate, rate of return and Inflation projections to determine funding requirements related to decommissioning. Periodically, FPL Group and FPL will be required to update their estimates and projections which can affect the annual expense amounts recognized, the liabilities recorded and the annual funding requirements for nuclear decommissioning costs.

Regulatory Accounting - FPL follows the accounting practices set forth In FAS 71, 'Accounting for the Effects of Certain Types of Regulation.' FAS 71 Indicates that regulators can create assets and Impose liabilities that would not be recorded by non-rate regulated entities. Regulatory assets and liabilities represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process. If FPL were no longer subject to cost-based rate regulation, the existing regulatory assets and liabilities would be written off unless regulators specify an altemative means of recovery or refund. In addition, the FPSC has the authority to disallow recovery of costs that It considers excessive or Imprudently incurred. Such costs may Include, among others, O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable and costs associated with the construction or acquisition of new facilities. The continued applicability of FAS 71 Is assessed at each reporting period. See Note 1 - Regulation.

See Note 1 for a discussion of FPL Group's and FPL's other significant accounting policies.

36

Energy Marketing and Trading and Market Risk Sensitivity Energy Marketing and Trading - Certain of FPL Group's subsidiaries, including FPL and FPL Energy, use derivative instruments (primarily forward purchases and sales, swaps, options and futures) to manage the commodity price risk inherent In fuel and electricity contracts, as well as to optimize the value of power generation assets. To a lesser extent, FPL Energy engages in limited energy trading activities to take advantage of expected future favorable price movements.

Derivative instruments are recorded on FPL Group's and FPL's consolidated balance sheets as either an asset or liability (in derivative assets, other assets, other current liabilities and other liabilities) measured at fair value. At FPL, substantially all changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses are passed through the fuel clause and the capacity clause. For FPL Group's non-rate regulated operations, predominantly FPL Energy, changes in the derivatives' fair value are recognized net in operating revenues for trading and managed hedge activities and in the same line item as the stated realized amounts for non-qualifying hedges in FPL Group's consolidated statements of income unless hedge accounting is applied. Settlement gains and losses are Included within the line items in the statements of income to which they relate. See Note 3.

The changes in the fair value of FPL Group's consolidated subsidiaries' energy contract derivative instruments for the year ended December 31, 2003 were as follows:

Hedges on Owned Assets FPL Cost FPL Proprietary Non-Recovery Group Trading Managed Oualifn o0 Clauses Total (millions)

FairvalueofcontractsoutstandingatDecember31.2002 S

4 S

S 8

S 28 S

12 S

52 Redassification to rearized at settlement of contracts (9)

(1) 12 (57)

(3)

(58)

Effective portion of changes In fair value recorded in OCI 16 1 8 Changes in valuation assumptions 2

2(M Charges fairvalue excluding redassification to realized 12 2

(1) as 98 Fair value of contracts outstanding at December 31, 2003 7

1 21 (11) 94 112 Net option premium payment (receipts)

X (12) 35 23 Total mark-to-market er*y contract net assets at December31, 2003 7 S 1

S 9 S (11) S 129 S

135

{h Change in valuation assumption from applying volatility skewness (selection of an input assumption amonr allematives based on the projected moneyrness of the option) in option valuation FPL Group's total mark-to-market energy contract net assets at December 31, 2003 shown above are included in the consolidated balance sheets as follows:

December31, 2003 (millions)

Derivative assets S

187 Other assets 17 Other current riabilities (44)

Other liabilities (25)

FPL Group's total mark-to-market energy contract net assets at December 31. 2003 135 37

The sources of fair value estimates and maturity of energy contract derivative instruments at December 31, 2003 were as follows:.

Maturity 2004 2005 2006 2007 2008 Thereafter Total (minions)

Proprietary Trading:

Actively quoted (.e.. exchange trade) prices Prices provided by other external sources Modeled 7

Total Owned Assets - Managed:

Actively quoted (.e.. exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - Non-Qualifying:

Actively quoted (.e.. exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - OCI:

Actively quoted (i.e.. exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - FPL Cost Recovery Causes:

Actively quoted (i.e.. exchange trade) prces Prices provided by other external sources Modeled Total S

1$

2 1

3 1

s e

S

- S 1

1 S

S 1

2 I

1 I

2 4

2 7

-I I

I 30 21 (19 T

30 10) 21 9

(3)

.6

-(8)

(2)

(1) e -

e 6 )

53-53

-21 1

22 18 1

19 92 1

1 94 Tctalsourcesoffairvalue 117 S

(4)

S (2)

S (1)

$ S-2 S 112

-~

,4 L

Market Risk Sensitivity-Substantially all financial Instruments and positions affecting the financial statements of FPL Group and FPL described below are held for purposes other than trading. Market risk is measured as the potential loss in fair value resulting from hypothetical reasonably possible changes In commodity prices, interest rates or equity prices over the next year. Management has established risk management policies to monitor and manage market risks. FPL Group's Exposure Management Committee (EMC),' which Is comprised of certain members of senior management, is responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The EMC receives periodic updates on market positions and related exposures, credit exposures and overall risk management activities. FPL Group and FPL manage their Interest rate exposure by monitoring current Interest rates and adjusting their variable rate debt In relation to total capitalization.

FPL Group and its subsidiaries are also exposed to credit risk through their energy marketing and trading operations. Credit risk is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfill Its financial obligation.!- FPL Group manages counterparty credit risk for Its subsidiaries with energy marketing and trading operations through established policies, including counterparty credit limits, and In some cases credit enhancements, such as cash prepayments, letters of credit, cash and other collateral and guarantees: Credit risk Is also' managed through the use of master netting agreements. FPL Group's credit department monitors current and forward credit exposure to counterparties'and their affiliates, both on an individual and an aggregate basis.

Commodity price risk - FPL Group uses a value-at-risk (VaR) model to measure market risk In its trading and mark-to-market portfolios. The VaR is the estimated nominal loss of market value based on a one-day holding period at a 95% confidence level using historical simulation methodology. As of December 31, 2003 and 2002, the VaR figures are as follows:

Non-Qualifying Hedges Tradina and Managed Hedges and Hedges In OCI0i)

I Total FPI.

FPL FPL 7FL7 FPL FPL FPL Energy Group FPL Energy Group rPL Energy1 Grou (millions)

Decenber31 2002 S

1 '

3 S

4 S

1 S

3 4

Decemnber31.2003 S

S 25" $

5$

26 S

25*) $

4 26 Average for the period ended December31,2003 S

e S

11

'S 4

S 13 S

11$

.3 13 Non-quaiying hedges are employed to reduce the market risk exposure to physical assets whi are not marked to market The VaR figures for the non-quardying hedges and hedges in OCI category dori not represent the economic exosure to commoodty price movements.

I in 2003, FPL ewqanded its fel hedge program.

Interest rate risk - FPL Group and FPL are exposed to risk resulting from changes In interest rates as a result of their Issuances of debt, Investments In special use funds and Interest rate swaps. FPL Group and FPL manage their interest rate exposure by monitoring current Interest rates and adjusting their variable rate debt In relation to total capitalization.

38

The following are estimates of the fair value of FPL Group's and FPL's financial instruments:

December 31, 2003 December 31, 2002 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (millions)

FPL Group:

Long-term debt, including current maturities 5

9.090 S 9,548*

$ 5,895 S 6,222")

Fixed income securities:

Special Use Funds 1,316

$ 1,316"'

S 1,184 S 1,184("

Other investments 57 57"*

41 41

Interest rate swaps-net unrealized loss (10)

(10)&'

FPL Long-term debt, including current maturities S 3,074

$ 3,193(a)

$ 2,434

$ 2,578' Fixed income securities - Special Use Funds S

1,188 S 1,188"'

$ 1,066

$ 1,066" 4 Based on quoted market prices lor these or similar issues.

° Based on market prices provided by external sources or modeled internally.

The special use funds of FPL Group include restricted funds set aside to cover the cost of storm damage for FPL and for the decommissioning of FPL Group's and FPL's nuclear power plants. A portion of these funds is invested in fixed income debt securities carried at their market value. Adjustments to market value result In a corresponding adjustment to the related liability accounts based on current regulatory treatment for FPL. The market value adjustments of FPL Group's non-rate regulated operations result in a corresponding adjustment to OCI. Because the funds set aside by FPL for storm damage could be needed at any time, the related investments are generally more liquid and, therefore, are less sensitive to changes in interest rates. The nuclear decommissioning funds, in contrast, are generally invested in longer-term securities, as decommissioning activities are not expected to begin until at least 2012. See Note 11.

FPL Group and its subsidiaries use a combination of fixed rate and variable rate debt to manage interest rate exposure.

Interest rate swaps are used to adjust and mitigate interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements. At December 31, 2003, FPL Group had the following interest rate swaps:

Notional Effective Maturity Rate Rate Estimated Amount Date Date Paid Received Fair Value (millions)

(millions)

Fair value hedges - FPL Group Capital:

150 July 2003 September 2006 variable'"

7.625%

$ (2)

S 150 July 2003 September2006 variable'&

7.625%

(2) 175 December 2003 June 2004 variable">

6.875%

1 Total fair value hedges (3)

Cash flow hedges - FPL Energy.

S 103 July 2002 December 2007 4.41%

variables4 (4) 200 August 2003 November 2007 3.557%

variables t

(2) 94 December 2003 December 2017 4.245%

variable" (1)

Total cash flow hedges (7)

Total interest rate hedges

$ (I0) i" Six-month UBOR plus 4.9900%

c Six-month LIBOR plus 4.9925%

')

Six-month LIBOR plus 4.8921%

(di Three-month LIBOR

('

One-month LIBOR Based upon a hypothetical 10% decrease in interest rates, which is a reasonable near-term market change, the net fair value of FPL Group's net liabilities would increase by approximately $212 million ($89 million for FPL) at December 31, 2003.

Equity price risk - Included in the special use funds of FPL Group are marketable equity securities carried at their market value of approximately $926 million and $689 million ($781 million and $578 million for FPL) at December 31, 2003 and 2002, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges, which Is a reasonable near-term market change, would result In a $93 million ($78 million for FPL) reduction in fair value and corresponding adjustments to the related liability accounts based on current regulatory treatment for FPL, or adjustments to OCI for FPL Group's non-rate regulated operations, at December 31, 2003.

39

Credit risk - For all derivative and contractual transactions, FPL Group and its subsidiaries' energy marketing and trading operations are exposed to losses in the event of nonperformance by counterparties to these transactions. Relevant considerations when assessing FPL Group and Its subsidiaries' energy marketing and trading operations' credit risk exposure Include:

Operations are primarily concentrated In the energy industry.

Trade receivables and other financial instruments are predominately with energy, utility and financial services related companies, as well as municipalities, cooperatives and other trading companies in the United States.

a Overall credit risk Is managed through established credit policies.

Prospective and existing customers are reviewed for creditworthiness based upon established standards, with customers not meeting minimum standards providing various credit enhancements or secured payment terms, such as letters of credit or the posting of cash collateral.

The use of master netting agreements to offset cash and norn-cash gains and losses arising from derivative Instruments with the same counterparty. FPL Group's policy Is to have master netting -agreemrents In place -with significant counterparties.

Based on FPL Group's policies and risk exposures related to credit, FPL Group and FPL do not anticipate a material adverse effect on their financial positions as a result of counterparty nonperformance. As of December 31, 2003, approximately 99%

of FPL Group's and 98% of FPL's energy marketing and trading counterparty credit risk exposure is associated with companies that have at least investment grade credit ratings.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity - Market Risk Sensitivity.

40

Item 8. Financial Statements and Supplementary Data INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS, FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY:

We have audited the accompanying consolidated balance sheets of FPL Group, Inc. and subsidiaries and the separate consolidated balance sheets of Florida Power & Light Company and subsidiaries as of December 31, 2003 and 2002, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the respective company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted In the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also Includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, In all material respects, the financial position of FPL Group, Inc. and subsidiaries and the financial position of Florida Power & Light Company and subsidiaries at December 31, 2003 and 2002, and the respective results of their operations and their cash flows for each of the three years in the period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 10 to the consolidated financial statements, in 2003 FPL Group, Inc. and subsidiaries and Florida Power &

Ught Company and subsidiaries changed their method of accounting for special-purpose entities to conform to FASB Interpretation No. 46, as revised. Also as discussed in Note 16 to the consolidated financial statements, in 2003 FPL Group, Inc.

and subsidiaries and Florida Power & Ught Company and subsidiaries changed their method of accounting for asset retirement obligations to conform to Statement of Financial Accounting Standards No. 143.

As discussed in Note 5 to the consolidated financial statements, in 2002 FPL Group, Inc. and subsidiaries changed their method of accounting for goodwill to conform to Statement of Financial Accounting Standards No. 142.

DELOITTE & TOUCHE LLP Certified Public Accountants Miami, Florida February 26, 2004 41

FPL GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME (millions, except per share amounts)

Years Ended December 31, 2003 I$

9,630 2002 2001

$ 8,173

$ 8,217 OPERATING REVENUES OPERATING EXPENSES Fuel, purchased power and interchange Other operations and maintenance Restructuring and Impairment charges Merger-related Depreciation and amortization Taxes other than Income taxes Total operating expenses OPERATING INCOME OTHER INCOME (DEDUCTIONS)

Interest charges Preferred stock dividends - FPL Loss on redemption of preferred stock - FPL Reserve for leveraged leases Equity in earnings of equity method Investees Other-net Total other deductions - net 4,539 1,626 1,105 1 829 8,099 1,531 3,576 1,492 207

.952 721

6,948 1,225 (311)

(15)

• (48) 76 12

• (286) 3,759 1,325

- 30 983 711

-6,808

- 1,409 (324)

(15) 81 9

-(249)

(379)

(13)

(9) 89 42 (270)

INCOME FROM OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES 1,261 368 939 1,160 244 379 INCOME TAXES INCOME BEFORE CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES FAS 142, 'Goodwill and Other Intangible Assets,' net of Income taxes of $143 FASB Interpretation No. 46, 'Consolidation of Variable Interest Entities,' net of income taxes of $2 NET INCOME Earnings per share of common stock:

Earnings per share before cumulative effect of changes In accounting principles Cumulative effect of changes in accounting principles Eamings per share Earnings per share of common stock - assuming dilution:

Earnings per share before cumulative effect of changes in accounting principles Cumulative effect of changes In accounting principles Earnings per share 893 695 781 (222)

(3) 890 S-473 781 5.03 4.02 4.63 (0.02)

$ (1.28) 5.01 2.74 S 4.63

-5.02 4.01

.S 4.62 S (0.02)

$ -(1.28) 5.00 2.73 4.62 2.40 2.32-,. $

2.24 Dividends per share of common stock Weighted-average number of common shares outstanding:

Basic Assuming dilution 177.5

. - - >178.2 172.9

-168.7 a-173.3

-.168.9 The accompanying Notes to Consolidated Financial Statements are an Integral part of these statements.

42

FPL GROUP, INC.

CONSOLIDATED BALANCE SHEETS (millions)

December 31, 2003 2002 PROPERTY, PLANT AND EQUIPMENT Electric utility plant in service and other property S 28,445

$ 23,664 Nuclear fuel 463 202 Construction work in progress 1,364 2,639 Less accumulated depreciation and amortization (9,975)

(8,805)

Total property, plant and equipment - net 20,297 17,700 CURRENT ASSETS Cash and cash equivalents 129 266 Customer receivables, net of allowances of $25 and $26. respectively 816 642 Other receivables 371 223 Materials, supplies and fossil fuel inventory - at average cost 458 448 Deferred clause expenses 348 131 Derivative assets 188 88 Other 160 110 Total current assets 2,470 1,908 OTHER ASSETS Special use funds 2,248 1,921 Other investments 810 697 Other 959 Total other assets 4,168 3,577 TOTAL ASSETS

$ 26,935

$ 23,185 CAPITALIZATION Common shareholders' equity 6,967 6,390 Preferred stock of FPL without sinking fund requirements 5

226 Long-term debt 8,723 5,790 Total capitalization 15,695 12,406 CURRENT LIABILITIES Commercial paper 708 1,822 Notes payable 212 375 Current maturities of long-term debt 367 105 Accounts payable 542 458 Customers' deposits 357 316 Accrued interest and taxes 226 169 Deferred clause revenues 48 62 Other 893 604 Total current liabilities 3,353 3,911 OTHER LIABILITIES AND DEFERRED CREDITS Asset retirement obligations 2,086 Accrued asset removal costs 1,902 3,560 Accumulated deferred income taxes 2,155 1,547 Storm and property insurance reserve 327 298 Other 1,417 1,463 Total other liabilities and deferred credits 7,887 6,868 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES

$ 26,935

$ 23,185 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

43

FPL GROUP, INC.

. CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)

Years Ended December 31, 2003 2002 2001 890 473 781 CASH FLOWS FROM OPERATING ACTIVITIES Net Income Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization Nuclear fuel amortization Cumulative effect of changes in accounting principles Restructuring and Impairment charges Deferred Income taxes and related regulatory credit Cost recovery clauses Equity In earnings of equity method Investees Distribution of earnings from equity method Investees Changes In operating assets and liabilities:

Restricted cash Customer receivables Other receivables Material, supplies and fossil fuel Inventory Other current assets Deferred pension cost Accounts payable Customers' deposits Accrued Interest and taxes Other current liabilities Other liabilities Other-net Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL Independent power Investments Nuclear fuel purchases Capital expenditures of FPL FiberNet, LLC Contributions to special use funds Other - net Net cash used In Investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issuances of long-term debt Retirements of long-term debt Retirements of preferred stock - FPL Net change In short-term debt Issuances of common stock Dividends on common stock Other-net Net cash provided by financing activities 1,060 908 983 58 5

365 207 588 -

219 ' -.

(91)

(186)

' 135 -

'7 411 (89)

(76)

(102) 68 96 -

62 (22) 232 (260)

(168)

- (6) 6 (133)

(79) 102 1

(56) 19 (18)

... (86).

(32)

(123)

(63)

(110) 104 (15)

(91) 41 31 31 57 9

58 90 2

55 9

(26) 98 22-68 22 2,254 2,338 1,942 (1,383)

(1,256)

(1,154)

(1,461)

(2,103)

(1.977)

(42) - -

(8) '

_.. (2i)

(128)

(173) -

(86)

(77)

-. -(22)-- - 199 67 (3,089)

(3,267)

(3,269) 2,995 (431)

(228)

(1,238) 73 (425)

(48) 698 (137) 266 129 1,770 (797) 214 378 (400)

(52) 1,113 184 82 S 266 920 (87) 824 (377) 1,280 (47) 129 82 Net increase (decrease) In cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for Interest (net of amount capitalized)

Cash paid for Income taxes (net of refunds totaling $85 and $256 In 2003 and 2002, respectively)

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Additions to capital lease obligations Accrual for premium on publicly-traded equity units known as Corporate Units Additions to debt through the adoption of FIN 46 Additions to property, plant and equipment - net through the adoption of FIN 46 342 311 373 (77)

(9) 433 S

41 515 346 74 111 S

70 S

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

.44

FPL GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (millions)

Balances, December 31, 2000 Net income Dividends on common stock Earned compensation under ESOP Other comprehensive loss Other Balances, December 31, 2001 Net income Issuances of common stock, net of issuance cost of $10 Dividends on common stock Earned compensation under ESOP Premium on publicly-traded equity units known as Corporate Units Unamortized issuance cost on pubridy-traded equity units known as Corporate Units Other comprehensive income Other Balances, December 31, 2002 Net income Issuances of common stock, net of issuance cost of less than S1 Dividends on common stock Earned compensation under ESOP Other comprehensive loss Other Balances, December 31, 2003 Common Stock I)

Additional Aggregate Paid-In Shares Par Value Capital 176 S 2 S 3,008 15 2

11761 2

3,025 Unearned Compensation S (220) 15 (6)

(211)

Acurrulated Other Comprehensive Retained Income (Loss)"

Eamings Common Shareholders!

Equity S

a (8)

$ 2,803 781 (377) 3,207 473 S 6.015 7

378 16 16 (400)

(111)

• -(29) 5 18310 2

3,284 1

73 18 22

'(

S 2 S 3,397 3

(192) 16 (1)

$ (181) 24 16 (12) 4 3,280 890 (425)

S 3,745

$ 6,390 S 6,967

') $0.01 parvalue, authorized-300,000,000 shares; outstanding 184,264,127,182,754.905 and 175,854.056 at December 31. 2003, 2002 and 2001, respectively.

° Comprehensive income, which includes net income and other comprehensive income (loss), totaled approximately $878 million, $497 million and $773 million for 2003.

2002 and 2001, respectively.

W Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled approximately 6 million, 6 million and 7 million at December 31, 2003, 2002 and 2001, respectively.

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

45

FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF INCOME (millions)

OPERATING REVENUES Years Ended December 31, 2003 2002 2001

$ 8,293

$ 7,378

$ 7,477 OPERATING EXPENSES Fuel, purchased power and Interchange Other operations and maintenance Merger-related

-Depreciation and amortization Taxes other than Income taxes Total operating expenses OPERATING INCOME OTHER INCOME (DEDUCTIONS)

Interest charges Other-net Total other deductions - net INCOME BEFORE INCOME TAXES INCOME TAXES 4,047 3,306 3,495 1,250 1,225 1,082 26 898 831 898 769 690.

699 6,052 -

6,200 1,329 1,326 1,277 (173)

(166)

(187) 2 (15)

(13)

(171)

(181)

(200) 1,158 1,145 1,077 403 755 413 383 732 694 NET INCOME PREFERRED STOCK DIVIDENDS LOSS ON REDEMPTION OF PREFERRED STOCK NET INCOME AVAILABLE TO FPL GROUP, INC.

13

-15.

--15 9

733 717:

679 The accompanying Notes to Consolidated Financial Statements are an Integral part of these statements.

46

FLORIDA POWER & LIGHT COMPANY CONSOLIDATED BALANCE SHEETS (millions)

December 31, 2003 2002 ELECTRIC UTILITY PLANT Plant in service

$ 21.368

$ 19,864 Nuclear fuel 380 140 Construction work in progress 741 757 Less accumulated depreciation and amortization (9,237)

(8,446)

Electric utility plant - net 13,252 12,315 CURRENT ASSETS Cash and cash equivalents 4

Customer receivables, net of allowances of $11 and $9, respectively 636 503 Other receivables 151 125 Materials, supplies and fossil fuel inventory-at average cost 355 349 Deferred clause expenses 348 131 Derivative assets 130 16 Other 49 41 Total current assets 1,673 1,165 OTHER ASSETS Special use funds 1,974 1,693 Other 918 859 Total other assets 2,892 2,552 TOTAL ASSETS S 17,817

$ 16,032 CAPITALIZATION Common shareholder's equity

$ 6,004 5,382 Preferred stock without sinking fund requirements 5

226 Long-term debt 3,074 2,364 Total capitalization 9,083 7,972 CURRENT LIABILITIES Commercial paper 630 722 Current maturities of long-term debt 70 Accounts payable 435 369 Customers' deposits 346 316 Accrued interest and taxes 160 175 Deferred clause revenues 48 62 Other 516 297 Total current liabilities 2,135 2,011 OTHER LIABILITIES AND DEFERRED CREDITS Asset retirement obligations 1,908 Accrued asset removal costs 1,902 3,396 Accumulated deferred income taxes 1,415 1,215 Storm and property insurance reserve 327 298 Other 1,047 1,140 Total other liabilities and deferred credits 6,599 6,049 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES S 17,817

$ 16,032 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

47

• FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS

. (mlions)

CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net Income to net cash provided by operating activities:

Depreciation and amortization Nuclear fuel amortization Deferred income taxes and related regulatory credit Cost recovery clauses Changes In operating assets and liabilities:

Customer receivables Other receivables Material, supplies and fossil fuel inventory Other current assets Deferred pension cost Accounts payable Customers' deposits Accrued Interest and taxes Other current liabilities Other liabilities

-'Other - net Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Nuclear fuel purchases Contributions to special use funds Other-net Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issuances of long-term debt Retirements of long-term debt Retirements of preferred stock Net change in short-term debt Capital contributions from FPL Group, Inc.

Dividends Net cash provided by (used in) financing activities Net increase (decrease) In cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Years Ended December 31, 2003 2002 2001 755 732 694 853 787 33 -

172 -

330 (186) 135 (132)

'(10)

(6)

(10)

(99) 84 30 (15) 74 37 (23) 1,557 43 (64)

(84)

(2)

(1 00)

(61)

- 31 (32).

(41) 132 1,806 898 (233)

- 411 (58) 61 48 (102)

(50) 31

'105 11 56 (46) 1,826

-(1,383)

(1,256)

(1,154)

(157)

(84) 1 7

(1,565)

(1,333) 877 (388)

(228)

(121) 600 (728) 12 4

4 593 (765) 490 350 (1,142)

(474)

(1) 1 S

(77) 16 (1,215)

(66)

(328) 400 (682)

(676)

(65) 66 S

1 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest (net of amount capitalized)

Cash paid for Income taxes (net of refunds totaling $283 In 2002)

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Additions to capital lease obligations Additions to debt through the adoption of FIN 46 155 174 185 292 188 543 41 74 70 164 The accompanying Notes to Consolidated Financial Statements are an Integral part of these statements.

48

FLORIDA POWER & LIGHT COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (millions)

Accumulated Other Comprehensive Income (Loss) &

Balances, December 31, 2000 Net income available to FPL Group, Inc.

Capital contributions from FPL Group, Inc.

Dividends to FPL Group, Inc.

Balances, December31, 2001 Net income available to FPL Group, Inc.

Capital contributions from FPL Group, Inc.

Dividends to FPL Group, Inc.

Other comprehensive loss Balances, December 31, 2002 Net income available to FPL Group, Inc.

Capital contributions from FPL Group, Inc.

Dividends to FPL Group, Inc.

Other comprehensive income Other Balances, December 31, 2003 Common Additional Stock '"

Paid-In Capital 1,373

$ 2,966 400 1,373 3,366 350 1,373 3,716 600 2

1,373 S 4,318 Common Retained Shareholder's Eamings Equity 693 679

-(667) 705 717 (1,127)

(2)",

(2) 295 733 (715) 2 3

S 313 5,444 S

5,382 S

6,004 age common stock, no par value, 1,000 shares authorized, issued and outstanding.

0) Comprehensive income, which includes net income and other comprehensive income (loss), totaled approximately S735 million. $71 5 million and $679 million for 2003, 2002 and 2001, respectively.

g' Minimum supplemental emploee retirement plan gabilityacrustmenL The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

49

FPL GROUP, INC. AND FLORIDA POWER & LIGHT. COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

-Years Ended December31, 2003,2002 and 2001

1. Summary of Significant Accounting and Reporting Policies Basis of Presentation'- FPL Group, Inc.'s (FPL Group) operations are conducted primarily through Its wholly-owned subsidiary Florida Power & Ught Company (FPL) and Its'wholly-owned indirect subsidiary FPL Energy, LLC (FPL Energy).

FPL, a rate-regulated public utility, supplies electric service to approximately 4.1 million customer accounts throughout most of the east and lower west coasts of Florida. FPL Energy Invests In independent power projects through both controlled and consolidated entities and non-controlling ownership Interests In joint ventures essentially all of which are accounted for under the equity method.

The consolidated financial statements of FPL Group and FPL Include the accounts'of their respective majority-owned'and controlled 'subsidiaries'."All significant Intercompany balances and transactions have been eliminated in consolidation.

Certain amounts included In prior years' consolidated financial statements have been reclassified to conform to the current year's presentation. The preparation of financial statements requires the use of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.

f Regulation - FPL Is subject to regulation by theiFlorida Public Service-Commission (FPSC) and the Federal Energy Regulatory Commission (FERC).- Its 'rates are designed to recover the cost of 'providing electric service to its customers Including'a reasonable rate of return on in'vested capital. 'As a result of this' cost-based regulation,- FPL follows the accounting practices set forth In Statement of Financial Accounting Standards No. (FAS) 71, 'Accounting for the Effects of Certain Types of Regulation. FAS 71 Indicates that regulators can create assets 'and Impose liabilities that would not be recorded by non-rate regulated entities. Regulatory assets and liabilities represent probable future revenues that will be recovered from or refunded to customers through the ratemaking process::

FPL's regulatory assets and liabilities are as follows:

Assets (current and noncurrent):

Deferred clause expenses Litigation settlement (noncurrent portion)

Unamortized debt reacquisition costs Deferred Department of Energy assessment Losses deferred and amortized Liabilities (current and noncurreni):

Accrued asset removal costs (see Note 16)

Storm and property Insurance reserve (see Note 17 - Insurance)

Asset retirement obligation regulatory expense difference Unamortized Investment tax credits Derivative liability (see Note 3)

Special depreciation and nuclear amortization Deferred clause revenues.

Deferred regulatory credit - Income taxes -

Gains deferred and amortized December 31, 2003

-2002 (millions)

$ 348

$ 131 89

$ 134 48 41 19 24

.1 -

2

$ 1,902

$ 327

$.180

$,100.$

93 '

$.88 48 46 16 i

i i

I 298 120 12'

.140 62 73 12 Cost recovery clauses, which are designed to permit full recovery of 'certain costs and provide a return on certain assets allowed to be recovered through the various clauses,' Include substantially all fuel, purchased power and interchange expenses, conservation and certain environmental-related expenses, certain revenue taxes and franchise fees. Revenues from cost recovery clauses are recorded when billed; FPL achieves matching of costs and related revenues by deferring the net under-or over-recovery. Any under-recovered costs or over-recovered revenues are collected -from or returned to customers In subsequent periods. Although deferred clause revenues and expenses do not significantly affect net Income, the under-or over-recoveries can significantly affect FPL Group's'and FPL's operating cash flows.

In 2000, a bankruptcy court approved a $222.5 million settlement 'of a contract dispute between FPL and two qualifying facilities. As approved by the FPSC, FPL is recovering the cost of the settlement through the fuel and purchased power costs recovery clause (fuel clause) and -capacity cost recovery clause (capacity' clause) over a five-year period which began January 1, 2002. The settlement cost is included in deferred clause expenses and litigation settlement in the table above.

50

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

During 2002, FPL reclassified certain amounts that were previously classified within accumulated depreciation to a regulatory liability. The reclassifications were made as a result of the terms of the 2002-2005 rate agreement, as well as other FPSC actions with regard to accumulated nuclear amortization. The amounts reclassified included $170 million of special depreciation and $99 million of nuclear amortization. During 2003 and 2002, FPL credited depreciation expense for $125 million as permitted under the rate agreement. The S125 million annual credit to depreciation went first to offset the $170 million of special depreciation and the remainder to accumulated depreciation. The $99 million of nuclear amortization is being credited to depreciation expense ratably over the remaining life of the plants, based on the term of the existing operating licenses of the plants, at a rate of $7 million per year. The regulatory liability balances at December 31, 2003 and 2002 are included in other liabilities on FPL Group's and FPL's consolidated balance sheets. See special depreciation and nuclear amortization in table above.

If FPL were no longer subject to cost-based rate regulation, the regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund. In addition, the FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred. The continued applicability of FAS 71 is assessed at each reporting period.

Various states, other than Florida, have enacted legislation or have state commissions that have issued orders designed to allow retail customers to choose their electricity supplier. This regulatory restructuring is expected to result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers. Although the legislation and initiatives vary substantially, common areas of focus include when market-based pricing will be available for wholesale and retail customers, what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It is generally believed transmission and distribution activities would remain regulated. Recently, these state restructuring efforts have diminished and several states have delayed the implementation or reversed previously approved restructuring legislation and rules.

Management believes it is unlikely there will be any state actions to restructure the electric industry in Florida in the near future.

The FPSC promotes competition for building major new steam generating capacity by requiring investor-owned electric utilities, such as FPL, to Issue a request for proposal (RFP). The RFP process allows independent power producers and others to bid to supply the needed generating capacity. If a bidder has the most cost-effective alternative, meets other criteria such as financial viability and demonstrates adequate expertise and experience in building and/or operating generation capacity of the type proposed, the investor-owned electric utility would seek to negotiate a power purchase agreement with the selected bidder and request that the FPSC authorize the construction of the bidder's generation capacity under the terms of the power purchase agreement. In 2003, FPL issued an RFP for additional power resources of approximately 1,100 mw beginning in June 2007. In January 2004, after evaluating alternative proposals, FPL concluded that its plan to build a new natural gas-fired plant at its Turkey Point site was the best and most cost-effective option to provide the 1,100 mw. In March 2004, FPL plans to file a petition for approval of this alternative with the FPSC. A decision is expected by mid-2004. This alternative will also be subject to approval by a Siting Board (comprised of the governor and cabinet) under the Florida Electrical Power Plant Siting Act.

The FERC has jurisdiction over potential changes which could affect competition In wholesale transactions. In 1999, the FERC issued its final order on regional transmission organizations (ATOs) which, under a variety of structures, provides for the independent operation of transmission systems for a given geographic area. In March 2001, the FERC approved GridFlorida LLC (FPLs, Progress Energy Florida, Inc.'s and Tampa Electric Company's proposed RTO) as the RTO for peninsular Florida. In December 2001, the FPSC determined that the RTO as proposed was not in the best interest of Florida customers and required the companies to develop a modified proposal. In March 2002, FPL, Progress Energy Florida, Inc.

and Tampa Electric Company filed a modified RTO proposal with the FPSC changing the structure of GridFlorida LLC (GridFlorida) from a for-profit transmission company to a non-profit independent system operator (ISO). Under the proposal, FPL would continue to own its transmission lines and the ISO would manage them. In September 2002, the FPSC approved many of the aspects of the modified RTO proposal, allowing recovery of GridFlorida's incremental costs through the capacity clause. In October 2002, the State of Florida Office of Public Counsel (Public Counsel) filed a notice of administrative appeal with the Supreme Court of Florida seeking an appeal of the FPSC's order. In June 2003, the Florida Supreme Court dismissed the Public Counsel's appeal of the FPSC's approval of GridFlorida without prejudice concluding that the appeal was premature because the FPSC proceedings had not yet been completed and not all aspects of the FPSC's order on appeal were considered final agency action. The FPSC has restored the GridFlorida docket to active status and in December 2003 issued a procedural order establishing a series of workshops through 2004 to address GridFlorida issues.

In July 2002, the FERC issued a notice of proposed rulemaking to reform public utilities' transmission tariffs and implement a standardized design for electric markets in the United States. The proposed rule would, among other things, require FERC regulated entities, including FPL, that own, control or operate transmission facilities to hire an independent transmission provider, which can be an RTO such as GridFlorida for the operation of those facilities. The proposed rule also will require the independent transmission provider to administer various spot markets for the sale of electricity and ancillary services and to manage congestion on the transmission system using financial congestion rights. Legislators and regulators from the southeast and western states have expressed strong reservations about the FERC's proposal. In April 2003, the FERC issued a White Paper on Wholesale Power Market Platform (White Paper) responding to comments on its proposed rule. The White Paper indicates that the FERC intends to be more flexible on how and when the final rule will be 51

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) implemented, defer to regional state committees to address significant RTO/ISO features, require regulated utilities to join RTOs or ISOs and require RTOs to implement spot markets. While a moratorium on further action by the FERC was included in the proposed Energy Policy Act, the status of that legislation is uncertain. FPL is evaluating the proposed FERC rule and is currently unable to determine its effects, If any, on FPL's operations.

Revenues and Rates - FPL's retail and wholesale utility rate schedules are approved by the FPSC and the FERC, respectively. FPL records unbilled base revenues for the estimated amount of energy delivered to customers but not yet billed. Unbilled base revenues are included in customer receivables and amounted to $133 million and $140 million at December31, 2003 and 2002, respectively. FPL's operating revenues also include amounts resulting from cost recovery clauses (see Regulation), franchise fees and gross receipts taxes. Franchise fees and gross receipts taxes are Imposed on FPL; however, the FPSC allows FPL to Include In rates charged to customers the amount of the gross receipts tax for. all customers and the franchise amount for those customers located in the jurisdiction that imposes the fee. Accordingly, franchise fees and gross receipts taxes are reported gross in operating revenues and taxes other than income taxes, respectively, on FPL Group's and FPL's consolidated statements of income and were approximately $535 million, $478 million and $498 million in 2003, 2002 and 2001, respectively. FPL also collects municipal utility taxes which are reported gross in customer receivables and accounts payable on FPL Group's and FPL's consolidated balance sheets. FPL Energy's revenue is recorded as electricity is delivered,-which Is when revenue is eamed.

In March 2002, the FPSC approved a new rate agreement regarding FPL's retail base rates, which became effective April 15, 2002 and expires December 31, 2005. The 2002-2005 rate agreement replaced a rate agreement that was effective April 15, 1999 through April 14, 2002. Both agreements Include a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold are required to be refunded 100% to retail customers.

During the term of the 1999-2002 rate agreement, FPL's return on common equity (ROE) was from time to time outside the 10%-12% authorized range. However, the revenue sharing mechanism described above was specified as the appropriate and exclusive mechanism to address that circumstance. The agreement Included provisions which limited depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to the then approved levels and limited amounts recoverable under the environmental compliance cost recovery clause during the term of that agreement.

The 2002-2005 rate agreement provides for a $250 million annual reduction In retail base revenues allocated to all customers by reducing customers' base rates and service charges by approximately 7%. The revenue sharing thresholds specified in the 2002-2005 rate agreement are as follows:

Years Ended December 31, 2002(a)

-2003 2004- \\

-2005 (millions) 66 2/3% to customers

$3,580

$3,680

$3,780

$3,880 100%tocustomers

$3,740.

$3,840

$3,940 -_:$4,040 Rehmd was bmited to 71.5% (represenring the period Api 15 through December31, 2002) of the revenues from base rate operations exceedng thetreshds.

During the term of the 2002-2005 rate agreement, FPL will not have an authorized regulatory ROE range for the purpose of addressing earnings levels. However, FPL will continue to file monthly earnings surveillance reports with the FPSC and if the reported ROE falls below 10% during the termi of the 2002-2005 rate agreement, FPL may petition the FPSC to amend its base rates. The 2002-2005 rate agreement would terminate on the effective date of any final order issued In a proceeding that changes FPL's base rates.

- ^

In April 2002, the South Florida Hospital and Healthcare Association and certain hospitals filed a joint notice of administrative appeal with the FPSC and the Supre~me Court of Florida appealing the FPSC's approval of the 2002-2005 rate agreement.

The appellants contend that the FPSC rushed to judgment and approved the settlement without the benefit of any evidentlary record to support Its actions,~and requested that the Supreme Court remand the case to the FPSC for additional proceedings.

In November 2003, the Florida Supreme Court heard oral arguments In the appeal. There Is no specified time by which the Supreme Court of Florida must rule. FPL Intends to continue to vigorously contest this appeal and believes that the FPSC's decision approving the 2002-2005 rate agreement will be upheld.;

Under both the 1999-2002 and the 2002-2005 rate agreements, the accrual for the refund associated with the revenue sharing mechanism Is computed monthly for each twelve-month period of the rate agreement. At the beginning of each twelve-month period, planned revenues are reviewed to determine If It Is probable that the threshold will be exceeded. If so, an accrual Is recorded each month for a portion of the anticipated refund based on the relative percentage of year-to-date planned revenues to the total estimated revenues for the twelve-month period, plus accrued Interest. In addition, if In any month actual revenues are above or below planned revenues, the accrual Is increased or decreased as necessary to recognize the effect of this variance on the expected refund amount.- Under the 2002-2005 rate agreement, the annual refund (including interest) Is paid to customers as a credit to their February electric bill. At December 31, 2003 and 2002, the accrual for the revenue refund was approximately $3 million and $11 million, respectively.

52

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Electric Plant, Depreciation and Amortization - The cost of additions to units of utility property of FPL and FPL Energy is added to electric utility plant. In accordance with regulatory accounting, the cost of FPL's units of utility property retired, less net salvage, is charged to accumulated depreciation. Maintenance and repairs of property as well as replacements and renewals of items determined to be less than units of utility property are charged to other operations and maintenance (O&M) expenses. At December 31, 2003, the electric generating, transmission, distribution and general facilities of FPL represented approximately 44%, 12%, 36% and 8%, respectively, of FPL's gross investment in electric utility plant in service. Substantially all of FPL's properties are subject to the lien of FPL's mortgage, which secures most debt securities issued by FPL. Several of FPL Energy's generating facilities are encumbered by liens against their assets securing various financings. The total balance of FPL Energy's assets serving as collateral was approximately $2.7 billion at December 31, 2003.

Depreciation of FPL's electric property is primarily provided on a straight-line average remaining life basis. FPL includes in depreciation expense a provision for fossil plant dismantlement and nuclear plant decommissioning (see Decommissioning of Nuclear Plant and Dismantlement of Fossil Plant). For substantially all of FPL's property, depreciation studies are performed and filed with the FPSC at least every four years; however, the 2002-2005 rate agreement requires FPL to continue to depreciate its electric property based on rates approved in April 1999 that became effective January 1, 1998. The weighted annual composite depreciation rate for FPL's electric plant in service, including intangible software, but excluding the effects of decommissioning and dismantlement, was approximately 4.3%, 4.4% and 4.4% for 2003, 2002 and 2001, respectively. Further, these rates exclude the depreciation adjustments discussed below. FPL Energy's electric plants in service less salvage value are depreciated using the straight-line method over their estimated useful lives. FPL Energy's effective depreciation rates were 3.9%,

4.0% and 4.0% for 2003, 2002 and 2001, respectively.

The 1999-2002 rate agreement (see Revenues and Rates) allowed FPL at its discretion to recover, as special depreciation, up to $100 million in each year of the three-year agreement period. The additional depreciation recovery was required to be applied to nuclear and/or fossil generating assets based on future depreciation studies. Under the 1999-2002 rate agreement, on a calendar year basis FPL recorded nothing in 2002 and 2001. Under the 2002-2005 rate agreement (see Revenues and Rates), depreciation will be reduced on FPL's plant in service by $125 million In each year 2002 through 2005.

These depreciation adjustments are included in earnings and will be allocated to the appropriate assets when FPL files its comprehensive depreciation studies at the end of 2005.

Nuclear Fuel-FPL leases nuclear fuel for all four of its nuclear units. Beginning July 1, 2003, the lessor was consolidated by FPL as a result of adopting the Financial Accounting Standards Board's (FASB) Interpretation No. (FIN) 46, 'Consolidation of Variable Interest Entities." See Note 10 -

FPL. For ratemaking purposes, these leases are classified as operating leases. For financial reporting, prior to July 1, 2003, the capital lease obligation was recorded at the amount due in the event of lease termination. Nuclear fuel lease expense was $31 million for the six months ended June 30, 2003, $71 million in 2002 and $70 million in 2001. Included in this expense was an interest component of $1 million for the six months ended June 30, 2003, $3 million for 2002 and $5 million in 2001. Until July 1, 2003, the lease payments were charged to fuel expense on a unit of production method. Beginning July 1, 2003, the cost of nuclear fuel was capitalized and is being amortized to fuel expense on a unit of production method except for the interest component, which is recorded as interest expense. These charges, as well as a charge for spent nuclear fuel, are recovered through the fuel clause. FPL makes quarterly payments to the lessor for the lease commitments. Under certain circumstances of lease termination, the associated debt ($154 million at December 31, 2003), which was recorded in commercial paper and long-term debt on FPL Group's and FPL's consolidated balance sheets as a result of the consolidation on July 1, 2003, would become due.

Seabrook Station (Seabrook) has several contracts for the supply, conversion, enrichment and fabrication of nuclear fuel. See Note 17 - Contracts. Seabrook's nuclear fuel costs are charged to fuel expense on a unit of production method.

Construction Activity - Allowance for funds used during construction (AFUDC) is a non-cash item which represents the allowed cost of capital, including a return on common equity, used to finance construction projects. The portion of AFUDC attributable to borrowed funds is recorded as a reduction of interest expense and the remainder is recorded as other income.

The FPSC rules limit the recording of AFUDC to projects that cost in excess of 0.5% of a utility's plant in service balance and require more than one year to complete. The FPSC rules allow construction projects below the 0.5% threshold as a component of rate base. During 2003, AFUDC was capitalized at a rate of 7.84% and amounted to approximately $18 million.

See Note 17 - Commitments.

FPL's construction work in progress at December 31, 2003 is primarily attributable to the addition of combined cycle generation at its Martin and Manatee sites. Included in construction work in progress are construction materials, progress payments on turbine generators, third party engineering costs and other costs directly associated with the construction of a project. Upon commencement of plant operation, these costs are transferred to electric utility plant in service. At December 31, 2003 and 2002, FPL recorded approximately $111 million and $61 million, respectively, of construction accruals, which are included in other current liabilities on FPL's consolidated balance sheets.

FPL Energy capitalizes project development costs once it is probable that such costs will be realized through the ultimate construction of a power plant. At December 31, 2003 and 2002, FPL Energy's capitalized development costs totaled approximately $9 million and $31 million, respectively, which are included in other assets on FPL Group's consolidated balance sheets. These costs include professional services, permits and other third party costs directly associated with the development of a new project. Upon commencement of construction, these costs either are transferred to construction work 53

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) in progress or remain In other assets, depending upon the nature of the cost. Capitalized development costs are charged to O&M expenses when the development of a project is no longer probable. See Note 6. In addition to capitalized development

,costs, FPL Energy capitalizes Interest on Its construction projects. Interest capitalized on construction projects amounted to

$83 million, $90 million and $55 million during 2003, 2002 and 2001, respectively. FPL Energy's Interest charges are based on a deemed capital structure of 50% debt for operating projects and 100% debt for projects under construction.

FPL Energy's construction work In progress Includes construction materials, prepayments on turbine generators, third party engineering costs, Interest and other costs directly associated with the construction and development of the project. Upon commencement of plant operation, these costs are transferred to electric utility plant In service and other property. At December 31, 2003 and 2002, FPL Energy recorded approximately $174 million and $88 million, respectively, of construction accruals, which are included in other current liabilities on FPL Group's consolidated balance sheets.

Asset Retirement Obligations - Effective January 1, 2003, FPL Group and FPL adopted FAS 143, 'Accounting for Asset Retirement Obligations.0 See Note 16.

Decommissioning of Nuclear Plant and Dismantlement of Fossil Plant - For ratemaking purposes, FPL accrues for the cost of retirement and disposal of Its nuclear and fossil plants over the expected service life of each unit based on decommissioning, dismantlement and depreciation studies periodically filed with the FPSC. Beginning January 1, 2003, FPL began recognizing decommissioning and dismantlement liabilities for finanicial reporting purposes In accordance with FAS 143, which requires that a liability for the fair value of an asset retirement obligation (ARO) be recognized In the period In which it is Incurred with the offsetting associated asset retirement cost capitalized as part of the carrying amount of the long-lived asset. The cost of dismantling the majority of FPL's fossil plants Is not considered an ARO. Accordingly, the impact of adopting FAS 143 for dismantlement of fossil plants was not significant. Any differences between expense recognized under FAS 143 and the amount recoverable through rates Is deferred in accordance with FAS 71 and was approximately $180 million at December 31, 2003. FPL Energy,also records a nuclear decommissioning liability for Seabrook in accordance.with FAS 143, representing the fair value of Its ultimate decommissioning liability as determined by an Independent study. See Regulation, Electric Plant, Depreciation and Amortization and Note 16.

Decommissioning of Nuclear Plant - Nuclear decommissioning studies are performed at least every five years and are submitted to the FPSC for approval. FPL's latest nuclear decommissioning studies were approved by the FPSC In December 2001 and became effective In May 2002. The changes Included, among other things, a reduction In the annual decommissioning expense accrual to $79 million from $85 million. These studies assume prompt dismantlement of Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing In 2012 and 2013, respectively, when the original operating licenses are to expire. Current plans, which are consistent with the term of the original operating licenses, call for St. Lucie Unit No. I to be mothballed beginning In 2016, with decommissioning activities to be Integrated with the prompt dismantlement of St. Lucie Unit No. 2 beginning In 2023. These studies also assume that FPL will be storing spent fuel on site pending removal to a U.S. government facility. The studies Indicate FPL's portion of the ultimate costs of decommissioning its four nuclear units, Including costs associated with spent fuel storage, to be $6.4 billion. FPL's portion of the ultimate cost of decommissioning its four units, expressed in 2003 dollars, Is estimated by the studies to aggregate $2.1 billion. At December 31, 2003, $2,009 million was accrued for nuclear decommissioning, of which $1,907 million was recorded as an ARO, $222 million was recorded as a capitalized net asset related to the ARO, $181 million was recorded as a regulatory liability and $143 million was Included In accrued asset removal costs. At December 31, 2002, the provision for nuclear decommissioning -included in accrued asset removal costs totaled approximately $1.7 billion.- During 2003, In accordance with FAS 143, FPL recognized approximately $101 million of accretion expense related to its nuclear decommissioning obligations, which Is Included In depreciation and amortization expense. During 2002 and 2001, FPL accrued decommissioning expense of approximately $81. million and $85 million, respectively, which is. Included in depreciation and amortization expense.

Restricted trust funds for the payment of future expenditures to decommission FPL's nuclear units are Included In special use funds of FPL Consistent with regulatory treatment, securities held In the decommissioning funds are carried at market value with market adjustments resulting In a corresponding adjustment to the related liability accounts. See Note 11 - Special Use Funds. Contributions to the funds are based on current period decommissioning expense. Additionally, fund eamings,-net of taxes, are reinvested In the funds. The tax effects of amounts not yet recognized for tax purposes are Included in accumulated deferred income taxes.

Seabrook's current decommissioning funding plan Is based on a funding date of 2026. The funding plan Is based on a comprehensive nuclear decommissioning study reviewed by the New Hampshire Nuclear Decommissioning Financing Committee (NDFC) In 1999 and Is effective for four years. Seabrook filed an updated nuclear decommissioning study in mid-2003 with the NDFC. These studies assume that Seabrook would begin decommissioning In 2026 and that FPL Energy's 88.23% portion of the ultimate cost of decommissioning Seabrook, Including costs associated with spent fuel storage, is $1.5 billion, or $553 million, expressed In 2003 dollars. At December 31, 2003, FPL Energy had an ARO related to nuclear decommissioning -of. $163 million. At December 31, 2002, FPL Energy's provision for nuclear decommissioning was approximately $152 million and Is Included In accrued asset removal costs on FPL Group's consolidated balance'sheets. The liability is being accreted using the Interest method over an assumed license extension period that runs through 2050. In 2003 and 2002, FPL Energy recorded approximately $11 million and $2 million of accretion expense, respectively, related to Seabrook's nuclear decommissioning liability, which is included in depreciation and amortization expense. FPL Energy's 54

-- I FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 88.23% portion of Seabrook's restricted trust fund for the payment of future expenditures to decommission Seabrook is included in FPL Group's special use funds. Marketable securities held in the decommissioning fund are classified as available for sale and are carried at market value with market adjustments resulting In a corresponding adjustment to other comprehensive income. Fund earnings are reinvested in the funds either on a pretax or after tax basis. The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes. See Note 11 - Special Use Funds.

Dismantlement of Fossil Plant - Fossil fuel plant dismantlement studies are performed and filed with the FPSC at least every four years. FPL's latest fossil fuel plant dismantlement studies became effective January 1, 2003, and indicated an increase in the annual expense from $16 million to $19 million. The studies indicate that FPL's portion of the ultimate cost to dismantle its fossil units is $668 million. At December 31, 2003 and 2002, the provision for fossil dismantlement included in accrued asset removal costs totaled approximately $274 million and $260 million, respectively. FPL recognized fossil dismantlement expense of approximately $19 million in 2003 and $16 million in both 2002 and 2001, which is included in depreciation and amortization expense.

Accrual for Major Maintenance Costs - Consistent with regulatory treatment, FPL's estimated nuclear maintenance costs for each nuclear unit's next planned outage are accrued over the period from the end of the last outage to the end of the next planned outage. During 2002, the FPSC authorized deferral and amortization of the estimated costs for inspection and repair of FPL's four reactor vessel heads on a levelized basis over a five-year period beginning in 2002. The accrued liability for nuclear maintenance costs, including those for the reactor vessel heads, at December 31, 2003 and 2002 totaled $52 million and $51 million, respectively, and is included in other current liabilities and other liabilities. Any difference between the estimated and actual costs is included in O&M expenses when known.

FPL Energy's estimated major maintenance costs for each generating unit's next planned outage are accrued over the period from the end of the last outage to the end of the next planned outage. The accrued liability for FPL Energy's major maintenance costs totaled $41 million and $47 million at December 31, 2003 and 2002, respectively, and is included in other liabilities. Any difference between the estimated and actual costs is included in O&M expenses when known.

Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.

Restricted Cash - At December 31, 2003 and 2002, FPL Group had approximately $76 million and $36 million, respectively, of restricted cash included in other current assets on FPL Group's consolidated balance sheets, essentially all of which is restricted for debt service payments, construction liabilities and O&M expenses.

Allowance for DoubtfulAccounts - FPL maintains an accumulated provision for uncollectible customer accounts receivable that is determined by multiplying the previous six months of revenues by a bad debt percentage, which represents an average of the past two years' actual write-offs. Additional amounts are included in the provision to address specific items that are not considered in the calculation described above. FPL Energy and FPL FiberNet, LLC (FPL FiberNet) regularly review collectibility of their receivables and establish a provision for losses when necessary using the specific Identification method.

Inventory-FPL values materials, supplies and fossil fuel inventory using a weighted-average cost method. FPL Energy's oil and gas inventories are carried at the lower of cost or market using a weighted-average cost basis. FPL Energy's spare parts are carried at the lower of cost or market using specifically identified cost. FPL FiberNet utilizes a weighted-average cost method to value its inventory.

Energy Trading - FPL Energy engages in limited energy trading activities to optimize the value of electricity and fuel contracts and generating facilities, as well as to take advantage of expected favorable commodity price movements. In accordance with Emerging Issues Task Force Issue No. (EITF) 02-3, trading contracts that meet the definition of a derivative are accounted for at market value and realized gains and losses from all trading contracts, including those where physical delivery is required, are recorded net for all periods presented. See Note 3.

Storn Fund - The storm and property insurance reserve fund (storm fund) provides coverage toward FPL's storm damage costs and possible retrospective premium assessments stemming from a nuclear incident under the various insurance programs covering FPL's nuclear generating plants. Securities held in the fund are carried at market value with market adjustments resulting in a corresponding adjustment to the storm and property insurance reserve. See Note 11 - Special Use Funds and Note 17 - Insurance. Fund earnings, net of taxes, are reinvested in the fund. The tax effects of amounts not yet recognized for tax purposes are included In accumulated deferred income taxes. Accordingly, at December 31, 2003, the storm and property insurance reserve (approximately $327 million) equals the amount in the storm fund (approximately $200 million) plus related deferred income taxes (approximately $127 million).

Investments in Leveraged Leases - Subsidiaries of FPL Group, other than FPL, have investments in leveraged leases, which at December31 of both 2003 and 2002 totaled $106 million, and are included in other investments on FPL Group's consolidated balance sheets. The related deferred tax liabilities totaled $99 million and $108 million at December 31, 2003 and 2002, respectively, and are included in accumulated deferred income taxes. See Note 17 - Other Contingencies.

55

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Impairment of Long-Lived Assets - FPL Group evaluates on an ongoing basis the recoverability of its assets for impairment whenever events or changes in circumstances Indicate that the carrying amount may not be recoverable as described in FAS 144, 'Accounting for the Impairment or Disposal of Long-Uved Assets." See Note 6.

Goodwill and Other Intangible Assets - Effective January 1, 2002, FPL Group adopted FAS 142, 'Goodwill and Other Intangible Assets.' Under this statement, the amortization of goodwill Is no longer permitted. Instead, goodwill Is assessed for Impairment at least annually by applying a fair value based test. See Note 5.

Stock-Based Compensation - FAS 123, 'Accounting for Stock-Based Compensation,' encourages a fair value based method of accounting for stock-based compensation. In May 2003, FPL Group announced It would begin using the fair value based method of accounting for stock-based compensation beginning in 2004. Through 2003, however, FPL Group used the intrinsic value based method of accounting as permitted by the statement. Stock-based compensation expense was approximately $19 million, $23 million and $22 million in 2003, 2002 and 2001, respectively. Compensation expense for restricted stock and performance shares is the same under the fair value and the Intrinsic value based methods. The following table illustrates the effect -on net Income and earnings per share if FPL Group's compensation expense relating to options had been determined using the fair value based method:

Years Ended December 31, 2003 2002 2001 (millions, except per share amounts)

Net Income, as reported

$ 890

$ 473 5

781 Deduct: Stock option-based compensation expense determined under the fair value based, net of related income tax effects (7)

(7)

(6)

Pro forma net income

$ 883

$ 466 S 775 Earnings per share:

Basic - as reported

$ 5.01

$ 2.74 4.63 Basic - pro forma

$ 4.97 -

$ 2.69 4.60 Assuming dilution - as reported

$ 5.00

$ 2.73 4.62 Assuming dilution - pro forma

$ 4.96

$ 2.69 4.59 The weighted-average fair value of options granted was $8.37, $9.33 and S10.17 in 2003, 2002 and 2001, respectively. The fair value of the options granted In 2003, 2002 and 2001 were estimated on the date of the grant using the Black-Scholes option-pricing model with a weighted-average expected dividend yield of 3.97%, 4.04% and 4.23%, a weighted-average expected volatility of 19.99%, 19.18% and 19.01%, a weighted-average risk-free Interest rate of 3.48%, 4.99% and 4.98%,

respectively, and a weighted-average expected term of 7 year for each of three years.

Retirement of Long-Term Debt-Gains'and losses that result from differences In FPL's reacquisition cost and the book value of long-term debt which is retired are deferred and amortized to interest expense ratably over the remaining life of the original Issue, which Is consistent with Its treatment in the ratemaking process. See Regulation. FPL Group Capital Inc (FPL Group Capital) recognizes as expense any such excess at time of retirement.

Retirement of Preferred Stock - Gains and losses that result from differences in FPL's reacquisition cost and the book value of preferred stock which is retired are recognized as expense at the time of retirement.

Income Taxes - Deferred Income taxes are provided on all significant temporary differences between the financial statement and tax bases of assets and liabilities. FPL Group's subsidiaries'are included in the consolidated federal income tax return and determine their income tax provisions on the 'separate return rmethod." The deferred regulatory credit -'income taxes of FPL represents the revenue equivalent of the difference In accumulated deferred Income taxes computed under FAS 109, "Accounting for Income Taxes,' as compared to regulatory accounting rules. This amount is being amortized in accordance with the regulatory treatment over the estimated lives of the assets or liabilities which resulted in the initial recognition of the deferred tax amount. Investment tax credits (iTC) for FPL are deferred and amortized to income over the approximate lives of the related property in accordance with the regulatory treatment. Production tax credits generated by certain wind operations of FPL Energy are utilized currently as a reduction of current income taxes payable, unless limited by tax law in which instance they are recorded as deferred tax assets. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized. See Regulation and Note 4.

Guarantees - FPL Group and FPL each account for payment guarantees and related contracts, for which it or a subsidiary is the guarantor, under FIN 45, 'Guarantors Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others,' which requires that the fair value of guarantees provided to unconsolidated entities entered into after Decembear 31, 2002 be recorded on the balance sheet. See Note 17 - Commitments; Variable Interest Entities (VIEs) - In January 2003, the FASB issued FIN 46, 'Consolidation of Variable Interest Entities.' The interpretation requires FPL Group and FPL to assess the variable Interests they hold and to determine if those entities are VlEs.

See Note 10.

56

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Employee Retirement Benefits FPL Group sponsors a noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. In addition, FPL Group sponsors a substantially contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements who elect participation at the time of retirement.

Benefit Obligations - FPL Group uses a measurement date of September 30 for its pension and other benefits plans. The following table provides a reconciliation of the changes in the benefit obligations of the plans:

Pension Benefits Other Benefits 2003 2002 2003 2002 (millions)

Obligation at October 1 of prior year Service cost Interest cost Participant contributions Plan amendments Seabrook acquisition Special termination benefits Actuarial (gains) losses - net Benefit payments Obligation at September 30

$ 1,405 51 83

$ 1,353 52 84 S

469 7

387 6

(3) 48 4

53 (55)

(93)

(78)

$ 1,499

$ 1,405 27 24 3

2 12 8

68 (26)

(30)

S 488 S 469 FPL Group's accumulated benefit obligation, which includes no assumption about future compensation levels, for its pension plan at September 30,2003 and 2002 was $1,449 million and S1,357 million, respectively.

The following table provides the wefghted-average assumptions used to determine benefit obligations for the plans. These rates are used in determining net periodic benefit cost in the following year.

Pension Benefits 2003 2002 Other Benefits 2003 2002 I

Discount rate Rate of compensation increase 5.50%

6.00%

5.50%

6.00%

4.00%

4.50%

4.00%

4.50%

A 9.50% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2004. The rate was assumed to decrease gradually to 5.00% by 2012 and remain at that level thereafter. Assumed health care cost trend rates have a significant effect on the amounts reported for health care plans. A one percentage point change in assumed health care cost trend rates would have the following effect:

One Percentage Point Increase Decrease (millions)

Effect on other benefits obligation at September 30, 2003 S 9

$ (9)

Plan Assets - The following table provides a reconciliation of the fair value of assets of the plans. Employer contributions and benefits paid in the table below include only those amounts contributed directly to, or paid directly from, plan assets.

Pension Benefits Other Benefits 2003 2002 2003 2002 (millions)

Fair value of plan assets at October 1 of prior year Actual return on plan assets Employer contributions Participant contributions Benefit payments Fair value of plan assets at September 30 S 2,388 $ 2,546 402 (80) 45 15 18 2

(26) 54 74 (1)

(93)

(78)

$ 2,697 $ 2,388 2

(30) 45 FPL Group's current investment policy for the pension plan recognizes the benefit of protecting the plan's funded status, thereby avoiding the necessity of future employer contributions. Its broad objectives are to achieve a high rate of total return with a prudent level of risk taking while maintaining sufficient liquidity and diversification to avoid large losses while preserving capital.

57

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FPL Group's pension' plan fund has a relatively conservative strategic asset allocation that targets -a mix of 50%.equity investments and 50% fixed income Investments. The fund's Investment strategy emphasizes traditional investments, broadly diversified across the global equity and fixed income markets, utilizing a combination of different Investment styles and vehicles. The pension fund's equity Investments Include direct equity holdings and assets classified as equity commingled vehicles. Similarly, its fixed Income Investments include direct debt security holdings and assets classified as debt security commingled vehicles. These equity and debt security commingled vehicles Include common and collective trusts, pooled separate accounts, registered Investment companies or other forms of pooled Investment arrangements.

At September 30, the asset allocation for FPL Group's pension fund Is as follows:

2003 2002 Asset Category Equity 16%

15%

Equity commingled vehicles 35 30 Debt securities 32 34 Debt security commingled vehicles 17 21 Total 1oo 100 With regard to its other benefits, FPL Group's policy Is to fund claims as incurred during the year through FPL Group contributions, participant contributions and plan assets. The other benefits' assets are invested with a focus on assuring the availability of funds to pay benefits while maintaining sufficient diversification to avoid large losses and preserve capital. The other benefits plan fund has a relatively conservative strategic asset allocation that targets a mix of 55% equity Investments and 45% fixed Income Investments. The fund's Investment strategy emphasizes traditional Investments, diversified among equity and fixed income investments. The'fund's equity investments Include direct equity holdings and assets classified as equity commingled vehicles. Similarly, is fixed Income Investments include direct debt security holdings and assets classified as debt security commingled vehicles. These equity and debt commingled vehicles Include common and collective trusts, pooled separate accounts, registered Investment companies or other forms of pooled Investment arrangements.

At September 30, the asset allocation for FPL Group's other benefits fund Is as follows:

2003 2002 Asset Category Equity 33%

25%

Equity commingled vehicles 14 16 Debt securities 2

37 Debt security commingled vehicles 51 22 Total 100%

100%

Funded Status - The following table reconciles the funded status of the plans to the amounts on the consolidated balance sheets:

Pension Benefits Other Benefits 2003 2002 2003 2002 (millions)

Fair value of plan assets

$ 2,697 $ 2,388 54 $

45 Benefit obligation (1,499)

(1,405)

(488)

(469)

FundedstatusatSeptember30 1,198:

983

- (434)

(424)

Unrecognized prior service (benefit) cost (38)

(43)

Unrecognized transition (asset) obligation (23)

(47) 31 35 Unrecognized (gain) loss (459)

(338) 119 127 Other 6

Prepaid (accrued) benefit cost at FPL Group at December 31

$678

$ 555 (278) $

(262)

Prepaid (accrued) benefit cost at FPL at December 31

$ 672 $ 573

$ (254) $

(243)

Expected Cash Rows - FPL Group does not expect to make contributions to the pension plan in calendar year 2004. FPL Group expects to contribute $27 million to the other benefits plan In calendar year 2004.

58

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The following table provides information about benefit payments expected to be paid by the plans for each of the following calendar years:

Pension Other Benefits Benefits (millions) 2004

$ 101 33 2005

$ 106 36 2006

$ 114 39 2007

$ 121 43 2008

$ 126

$ 47 2009-2013 S 693

$ 279 Net Periodic Cost-The following table provides the components of net periodic benefit (income) cost for the plans:

Pension Benefits Other Benefits Years Ended December 31, Years Ended December 31, 2003 2002 2001 2003 2002 2001 (millions)

Service cost

$ 51 S 52

$ 48 7

6 6

Interest cost 83 84 82 27 24 24 Expected return on plan assets (199)

(196)

(185)

(4)

(6)

(7)

Amortization of transition (asset) obligation (23)

(23)

(23) 3 3

3 Amortization of prior service (benefit) cost (5) 1 5

Amortization of (gains) losses (30)

(32)

(37) 6 1

Cost of special termination benefits 4

Net periodic benefit (income) cost at FPL Group S (123)

$ (110)

S (110)

$ 39

$ 28

$ 26 Net periodic benefit (income) cost at FPL

$ (99)

$ (100)

I102)

S 35

$ 27

$ 25 The following table provides the weighted-average assumptions used to determine net periodic benefit (income) cost for the plans:

Pension Benefits Other Benefits Years Ended December 31, Years Ended December 31, 2003 2002 2001 2003 2002 2001 Discount rate 6.00%

6.25%

6.75%

6.00%

6.25%

6.75%

Salary increase 4.50%

5.50%

5.50%

4.50%

5.50%

5.50%

Expected long-term rate of return ' )

7.75%

7.75%

7.75%

7.75%

7.75%

7.75%

" In developing the expected long-term rate of return on assets assumption for its plans, FPL Group evaluated input from its actuaries as well as information available in the market place. FPL Group considered the 10-year and 20.year histoical medan returns for a portfolio Figh an equityfoond asset mix similar to its hfund FPL Group also considered its funds! historical compounded returns. No specific adjustments were made to reflect expectations of future returns.

Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A one percentage point change in assumed health care cost trend rates would have had the following effect:

One Percentage Point Increase Decrease (millions)

Effect on total service and interest cost at September 30, 2003

$ 1

$ (1)

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law.

The Act introduces a voluntary prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans that provide at least an actuarially equivalent benefit. The Act became law after FPL's September 30, 2003 measurement date. As a result of this Act, in January 2004, the FASB issued Staff Position FAS 106-1, *Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Accordingly, FPL must decide in the first quarter of 2004 whether to begin recognizing the effects of the Act or defer recognition, pending authoritative guidance on the appropriate accounting treatment for the federal subsidy.

3. Derivative Instruments Effective January 2001, FPL Group and FPL 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 FPL Group's and FPLs consolidated balance sheets as either an asset or liability (in derivative 59 I

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) assets, other assets, other current liabilities and other liabilities) measured at fair value. FPL Group and FPL use derivative Instruments (primarily forward purchases and sales, swaps, options and futures) to manage the commodity price risk Inherent In fuel and electricity contracts, as well as to optimize the value of power generation assets.

Effective July 2003, FPL Group and FPL adopted FAS 149,.Amendment of Statement 133 on Derivative Instruments and Hedging Activities. The -statement amends and clarifies financial accounting and reporting for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. There was no financial statement impact upon adoption of FAS 149. However, the statement could have a significant future impact on the number of contracts that will be marked to market through earnings.

Effective July 2002, FPL Group and FPL adopted EITF 02-03. In accordance with this guidance, trading contracts that meet the definition of a derivative are accounted for at market value and realized gains and losses from all trading contracts, including those where physical delivery is required, are recorded net for all periods presented.

Effective October 2003, FPL Group and FPL adopted EITF 03-11, which provides guidance on whether to report realized gains or losses on physically settled derivative contracts not held for trading purposes on a gross or net basis and requires realized gains or losses on derivative contracts that do not settle physically to be reported on a net basis. The guidance in EITF 03-11 was applied to all periods presented and was applied using a revised definition of 'physical delivery." Based on changes made by FAS 149, FPL Group believes that where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore, under these new rules, physical delivery has not occurred.

Previously, FPL Group and FPL generally reported contracts requiring physical delivery of a commodity on a gross basis, even when an offsetting position existed. Under EITF 03-11, FPL Group reduced operating revenues and fuel, purchased power and interchange expense by $416 million for the nine months ended September 30, 2003 and $134 million and $115 million for the years ended December 31, 2002 and 2001, respectively. FPL had no significant change as a result of adopting EITF 03-11.

Effective October 2003, FPL Group and FPL also adopted the U.S. Securities and Exchange Commission (SEC) staff guidance requiring the realized and unrealized effects of derivative Instruments not accounted for as hedges to be reported within the same caption on the statements of income. All periods presented have been reclassified to reflect this guidance.

Previously, FPL Group reflected unrealized gains and losses related to non-qualifying hedges In other - net and the related realized gains and losses for these Instruments within the line items in the statements of Income to which they relate. FPL had no significant change as a result of adopting the SEC staff guidance. The following table reflects the effects of FPL Group adopting the SEC staff guidance:

Nine Months Ended Years Ended September 30, December31, 2003 2002 2001 (millions)

Increase (decrease) by line item:

Operating revenues S

7 (4) 6 Fuel, purchased power and interchange 5

6 (1)

(7)

Other-net (1) 3 (13)

At FPL, substantially all changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any related gains or losses will be passed through the fuel clause and the capacity clause. For FPL Group's non-rate regulated operations, predominantly FPL Energy, changes In the derivatives' fair value are recognized net in operating revenues for trading and managed hedge activities and In the same line item as the related realized amounts for non-qualifying hedges in FPL Group's consolidated statements of income 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 accounting, the transaction must be designated as a hedge, it must be highly effective and physical delivery must be probable for forecasted commodity transactions. The hedging instruments 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 2008. 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.

Unrealized mark-to-market gains (losses) on derivative transactions for both consolidated subsidiaries and equity method investees are as follows:

Years Ended December31, 2003 2002 2001 (millions)

Consolidated subsidiaries 16 5

13 Equity method investees 21 5

(1) 60

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income Taxes The components of income taxes, including deferred regulatory credit, are as follows:

FPL Group FPL Years Ended December 31, Years Ended December 31, 2003 2002 2001 2003 2002 2001 (millions)

Fe4dera14l:54 Federal:

Current Deferred ITC Total federal State:

Current Deferred Total state Total income taxes

$ (181) 507 (20) 306 (21) 83 62 S 368 (70) 283 (20) 193 (22) 73 51

$ 244 432 (76)

(22) 334 55 (10) 45

$ 379 214 145 (20) 339 37 27 64 S 403 92 277 (20) 349 12 52 64

$ 413

$S546 (203)

(22) 321 91 (29) 62 S 383 A reconciliation between the effective Income tax rates and the applicable statutory rates is as follows:

FPL Group Years Ended December 31, 2003 2002 2001 FPL Years Ended December 31, 2003 2002 2001 Statutory federal income tax rate Increases (reductions) resulting from:

State income taxes - net of federal income tax benefit Allowance for other funds used during construction Amortization of ITC Production tax credits - FPL Energy Amortization of deferred regulatory credit - Income taxes Adjustments of prior years' tax matters Preferred stock dividends - FPL Other - net Effective income tax rate 35.0%

35.0%

35.0%

35.0%

35.0%

35.0%

3.2 (0.4)

(1.6)

(6.2)

(0.8)

(0.6) 0.4 0.2 29.2%

3.5 2.5 3.6 (0.4)

(2.1)

(1.9)

(1.7)

(5.7)

(2.3)

(1.1)

(1.0)

(0.8)

(3.2)

(0.8)

(0.7) 0.6 0.5 (1.0) 0.7 (0.2) 26.0%

32.7%

34.8%

3.7 (1.7)

(0.9) 36.1%

3.7 (2.0)

(1.1)

(0.6) 0.6 35.6%

I The income tax effects of temporary differences giving rise to consolidated deferred income tax liabilities and assets are as follows:

FPL Group FPL December 31, December 31, 2003 2002 2003 2002 (millions)

Deferred tax liabilities:

Property-related Investment-related Other Total deferred tax liabilities Deferred tax assets and valuation allowance:

Asset writedowns Unamortized ITC and deferred regulatory credit - income taxes Storm and decommissioning reserves Post retirement benefits Other Valuation allowance Net deferred tax assets Accumulated deferred income taxes

$ 2,570 297 632 3,499 244 56 362 108 601 (27) 1,344

$ 2.155

$ 2,010 275 492 2,777 250 74 331 102 494 (21) 1,230 S 1.547

$ 1,771 523 2,294 56 362 108 353 879 S 1,415 5 1,654 399 2,053 74 331 102 331 838

$ 1,215 Deferred tax liabilities associated with property-and investment-related assets reflect additional first year depreciation as allowed by recent tax legislation. In addition, a capital loss from the disposition in a prior year of an FPL Group Capital subsidiary was limited by Intemal Revenue Service (IRS) rules. FPL Group challenged the IRS loss limitation and in March 2002, the IRS conceded the issue. Accordingly, FPL Group recognized approximately $30 million of net tax benefits in the first quarter of 2002.

61

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Goodwill and Other Intangible Assets Effective January 1, 2002, FPL Group adopted FAS 142, 'Goodwill and Other Intangible Assets." Under this statement, the amortization of goodwill is no longer permitted; Instead, goodwill is assessed for Impairment at least annually by applying a fair value based test. In January 2002, FPL Energy recorded an Impairment loss of $365 million ($222 million after tax) as the cumulative effect of adopting FAS 142, eliminating all goodwill previously Included in other assets on FPL Group's consolidated balance sheets. Estimates of fair value were determined using discounted cash flow models.

The following table provides reported net Income and earnings per share excluding the Impact of adopting FAS 142 and the pro forma effect on prior years of excluding goodwill amortization expense:

Years Ended December 31, 2002 2001 (millions, except per share amounts)

Net Income 473 781 Add back: Cumulative effect of adopting FAS 142, net of income taxes of $143 222 Net Income excluding cumulative effect 695 781 Add back: Goodwill amortization, net of income taxes of $4 6

Adjusted net income 695 S

787 Earnings per share (basic)

S 2.74 4.63 Add back: Cumulative effect of adopting FAS 142 1.28 Eamings per share excluding cumulative effect 4.02 4.63 Add back: Goodwill amortization 0.03 Adjusted earnings per share (basic)

$ 4.02

$ 4.66 Earnings per share (assuming dilution)

$ 2.73 4.62 Add back: Cumulative effect of adopting FAS 142 1.28 Eamings per share excluding cumulative effect 4.01 4.62 Add back: Goodwill amortization 0.04 Adjusted earnings per share (assuming dilution)

-$4.01 4.66

6. Restructuring and Impairment Charges FPL Group recorded charges totaling $207 million ($127 million after tax) In the third quarter of 2002 due to unfavorable market conditions in the wholesale energy and telecommunications markets. As of September 30,2002, approximately $29 million of the total nonrecurring charges were recognized as liabilities and were Included in other current liabilities on FPL Group's consolidated balance sheets. During 2003 and 2002, approximately $24 million and $3 million, respectively, were charged against the liabilities. As of December 31, 2003, a balance of approximately $2 million remains and is Included In other current liabilities on FPL Group's consolidated balance sheets.

]

FPL Energy - Over the last several years, there has been a general decline in the wholesale energy markets, including deterioration In forward prices and reduced liquidity, as well as increasing credit concerns that have limited the number of counterparties with which FPL Energy does business. During 2002, FPL Energy conducted a thorough review of Its business development plans, organizational structure and expenses. As a result, FPL Energy decided to substantially exit fossil-fueled greenfield merchant power plant development activities, which resulted in the write-off of approximately $67 million ($41 million after tax) of previously capitalized development costs.

An agreement for the supply of gas turbines and other related equipment was renegoUated during 2002 to significantly reduce the commitment to purchase such equipment, resulting In a charge totaling approximately $16 million ($10 million after tax).

FPL Energy also realigned its organizational structure during 2002 to lower general and administrative expenses and took other actions associated with the restructuring. The operating lease agreement with a special purpose entity and the related credit facility used to finance certain turbine purchases were terminated during 2002. Together these resulted in a charge of approximately$20 million ($12 million after tax).

Corporate and Other-Due to the changing telecommunications market, FPL FiberNet completed valuation studies to assess the recoverability of Its assets and as a result In 2002 recorded charges of approximately $104 million ($64 million after tax).- Of this amount, $85 million ($52 million after tax) represents an Impairment charge related to property, plant and equipment, the fair value of which was determined based on a discounted cash flow analysis. Additionally, FPL FiberNet decided not to pursue the planned build-out of metro fiber rings In certain cities, and restructuring charges of $19 million ($12 million after tax) were recognized related to the write-off of development costs and Inventory. --

62

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Merger In July 2000, FPL Group and Entergy Corporation (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. Both companies agreed that no termination fee was payable under the terms of the merger agreement as a result of this termination. Each company paid its own merger-related expenses. FPL Group recorded $30 million in merger-related expenses in 2001, of which FPL recorded $26 million ($16 million after tax) and Corporate and Other recorded $4 million ($3 million after tax).

8. 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 Net Income Hedges Other (millions)

Comprehensive Total Income Balances, December 31, 2000 Net income Net unrealized loss on cash flow hedges:

FAS 133 transition adjustment (net of $6 tax expense)

Effective portion of net unrealized loss (net of $13 tax benefit)

Reclassification adjustment (net of $2 tax expense)

Balances, December 31, 2001 Net Income Net unrealized gain on cash flow hedges:

Effective portion of net unrealized gain (net of $21 tax expense)

Reclassification adjustment (net of $4 tax benefit)

Minimum supplemental executive retirement plan liability adjustment (net of $3 tax benefit)

Net unrealized gain on available for sale securities (net of $1 tax expense)

Balances, December 31, 2002 Net income Net unrealized gain on cash flow hedges:

Effective portion of net unrealized gain: ¢A Consolidated subsidiaries (net of $7 tax expense)

Equity method investees (net of $7 tax expense)

Reclassification adjustment: 0' Consolidated subsidiaries (net of $23 tax benefit)

Equity method Investees (net of $7 tax benefit)

Net unrealized loss on interest rate swaps (net of $3 tax benefit)

Net unrealized gain on available for sale securities (net of $11 tax expense)

Balances, December 31, 2003 781 473 S

890 10 (21) 3 (8) 33 (6) 10 (21) 3 (8) 33 (6)

(4)

(4) 1 1

19 (3) 16 S 781 10 (21) 3 S 773

$ 473 33 (6)

(4) 1 497

$ 890 11 11 (35)

(12)

(4) 17 S 878 I

11 11 (35)

(12) 1I 11 (35)

(12)

(4)

(4) 17 17 S

(10)

$ 14 S 4

'0 Approximalely $1 million of FPL Group's accumulated other comprehensive income at December 31, 2003 will be reclassified into earnings within the next 12 months as the hedged fuel is consumed or as electricity is sold.

'X Includes amounts reclassified nto earnings due to settlements of approximately $44 million aid discontinuance of cash flow hedges of approximately $3 million for which the hedged transaction is no longer probable of occurring.

9. Jointly-Owned Electric Plant The following FPL Group subsidiaries own undivided interests in the jointly-owned facilities described below, and are entitled to a proportionate share of the output from those facilities. Accordingly, each subsidiary includes its proportionate share of the facilities and related revenues and expenses In the appropriate balance sheet and income statement captions. FPL Group's and FPL's share of direct expenses for these facilities are included in fuel, purchased power and interchange, other operations and maintenance, depreciation and amortization and taxes other than income taxes on FPL Group's and FPL's consolidated statements of income.

FPL - FPL owns approximately 85% of St. Lucie Unit No. 2, 20% of the St. Johns River Power Park units and coal terminal and approximately 76% of Scherer Unit No. 4. At December 31, 2003, FPL's proportionate share of the gross investment in these units was $1.178 billion, $328 million and $575 million, respectively; accumulated depreciation was $825 million, $200 63

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) million and $355 million, respectively. FPL Is responsible for Its share of the operating costs, as well as providing its own financing. These costs are Included in' FPL Group's and FPL's consolidated statements of Income. At December 31, 2003, there was no significant balance of construction work in progress on these facilities. See Note 17 - Utigation.

FPL Energy - To strengthen its competitive position In the northeast energy market, on November 1, 2002, FPL Energy completed the purchase of an 88.23% undivided Interest, or 1,024 megawatts (mw), In Seabrook located In New Hampshire. The transaction was financed through general 'funds of FPL Group Capital. Since November 1, 2002, FPL Energy's proportionate share of Seabrook's results have been Included In FPL Group's consolidated financial statements. The following table summarizes the allocation of purchase price based upon estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (millions):

Property, plant and equipment 774 Decommissioning trust fund 227 Other assets 61 Total assets acquired 1,062 Nuclear decommissioning liability 150 Other liabilities 104 Total liabilities assumed 254 Net assets acquired 808 At December 31, 2003, FPL Energy's proportionate share of the gross investment in property, plant and equipment was $843 million and accumulated depreciation was $49 million. FPL Energy Is responsible for its share of the operating costs, as well as providing Its own financing. These costs are Included In FPL Group's consolidated statements of Income. At December 31, 2003, Included in gross Investment In property, plant and equipment was $35 million of construction work in progress for capital projects underway at Seabrook.

FPL Energy owns approximately 61.78% of Wyman Station Unit No. 4, an oil-fired power plant unit located In Maine. At December 31, 2003, FPL Energy's proportionate share of the gross Investment In property, plant and equipment was $75 million and accumulated depreciation was $17 million. FPL Energy is responsible for Its share of the operating costs, as well as providing its own financing. These costs are Included In FPL Group's consolidated statements of income. At December 31, 2003, there was no construction work in progress on this power plant.

10. Variable Interest Entitles In January 2003, the FASB Issued FIN 46, Consolidations of Variable Interest Entities.' In December 2003, the FASB revised FIN 46, which partially delayed its effective date for public companies until the first quarter of 2004, but permitted companies to choose earlier adoption for some or all of their Investments. FIN 46 requires the consolidation of entities which are determined to be VIEs when the reporting company determines that it will absorb a majority of the ViE's expected losses, receive a majority of the VIE's residual returns, or both. The company that Is required to consolidate the VIE Is called the primary beneficiary. Conversely, the reporting company would be required to deconsolidate VIEs which are currently consolidated when the company Is not considered to be the primary beneficiary. Variable Interests are contractual, ownership or other monetary interests In an entity that change with changes in the fair value of the entity's net assets exclusive of variable Interests. An entity Is considered to be a VIE when Its capital Is Insufficient to permit It to finance Its activities without additional subordinated financial support 'or its equity Investors, as a group, lack the characteristics of having a controlling financial interest.

FPL Group and FPL consolidated two VIEs as of July 1, 2003, which are discussed below. FPL Group and FPL will continue to analyze their other Investments and contractual relationships to determine if other entities should be consolidated or deconsolidated In accordance with FIN 46.

FPL - FPL leases nuclear fuel for all four of Its nuclear units. For ratemaking purposes, these leases are classified as operating leases. 'For financial reporting, the capital lease obligation was recorded at the amount due in the event of lease termination. FPIL makes quarterly payments to the lessor for the lease commitments. The lessor has Issued senior secured notes to fund the procurement of nuclear fuel and has established a revolving credit facility to support its commercial paper program. FPL has provided an unconditional guarantee of the payment obligations of the lessor under the notes and credit facility.

FPL Energy - In 2000, an FPL Energy subsidiary entered Into an operating lease agreement with a special purpose entity (SPE) lessor to lease a 550-mw combined-cycle power generation plant through 2007. At the inception of the lease, the lessor obtained the funding commitments required to complete the acquisition, development and construction of the plant through debt and equity contributions from Investors who are not affiliated with FPL Group. At December 31, 2002, the commitment was capped at costs Incurred of S380 million. The $380 million commitment Included $364 million of debt and

$16 million of equity. The conditions to achieve project completion were satisfied as of December 27, 2002, at which time the base lease term began. The FPL Energy subsidiary began making quarterly lease payments on March 31, 2003. The quarterly lease payments are Intended to cover the lessor's debt service, which Includes a stated yield to equity holders and certain other costs.

64

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The FPL Energy subsidiary has the option to purchase the plant at any time during the remaining lease term for 100% of the outstanding principal balance of the loans and equity contributions made to the SPE, all accrued and unpaid interest and yield, and all other fees, costs and amounts then due and owing pursuant to the provisions of the related financing documents. However, under certain limited events of default, the FPL Energy subsidiary can be required to purchase the plant for the same cost. It the FPL Energy subsidiary does not elect to purchase the plant at the end of the lease term, a residual value guarantee must be paid, and the plant will be sold. Any proceeds received by the lessor in excess of the outstanding debt and equity will be given to the FPL Energy subsidiary. FPL Group Capital has guaranteed certain obligations of the FPL Energy subsidiary under the lease agreement. The equity holders control the lessor.

As a result of the consolidation of the above mentioned VIEs beginning July 1, 2003, FPL Group's and FPL's consolidated balance sheets line items increased (decreased) by the following amounts:

FPL Group FPL (millions)

Assets:

Electric utility plant in service and other property

$ 354 Nuclear fuel 257 257 Less accumulated depreciation and amortization 265 257 Materials, supplies and fossil fuel inventory 9

Other 11 1

Total Assets S 366 I 1 Capitalization and Liabilities:

Retained earnings (5)

Accumulated other comprehensive loss (7)

Long-term debt 486 135 Commercial paper 29 29 Accounts payable (12)

(12)

Other (125)

(151)

Total Capitalization and Liabilities

$ 366 1

The cumulative effect on FPL Group's net income of implementing FIN 46 for the VIEs discussed above is approximately a $3 million loss (net of income taxes of $2 million) and zero for FPL.

11. Financial Instruments The carrying amounts of cash equivalents, commercial paper and notes payable approximate fair values. At December 31, 2003 and 2002, other investments of FPL Group included financial instruments of approximately $300 million and $240 million, respectively, the majority of which consist of notes receivable that are carried at estimated fair value or cost, which approximates fair value. See Notes 12 and 17 - Other Contingencies.

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

December 31, 2003 December 31, 2002 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value (millions)

FPL Group:

Long-term debt, including current maturities

$ 9,090 S 9,5483(

$ 5,895 S

6,222(

Special Use Funds:

Storm fund 200 200' 183 183 '

Nuclear decommissioning fund

$ 2,048

$ 2,048"'

S 1,738 1,738'4 Other investments 57 57"'

S 41 41' Interestrateswaps-netunrealizedloss (10)

(10)b FPL:

Long-term debt, including current maturities S 3,074 S 3,193°)

S 2,434 2,578')

Special Use Funds:

Storm fund 200 200' '

183 183

Nucleardecommissioning fund

$ 1,774 1,774A) 1,510 1,510w'

° Based on quoted market prices for these or similar Issues.

° Based on market prices provided by extemal sources or modeled internally.

Special Use Funds - The special use funds consist of FPL's storm fund assets and FPL Group's nuclear decommissioning fund assets. Securities held in the special use funds are carried at estimated fair value based on quoted market prices. FPL Group's nuclear decommissioning funds consist of approximately 45% equity securities and 55% municipal, government, 65

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) corporate and mortgage-and other asset-backed debt securities (44% and 56% for FPL, respectively) with a weighted-average maturity of approximately 7 years. FPL's storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately 3 years. The cost of securities sold is determined on the specific Identification method.

The following tables provide the special use funds approximate gains and losses and proceeds from the sale of securities:

FPL Group FPL Years Ended December 31,

- Years Ended December 31, 2003 2002 2001 2003 2002 2001 (millions)

Realized gains 26 28 30 25 27

$ 30 Realizedlosses

$ 20 16 16 19 16

$ 16 Proceeds from sale of securities

$2,735

$ 2,524

$ 1,778

$ 2,702

$ 2,435

$1,778 FPL Group FPL December 31, December 31, 2003 2002 2003 2002 (millions)

Unrealized gains 300 143 271 142 Unrealized losses 2')

44 1'$

42 t

At December 31,2003. FPL Group had 9 securities In an unrealized loss position tor greater than twelve months, Induding I security or FPL The total unrearized loss on these securities was less than S1 million and the fair value was approximately $8 million for FPL Group, Including less tan SI million for FPL Regulations issued by the FERC and the Nuclear Regulatory Commission (NRC) provide general risk management guidelines to protect nuclear decommissioning trust funds and to allow such funds to earn a reasonable return. The FERC regulations set forth in the Code of Federal Regulations prohibit Investments In any securities of FPL Group or Its subsidiaries, affiliates or associates, excluding investments tied to market indices or other mutual funds. Similar restrictions applicable to the decommissioning trust fund for FPL Energy's Seabrook nuclear plant are contained in the NRC operating license for that facility. Effective December 24,

-2003, NRC regulations applicable to NRC licensees not in cost-of-service environments require similar investment restrictions.

The NRC's regulations permit licensees with operating licenses containing conditions restricting the use of decommissioning trust funds to rely on those conditions in lieu of compliance with the new NRC regulations. FPL Energy's Seabrook nuclear plant contains such restrictions In Its NRC operating license. With respect to the decommissioning trust fund for FPL Energy's Seabrook nuclear plant, decommissioning trust fund withdrawals are also regulated by the NDFC pursuant to New Hampshire law.

The special use funds are managed by Investment managers who must comply with the guidelines and rules of the applicable regulatory authorities, FPL Group and FPL. The special use fund assets are Invested in order to optimize the after-tax earnings of these funds, giving consideration to liquidity, risk, diversification and other prudent investment objectives.

Interest Rate Swaps - FPL Group and Its subsidiaries use a combination of fixed rate 'and variable rate debt to manage Interest rate exposure. Interest rate swaps are used to adjust and mitigate interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements. At December 31, 2003, FPL Group had the following interest rate swaps:

Notional Effective Maturity Rate Rate Estimated Amount Date Date Paid Received Fair Value (millions)

(millions)

Fair value hedges - FPL Group Capital:

150 July 2003 September 2006 variable"'

7.625%

(2) 150 July 2003 September 2006 variables 7.625%

(2) 175 December2003 June 2004 variable"'

6.875%

1 Total fair value hedges (3)

Cash flow hedges - FPL Energy:

103 July2002 December 2007 4.41%

variable" (4)

$ 200 August 2003 November 2007 3.557%

variable d (2) 94 December 2003 December 2017 4.245%

variable (1)

Total cash flow hedges Total interest rate hedges

$ (10)

S 5ix-monthL UBOR plus 4.9900%

° Six-month UBOR plus 4.9925%

Six-month UBOR plus 4.8921%

t Three-month UBOR

(

One-month UBOR 66

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Investments in Partnerships and Joint Ventures FPL Energy has non-controlling non-majority owned interests in various partnerships and joint ventures, essentially all of which are electricity producers. At December 31, 2003 and 2002, FPL Energy's investment in partnerships and joint ventures totaled approximately $346 million and S310 million, respectively, which is included in other investments on FPL Group's consolidated balance sheets. FPL Energy's interest in these partnerships and joint ventures range from approximately 5.5% to 50%. At December 31, 2003, the principal entities included in FPL Energy's investments in partnerships and joint ventures were Bastrop Energy Partners, LP, Northeast Energy, LP, Cherokee County Cogeneration Partners, LP, Luz Solar Partners LTD., VIII and Luz Solar Partners LTD., IX.

Summarized combined information for these five entities is as follows:

2003 2002 (millions)

Net income S

118 112 Total assets S 1,629

$ 1,660 Total liabilities

$ 1,052

$ 1,158 Partners' equity 577 S

502 FPL Energy's share of underlying equity in the five entities 289 248 Difference between investment carrying amount and underlying equity in net assets "'

(12)

(10)

FPL Energy's investment carrying amount for the five entities 277 S

238 ti The majority of the difference between the investment carring amount and the undeling equity in net assets is being amortized oer the remaining life of the investee's assets.

Certain subsidiaries of FPL Energy provide services to the partnerships and joint ventures, including O&M and business management services. FPL Group's operating revenues for the years ended December 31, 2003, 2002 and 2001 include approximately $16 million, $16 million and $14 million, respectively, related to such services. The receivables at December 31, 2003 and 2002, for these services, as well as for payroll and other payments made on behalf of these investees, were approximately $19 million and $15 million, respectively, and are included in other current assets on FPL Group's consolidated balance sheets.

Notes receivable (long-and short-term) include approximately $107 million and $94 million at December 31, 2003 and 2002, respectively, due from partnerships and joint ventures in which FPL Energy has an ownership interest. The notes receivable mature in 2004 through 2014 and the majority bear interest at variable rates, which ranged from approximately 6.1% to 8.5%

at December 31, 2003 and 5.0% to 6.8% at December 31, 2002. Interest income on these notes totaling approximately $6 million, $8 million and $12 million for the years ended December 31, 2003, 2002 and 2001, respectively, is included in other -

net in FPL Group's consolidated statements of income. The associated interest receivables as of December 31, 2003 and 2002 were less than S1 million, respectively, and are included in other current assets on FPL Group's consolidated balance sheets.

13. Common Stock Earnings per share - The reconciliation of FPL Group's basic and diluted earnings per share is shown below:

Years Ended December 31, 2003 2002 2001 (millions, except per share amounts)

Numerator (basic and assuming dilution):

Net income S 890 S 473

$ 781 Denominator Weighted-average number of shares outstanding - basic 177.5 172.9 168.7 Performance share awards and shareholder value awards, options and equity units As 0.7 0.4 0.2 Weighted-average number of shares outstanding - assuming dilution 178.2 173.3 168.9 Eamings per share:

Basic

$ 5.01

$ 2.74

$ 4.63 Assuming dilution S 5.00 S 2.73

$ 4.62

'4 Performance share awards and shareholder value awards are included in dluted weighted-average number of shares outstanding based upon what would be issued if the end of the reporting period was the end of the term of the award. Options and equity units (known as corporate Units) are included in diluted weighted-average number of shares outstanding by applying the treasury stock method.

I 67

FPL GROUP, INC.-AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Shares issuable upon the exercise of stock options and settlement of purchase contracts that form a part of equity units, which were not Included in the denominator above due to their antidilutive effect, were approximately I million In 2003, 11 million in 2002 and 1.6 million In 2001. -See Note 15.

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 common stock is dependent upon dividends paid to it by its subsidiaries; primarily FPL In 2003,2002 and 2001, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis. In addition, during 2002, FPL paid special dividends totaling $375 million to FPL Group. FPL's charter and a mortgage securing FPL's first mortgage bonds contain provisions that, under certain conditions, restrict the payment of dividends and other distributions to FPL Group. These restrictions do not currently limit FPL's ability to pay dividends to FPL Group.

Employee Stock Ownership Plan (ESOP) - The employee' thrift plans of FPL Group include a leveraged ESOP feature. Shares of common stock held by the trust for the thrift plans (Trust) are used to provide all or a portion of the employers' matching contributions. Dividends received on all shares, along with cash contributions from the employers, are used to pay principal and 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. For purposes of computing basic and fully diluted earnings per share, ESOP shares that have been committed to be released are considered outstanding.

ESOP-related compensation expense of approximately $25 million, $24 million and $24 million in 2003, 2002 and 2001, respectively, was recognized based on the fair value of shares allocated to employee accounts during the period. Interest income on the ESOP loan is eliminated in consolidation. ESOP-related unearned compensation included as a reduction of shareholders' equity at December31, 2003 was approximately $170 million, representing approximately 6 million unallocated shares-at the original issue price of $29 per share. The fair value of the ESOP-related unearned compensation account using the closing price of FPL Group stock at December 31, 2003 was approximately $383 million.

Long-Ternm Incentive Plan - At December 31, 2003, approximately 9 million shares of common stock-were reserved and 7.6 million were available for awards (including outstanding awards) to officers and employees of FPL Group and its subsidiaries under FPL Group's long-term Incentive plan. Restricted stock Is issued at market value at the date of grant, typically vests within four years and Is subject to, among other things, restrictions on transferability. Performance share awards and shareholder value awards are typically payable at the end of a three-or four-year performance period if the specified performance criteria are met.

The changes In awards under the long-term incentive plan are as follows:

Performance Share and Shareholder Options Restricted Value Weighted-Average Stock Awards Number Exercise Price Balances, December 31,2000 81,250 19,000 392,168

$ 39.58 Granted 263,825"'

617,420"'

2,009,200"'

$ 62.04 Paid/releasedlexercised (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 Granted 127,3251' 206,605'0 1,669,625gc

$ 5427 Paid/released/exercised (123,095)

(246,246)

(69,101)

$ 41.19 Forfeited (13,250)

(86,949)

(99,208)

$ 59.09 Balances, December 31, 2002 298,705 418,489 3,645,130 S 57.29 Granted 234,345("

210,433e' 1,605,970(c)

$ 56.13 Paid/released/exercised (112,918)

(169,095)

(118,301)

$ 47.88 Forfeited (37,444)

(64,181)

(352,387)

$ 55.63 Balances, December 31, 2003 382,688 395,646 4,780,412o 5 57.24 X The weighted-average grant date fair value of resfricted stock granted in 203, 2002 and 2001 was S59.00. $54.82 and $60.19 per share. respectively.

e The weighted-average grant date fair value of performance share and shareholder value awards In 2003, 2002 and 2001 was $61.33, $56.95 and $70.25 per share.

respectiveltr.

° The exercise price of each option granted in 2003,2002 and 2001 equaled the market price of common stock on the date of grant Accordingly. the weighted-average grant date Intrinsic value of all options granted Is $0. Stock options typically vest within three years and have a maximum term of ten years.

Of the options outstanrding at December 31 2003 1,444,204 options were exercisable and had exercise prices ranging from 538.13 to $65.13 per share with a weighted-average exercise price of $57.84 per share and a weighted-average remaining contractual life of 7.3 years. The remainder of the outstanding options had exercise prices ranging from $5Z64 to $65.13 per share with a weighted-average exercise price of $57.00 per share and a weighted-average remaining contractual life of 8.4 years.

68

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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.

14. 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 are 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: 'I December 31, 2003 Shares Redemption Outstanding Il Price Cumulative, $100 Par Value, without sinking fund requirements, authorized 15,822,500 shares:

4 1/2% Series 4 1/2% Series A 4 1/2% Series B 4 1/2% Series C 4.32% Series D 4.35% Series E 6.98% Series S 7.05% Series T 6.75% Series U Total preferred stock of FPL 50,000 103.25 December 31, 2003 2002 (millions) 10 5

5 S

6 5

5 75 50 65 S

5 226 50,000 FPLs charter also authorizes the issuance of 5 million shares of subordinated preferred stock, no par value. None of these shares are outstanding. There were no issuances or redemptions of preferred stock in 2002 or 2001. In November 2003, FPL redeemed 2.2 million shares of preferred stock with an aggregate par value of $221 million for redemption prices per share ranging from $101.00 to $103.52. In January 2004, FPL sold 0.2 million shares of 41/2% Series V preferred stock with an aggregate par value of S20 million to FPL Group.

(bl FPIs preferred shares are entitled to dividends at the stated rates In preference to FPL's common stockholder, FPL Group. In the event of voluntary liquidation, the outstanding preferred shares have preference over common shares until an amount equal to the current redemption price of all shares has been paid. In the event of involuntary liquidation, outstanding preferred shares shall have preference over common shares until the full par value of all shares and all unpaid accumulated dividends thereon have been paid.

I 69

• FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

FPL:

First mortgage bonds:

Maturing through 2005 - 6 7/8%

Maturing 2008 through 2013 -4.85% to 6.00%

Maturing 2025 through 2034 - 5 5/18% to 7 1/20%

Medium-term notes - maturing 2003 through 2006 - 2.34% to 5.79%

Pollution control and industrial development series maturing 2023 through 2027 - 6.70% to 7.15%

Pollution control, solid waste disposal and industrial development revenue bonds -

maturing 2020 through 2029 - variable, 1.1 % and 1.6% weighted average annual interest rates, respectively Unamortized discount Total long-term debt of FPL Less current maturities '

L ong-term debt of FPL, excluding current maturities FPL Group Capital:

Debentures - maturing 2004 through 2009 - 1 7/8% to 7 5/8%

Debentures - maturing 2005 - variable, 1.45% weighted average annual interest rate Debentures, related to FPL Group's equity units - maturing 2007 and 2008 - 4.75%

to 5.00%

Other long-term debt - maturing 2013-7.35%

Term loan facilities - maturing 2004 through 2005 - variable, 1.82% and 2.04%

weighted average annual interest rates, respectively Fair value swaps (see Note 11)

Unamortized discount Total long-term debt of FPL Group Capital Less current maturities Less fair value swap on current maturities (see Note 11)

Long-term debt of FPL Group Capital, excluding current maturities FPL Energy.

Senior secured bonds - maturing 2017 through 2023 -. 6.639% to 7.52%

Senior secured notes - maturing 2020 - 7.11%

Construction term facility - maturing 2008 - variable, 2.90%

weighted average annual Interest rate Other long-term debt - maturing 2007 through 2017 - variable, 2.32%

weighted average annual Interest rate Total long-term debt of FPL Energy;---

Less current maturities Long-term debt of FPL Energy, excluding current maturities, Total long-term debt

- December31, 2003 2002 I (millions) 500 500 825 825 1,000 417 135 70 24

' 633 (19) 3,074 3,074 2,600 400 I

1,081 5

175 (3)

(6) 4,252 275 1

3,976-852 115 609 (11) 2,434

- 70 2,364 1,900 1,081 5

100 P7) 3,079 382 315 482 1,764 91 S 1,673

$ 8,723 382 I 35 347 S 5,790 In January 2004, FPL issued $240 million principal amount of 5.65% first mortgage' bonds maturing in February 2035. The proceeds were used to repay a portion of Us short-term borrowings 'and for other corporate purposes.

Minimum annual maturities of long-term debt for FPL Group are approximately $367 million, $1,294 million, $1,351 million,

$1,493 million and $1,021 million for 2004, 2005, 2006, 2007 and 2008, respectively. The amounts for FPL are $500 million,

$135 million and $200 million for 2005,2006 and 2008, respectively, with no long-term debt scheduled to mature in 2004 or 2007.

At December 31, 2003, commercial paper borrowings and notes payable had a weighted-average interest rate of 1.24% for FPL Group (1.11% for FPL). Available lines of credit aggregated approximately $3.0 billion ($2.0 billion for FPL Group Capital and $1.0 billion for FPL) at December31, 2003, all of which were based on firm commitments. While no direct borrowings were outstanding at December 31, 2003, undrawn letters'of credit totaling $85 million were outstanding under the FPL Group Capital credit facilities. No letters of credit were outstanding under the FPL credit facilities.

FPL Group Capital has guaranteed certain debt and other obligations of FPL Energy and its subsidiaries. FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most of those under FPL Group Capital's debt, Including all of its debentures and commercial paper issuances, as well as most of Its guarantees.

70

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 4.75% debentures due February 16, 2007. The interest rate on the debentures is expected to be reset on or after November 16, 2004. The interest rate resets, upon a successful remarketing of the debentures, at the rate the debentures should bear to have an approximate market value of 100.5% of par. Payment of FPL Group Capital debentures is absolutely, irrevocably and unconditionally guaranteed by FPL Group. 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, and FPL Group will make payments of 3.75% of the unit's $50 stated value until the shares are purchased. Under the terms of the purchase contracts, FPL Group will issue between 9,271,300 and 10,939,950 shares of common stock in connection with the settlement of the purchase contracts (subject to adjustment under certain circumstances) and receive approximately $575 million.

In June 2002, FPL Group sold concurrently a total of 5.75 million shares of common stock and 10.12 million 8% Corporate Units. In connection with the corporate units financing, FPL Group Capital issued $506 million principal amount of 5%

debentures due February 16, 2008. The interest rate on the debentures is expected to be reset on or after August 16, 2005.

The interest rate resets, upon a successful remarketing of the debentures, at the rate the debentures should bear to have an approximate market value of 100.5% of par. Payment of FPL Group Capital debentures is absolutely, irrevocably and unconditionally guaranteed by FPL Group. Each 8% 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, 2006, and FPL Group will make payments of 3% of the unit's $50 stated value until the shares are purchased.

Under the terms of the purchase contracts, FPL Group will issue between 7,450,344 and 8,940,008 shares of common stock in connection with the settlement of the purchase contracts (subject to adjustment under certain circumstances) and receive approximately $506 million.

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 over 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.

16. Asset Retirement Obligations Effective January 1, 2003, FPL Group and FPL adopted FAS 143, 'Accounting for Asset Retirement Obligations.' This statement requires that a liability for the fair value of an ARO be recognized In the period in which it is incurred with the offsetting associated asset retirement cost capitalized as part of the carrying amount of the long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over its useful life. Changes in the ARO resulting from the passage of time are recognized as an increase in the carrying amount of the liability and as accretion expense, which is included in depreciation and amortization expense in the consolidated statements of income. Prior to January 1, 2003, FPL accrued for decommissioning and dismantlement costs over the life of the related asset through depreciation expense.

Upon adoption of FAS 143, with respect to amounts for nuclear decommissioning, FPL recorded an ARO of approximately

$1.8 billion, capitalized a net asset related to the ARO of approximately $231 million and reversed the approximately $1.6 billion it had previously recorded in accumulated depreciation. The difference, approximately $29 million, was deferred as a regulatory liability. FPL's AROs other than nuclear decommissioning were not significant. The adoption of FAS 143 results in timing differences in the recognition of legal asset retirement costs for financial reporting purposes and the method the FPSC allows FPL to recover in rates. Accordingly, any differences between the ongoing expense recognized under FAS 143 and the amount recoverable through rates are deferred in accordance with FAS 71. FPL recorded accretion expense of approximately $101 million for the year ended December 31, 2003. No other adjustments were made to FPL's ARO during the year ended December 31, 2003. Had FAS 143 been applied in 2002 and 2001, FPL would have recorded AROs of approximately $1.8 billion and $1.7 billion at December 31, 2002 and 2001, respectively. Pro forma net income has not been presented for FPL for the years ended December 31, 2003, 2002 and 2001 because the pro forma application of FAS 143 to prior periods would result in the same pro forma net income as the actual amounts reported for those periods due to the regulatory treatment mentioned above.

FPL Group and FPL have Identified but not recognized ARO liabilities related to electric transmission and distribution (T&D) and telecommunications assets resulting from easements over property not owned by FPL Group or FPL. These easements are generally perpetual and only require retirement action upon abandonment or cessation of use of the property for the specified purpose. The ARO liability is not estimable for such easements as FPL Group and FPL intend to utilize these properties indefinitely. In the event FPL Group and FPL decide to abandon or cease the use of a particular easement, an ARO liability would be recorded at that time.

I 71

FPL GROUP,7INC.-AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In addition to the amounts recorded by FPL, upon adoption of FAS 143, FPL Energy increased Its ARO by approximately $6 million to a total ARO of approximately $164 million and Increased its net property, plant and equipment by approximately $6 million. Approximately $152 million of FPL Energy's ARO related to the nuclear decommissioning obligation of Seabrook,'and the remainder primarily represented the current estimated fair value of obligations to dismantle its wind facilities located on leased property and certain hydro facilities. The cumulative effect on FPL Energy's net Income of adopting FAS 143 was Immaterial. FPL Energy recorded accretion expense of approximately $12 million for the year ended December 31, 2003, and approximately $2 million In additional ARO liabilities relating to new wind assets which caused FPL Energy's ARO to Increase to approximately $178 million at December31, 2003.

Had FAS 143 been applied In 2002 and 2001, FPL Group would h'ave recorded AROs of approximately $2.0 billion and $1.7 billion at December 31, 2002 and 2001, respectively. Additionally, had FPL Group applied FAS 143 In the years ended December 31, 2002 and 2001, FPL Group's net Income and earnings per share would have been as follows:

Years Ended December 31, 2002 2001 (millions, except per share amounts)

Pro forna:

Net Income 473 780 Earnings per share (basic) 2.73 4.62 Eamings per share (assuming dilution)

S 2.73 4.62 As reported:

Net income 473 S

781 Earnings per share (basic) 2.74 4.63 Eamings per share (assuming dilution) 2.73 4.62 Based on FPSC rules and regulations, FPL also accrues for asset removal costs that do not meet the definition of an ARO under FAS 143, or are not estimable as discussed above. In 2003, upon adoption of FAS 143, FPL reclassified the accrued asset removal costs that do not meet the definition of an ARO to a regulatory liability on FPL Group's and FPL s consolidated balance sheets, which totaled $1,902 million at December 31, 2003. This amount Is comprised of $143 million for nuclear decommissioning costs (see Note 1 - Decommissioning of Nuclear Plant), $274 million of fossil dismantlement costs (see Note 1

- Dismantlement of Fossil Plants) and $1,485 million of costs for transmission, distribution and other property. At December 31, 2002, FPLs accrued asset removal costs Included the total provision for nuclear decommissioning of $1,726 million, $260 million of fossil dismantlement and $1,410 million for transmission, distribution and other property. For FPL Energy, accrued asset removal costs totaled $164 million at December31, 2002.

17. Commitments and Contingencies Commitments - FPL Group and its subsidiaries have made commitments In connection with a portion of their projected capital expenditures. Capital expenditures at FPL consist of the cost for construction or acquisition of additional facilities and equipment to meet customer demand, as well as capital Improvements to and maintenance of existing facilities. At FPL Energy, capital expenditures Include, among other things, the construction of a gas-fired power plant and nuclear fuel (including capitalized interest). FPL FiberNefs capital expenditures primarily include costs to sustain its fiber optic network and meet customer specific requirements. Capital expenditures for 2004 through 2008 are estimated to be as follows:

2004 2005 2006 2007 2008 Total FPL:

(millions)

Generation:

New&'

$ 385 290

$ 265 105

$ 1,045 Existing a

430 430 355 455 270 1,940 Transmission and distribution 605 700 690 700 715 3,410 Nuclear fuel 95 75 80 100

80.

430 General and other

^ 130 155 175 180 165 -

805 Total

$1,645

$1,650

$1,565

$1,540 -- $1,230

$7,630 FPL Energy: "

Gas

$ 140 5

S 145 Nuclear fuel and other 85 35 60 60 15 255 Total

$ 225 40 60

$ 60 5$

15 S 400 FPL FiberNet 10 1

1 1

1 50

) Includes AFUOC of approximately $6 million. $52 million. $39 million, $59 milion and $71 million in 2004,2005, 2006, 2007 and 2008. respectively.

° Includes generating structures, transmission Interconnection and Integration, licensing and AFUDOC.

o Estimated capital expenditures exclude estimates for the development of new wind projects pending the enactment of legislation reestablishing the production tax credits tor new wind facilities.

72

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ContInued)

In addition to estimated capital expenditures listed above, FPL and FPL Energy have long-term contracts related to purchased power and/or fuel (see Contracts below). As of December 31, 2003, FPL Energy had approximately $1.1 billion in firm commitments primarily for natural gas transportation and storage, firm transmission service, nuclear fuel and a portion of its capital expenditures. Additionally, during 2003, a subsidiary of FPL Group Capital committed to lend up to $250 million under a secured loan to a third party, which matures no later than June 30, 2006. As of December 31, 2003, S47 million had been drawn on under the loan. FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most payment obligations under FPL Group Capital's debt.

FPL Group and FPL each account for payment guarantees and related contracts, for which it or a subsidiary is the guarantor, under FIN 45, 'Guarantors Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others,' which requires that the fair value of guarantees provided to unconsolidated entities entered into after December 31, 2002, be recorded on the balance sheet. At December 31, 2003, subsidiaries of FPL Group, other than FPL, have guaranteed purchase and sale of power and fuel agreement obligations and debt service payments relating to agreements that existed at December 31, 2002. The term of the guarantees is equal to the term of the related debt, or purchase and sale of power and fuel agreement, with terms ranging from 30 days to 20 years. The maximum potential amount of future payments that could be required under these guarantees at December 31, 2003 was approximately S19 million. At December 31, 2003, FPL Group did not have any liabilities recorded for these guarantees. In certain instances, FPL Group can seek recourse from third parties for 50% of any amount paid under the guarantees.

FPL Energy has guaranteed certain performance obligations of a power plant owned by a wholly-owned subsidiary as part of a power purchase agreement (PPA) that expires in 2027. Under the PPA, the subsidiary could incur market-based liquidated damages for failure to meet contractual minimum outputs. In addition, certain subsidiaries of FPL Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result in the FPL Energy subsidiary incurring specified liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these guarantees is not material.

Contracts - FPL has entered into long-term purchased power and fuel contracts. FPL is obligated under take-or-pay purchased power contracts with JEA (formerly known as the Jacksonville Electric Authority) and with subsidiaries of The Southern Company (Southern Companies) to pay for approximately 1,300 mw of power through mid-2010 and 381 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 2005 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. FPL has various agreements with several electricity suppliers to purchase an aggregate of up to approximately 1,200 mw of power with expiration dates ranging from 2004 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 2028.

FPL Energy has long-term contracts primarily for the transportation and storage of natural gas and firm transmission service with expiration dates ranging from 2005 through 2033. FPL Energy also has several contracts for the supply, conversion, enrichment and fabrication of Seabrook's nuclear fuel with expiration dates ranging from 2004 to 2014.

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

2004 2005 2006 2007 2008 Thereafter FPL:

(millions)

Capacity payments:

JEAandSouthemCompanies

$ 180

$ 180

$ 180

$ 190

$ 190 900 Qualifying facilities S 350

$ 350

$ 300

$ 300

$ 300 4,000 Other electricity suppliers

$ 100 75 70 20 Minimum payments, at projected prices:

Southern Companies-energy 60 70 70 70 70 110 Natural gas, including transportation

$1,625

$1,170

$ 610

$ 275

$ 250 2,920 Coal S 40 35 S

20 15 S

Oil

$ 200 S

S FPLEnergy 90 55 45 S

45 40 625 I

73

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Charges under these contracts were as follows:

FPL JEA and Southern Companies Qualifying facilities Other electricity suppliers Natural gas, Including transportation Coal OHl FPL Energy Maiority Is recoverable through the capacity clause.

° Recoverable through the fuel clause.

Recoverable Hugh the capacityclause.

2003 Charges Energy/.

Capacty Fuel 2002 Charges Energyl Capacity Fuel (millions) 2001 Charges

- Capacity,

.$ 193(&'

.$ 352k'

$ 96~"

141 ")'

rI1,672~"

$ 31511,,. $122

~ $ 314(c

$ 81i"'

S 20'b'

$ 25fl

$ 59()

• $ 401 Lb

$ 18 1$

Energy/

Fuel

$ 1691b)

$ 124~"

64b S 763 (b)

$ 294r')

$ 17 -

$.47 Insurance - Uability for accidents at nuclear power plants Is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of Insurance available from both private sources and an Industry retrospective payment plan. In accordance with this act, FPL Group maintains $300 million of private liability Insurance per site, which Is the maximum obtainable, and participates In a secondary financial protection system under which It is subject to retrospective assessments of up to $518 million (S414 million for FPL) per Incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $52 million ($41 million for FPL) per Incident per year. FPL Group and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority Interests in Seabrook and St. Lucie Unit No. 2, which approximates $12 million and $15 million per Incident, respectively. -The Price-Anderson Act expired on August 1, 2002 but the liability limitations did not change for plants, Including FPL's four nuclear units and Seabrook, with operating licenses issued by the NRC prior to August 1,2002.

FPL Group participates In nuclear Insurance mutual companies that provide $2.75 billion of limited Insurance coverage per occurrence per site for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL Group also participates In an Insurance program that provides limited coverage for replacement power costs If a nuclear plant is out of service for an extended period of time because of an accident.' In the event of an accident at one of FPL Group's or another participating Insured's nuclear plants, FPL Group could be assessed up-to $93 million ($70 million for FPL) In retrospective premiums. FPL Group and FPL are contractually entitled to' recover a proportionate share of such assessments from the'owners of minority interests In'Seabrook and St. Lucie Unit No. 2, which approximates $3 million and $3 million, respectively.

In the event of a catastrophic loss at one of FPL Group'siniclear'plants, the amount of insurance available might not be adequate to cover property damage and other expenses Incurred. Uninsured losses, to the extent not recovered through rates In the case of FPL, would be bome by FPL Group and FPL and could have a material adverse effect on FPL Group's and FPL's financial condition and results of operations.

FPL self-insures its T&D property due to the high cost and limited coverage available from third-party insurers. -As approved by the FPSC, FPL maintains a storm and property Insurance reserve for uninsured property storm damag'e or assessments under the nuclear insurance program. At December 31, 2003, the storm and property Insurance reserve (approximately $327 million) equals'the amount In the storm fund (approximately $200 million) plus related deferred Income taxes (approximately

$127 million). The current annual accrual approved by the FPSC Is approximately $20 million. Recovery from customers of any losses In excess of the storm and property Insurance reserve will require the approval of the FPSC. FPL's available lines of credit provide additional liquidity In the event of a T&D'property loss. In'addition, FPL Group Is self-insured for FPL FiberNet's fiber-optic cable'located throughout Florida.'

'Iltigation-In 1999, the Attorney General of the United States, on'behalf of the U.S. Environmental Protection Agency (EPA),

brought an action against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Clean Air Act. In May 2001, the EPA amended Its complaint. The amended complaint alleges, among other things, that Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76%

Interest, without obtaining proper permitting,'and without complying with performance and technology standards as required by the Clean Air.Act. It also alleges that unspecified major modifications have been made at Scherer Unit No.'4 that require Its compliance with the aforementioned Clean'AIr Act provisions. The EPA seeks Injunctive'relief requiring the Installation of best available control technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after June 1, 1975 through'January 30, 1997 and $27,500 per day for each violation thereafter. Under a proposed EPA rule, the maximum penalty would'increase to $32,500 per day for each violation after publication of the final rule. Georgia Power Company has answered the amended complaint, asserting that it has complied with all requirements of the'Clean Air Act, denying the plaintiffs allegations of liability, denying that the plaintiff is entitled to any of the relief that It seeks and raising various other defenses. In June 2001, a federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery In several Clean Air Act cases that was filed with 'a Multi-District 74

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Litigation (MDL) panel. In August 2001, the MDL panel denied the motion for consolidation. In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery. Georgia Power Company opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals rules on the Tennessee Valley Authority's (TVA) appeal of an EPA administrative compliance order relating to legal issues that are also central to this case.

In August 2002, the federal district court denied without prejudice the EPA's motion to reopen. In June 2003, the Eleventh Circuit issued its order dismissing the TVA's appeal because it found the provision of the Clean Air Act allowing the EPA to issue binding administrative compliance orders was unconstitutional, and hence found that the TVA order was a non-final order that courts of appeal do not have jurisdiction to review. In September 2003, the Eleventh Circuit denied the EPA's motion for rehearing, and the EPA is now evaluating whether to seek review of the Eleventh Circuit decision by the U.S.

Supreme Court. The EPA has not yet moved to reopen the Georgia Power Company case.

In 2001, J. W. and Emestine M. Thomas, Chester and Marie Jenkins, and Ray Norman and Jack Teague, as Co-Personal Representatives on behalf of the Estate of Robert L. Johns, served FPL Group, FPL, FPL FiberNet, FPL Group Capital and FPL Investments, Inc. (FPL Investments) as defendants in a civil action filed in the Florida circuit court. This action is purportedly on behalf of all property owners in Florida (excluding railroad and public rights of way) whose property is encumbered by easements in favor of FPL, and on whose property defendants have installed or intend to install fiber-optic cable which defendants currently lease, license or convey or intend to lease, license or convey for non-electric transmission or distribution purposes. The lawsuit alleges that FPL's easements do not permit the installation and use of fiber-optic cable for general communication purposes. The plaintiffs have asserted claims for unlawful detainer, unjust enrichment and constructive trust and seek injunctive relief and compensatory damages. In May 2002, plaintiffs filed an amended complaint, adding allegations regarding the installation of wireless communications equipment on some easements, and adding a claim for declaratory relief. In August 2002, Hazel and Lamar Jenkins were substituted for Chester and Marie Jenkins as plaintiffs.

Defendants filed an answer and affirmative defenses to the amended complaint in August 2002. The parties are now pursuing discovery. In September 2003, FPL Group Capital and FPL Investments moved for summary judgment as to all claims asserted against them. Additionally, in October 2003, FPL Group moved for summary judgement as to all claims asserted against it. These motions have been granted and FPL Group, FPL Group Capital and FPL Investments have been dismissed from this lawsuit. The court is currently scheduled to hear argument on whether this case will proceed as a class action sometime in late June 2004.

In August 2001, Florida Municipal Power Agency (FMPA) filed with the U.S. Court of Appeals for the District of Columbia (DC Circuit) a petition for review asking the DC Circuit to reverse and remand orders of the FERC denying FMPA's request for credits for transmission facilities owned by FMPA members. The transmission credits sought by FMPA would offset the transmission charges that FPL bills FMPA for network transmission service to FMPA's member cities. FMPA member cities have been taking network transmission service under FPL's open access transmission tariff since 1996. In the orders appealed by FMPA, FERC ruled that FMPA would be entitled to credits for any FMPA facilities that were 'integrated' with the FPL transmission system. Based on the evidence submitted, FERC concluded that none of the FMPA facilities met the integration test and, therefore, FMPA was not entitled to credits against FPL's charges for transmission service. In January 2003, the DC Circuit upheld FERC's order denying FMPA credits for its facilities; in March 2003, the DC Circuit denied FMPA's rehearing request of the DC Circuit's decision; and in October 2003, the U.S. Supreme Court denied FMPA's petition for review of the DC Circuit's decision. FMPA also has requested that FERC decide the crediting issue again in a separate FERC proceeding. That proceeding dates back to a filing by FPL in 1993 of a comprehensive restructuring of its then-existing tariff structure. All issues in that case are settled except for three issues reserved by FMPA, one of which is the crediting issue. FPL previously estimated the exposure for the crediting issue at $65 million. With the passage of time, the exposure has grown to $71 million as of December 31, 2003. However, in December 2003, FERC issued a ruling on the three reserved issues. With respect to the crediting issue, FERC stated that it had previously determined that FMPA was not entitled to credits for its facilities in the related proceeding discussed above and saw no persuasive reason to revisit that determination in this proceeding. With respect to the second issue, FERC directed FPL to make a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same integration test applied to the FMPA facilities.

With respect to the third reserved issue, FERC affirmed its previous ruling against FMPA. In January 2004, FMPA requested a 'conditional rehearing on the Commission's failure to order rate credits solely in the event that Commission does not adequately reduce FPL's rate base to achieve comparability." On January 30, 2004, FPL filed an answer to FMPA's request for rehearing, asking that the request be denied. Unless FERC accepts and responds favorably to FMPA's rehearing request, FPL's exposure will be limited to refunds arising from the exclusion of FPL facilities that fail to meet the integration test from its rate schedule.

In February 2003, Scott and Rebecca Finestone brought an action on behalf of themselves and their son Zachary Finestone in the U.S. District Court for the Southern District of Florida alleging that their son has developed cancer (neuroblastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The complaint includes counts against FPL for strict liability for allegedly engaging in an ultra-hazardous activity and for alleged negligence in operating the plant in a manner that allowed emissions of the foregoing materials and failing to limit its release of nuclear fission products as prescribed by federal and state laws and regulations. The plaintiffs seek damages in excess of $1 million. FPL moved to dismiss the complaint. In September 2003, the court entered an order denying FPL's motion to dismiss. Following FPL's motion for reconsideration in the Blake and Lowe lawsuit, discussed below, the court entered a similar order vacating its order denying the motion to dismiss the count for strict liability and upon reconsideration granted FPL's motion to dismiss the count for strict liability.

75 I

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In May 2003, Tish Blake and John Lowe, as personal representatives of the Estate of Ashton Lowe, on behalf of the estate and themselves, as surviving parents, brought an action In the U.S. District Court for the Southern District of Florida alleging that their son developed cancer (medulo-blastoma) as a result of the release and/or dissipation into the air, water; soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant., The allegations, counts and damages demanded In the complaint are virtually Identical to those contained In the Finestone lawsuit described above. FPL moved to dismiss the complaint. In September 2003, the court entered an order denying FPL's motion to dismiss. FPL moved for reconsideration of the court's order as to the count for strict liability. The court then entered an order vacating the order denying the motion to dismiss as to the count for strict liability, and upon reconsideration granted FPL's motion to dismiss the count for strict liability.

In March 2003, James J. and Lori Bradstreet brought an action on behalf of themselves and their son, Matthew Bradstreet, in the Circuit Court of the i 8 Judicial Circuit in and for Brevard County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, the American Dental Association, the Florida Dental Association, FPL and the Orlando Utilities Commission (OUC), alleging that their son has suffered toxic neurological effects from mercury poisoning. An amended complaint was filed In May 2003. The sources of mercury exposure are alleged to be vaccines containing a preservative called thimerosal that were allegedlyrmanufactured and distributed by the drug companies, mercury amalgam dental fillings, and emissions from FPL and OUC power plants in Florida; Including Brevard County. The complaint includes counts against all defendants for civil battery and against FPL for alleged negligence In operating the plants such that the son'was exposed to mercury and other heavy metals emissions. The damages demanded from FPL are for Injuries and losses allegedly suffered by the son as a result of his exposure to the plants' mercury emissions and the parents' alleged pain and suffering, medical expenses, loss of wages, and loss of their son's services and companionship.

No amount of damages is specified. FPL has moved to dismiss the complaint. In July 2003, the Bradstreets brought an identical action in the same court on behalf of themselves and their daughter, Elizabeth Bradstreet. FPL has moved to dismiss the complaint.

In June 2003, Monty and Kathryn Wooldridge brought an action on behalf of themselves and their son, Kevin Allen Wooldridge, in the Circuit Court of the 9t Judicial Circuit in and for Orange County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, the American Dental Association, the Florida Dental Association, FPL and the OUC, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded In the complaint are virtually identical to those contained in the Bradstreet lawsuits described above. FPL has moved to dismiss the complaint.

In August 2003, Pedro C. and Emilia Roig brought an action on behalf of themselves and their son, Pedro Anthony Roig, In the Circuit Court of the 11th Judicial Circuit In and for Miami-Dade County, Florida (the state court), which was removed In October 2003 to the U.S. District Court for the Southern District of Florida, against Aventis Pasteur and a number of other named and unnamed drug nmanufacturing and distribution companies and FPL, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in the complaint with respect to FPL are virtually identical to those contained in the Bradstreet and Wooldridge lawsuits described above. The plaintiffs have moved to remand the action back to the state court. The motion has been briefed by both parties and is pending in the U.S.

District Court, which has stayed all discovery In the action. FPL will be moving to dismiss the case once the remand motion Is decided.

In December 2003,-Edward and Janis Shiflett brought an action on behalf of themselves and their'son, Phillip Benjamin Shiflett, in the Circuit Court of the 1E8 Judicial Circuit in and for Brevard County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, FPL and the OUC, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded In the complaint with respect to FPL are virtually Identical to those contained in the Bradstreet, Wooldridge and Roig lawsuits. FPL anticipates removirig the action to the U.S. District Court for the Middle District of Florida, and will be moving to dismiss the case.

In January 2004, the Center For Biological Diversity, Inc. (Center) filed a lawsuit against FPL Group, FPL Energy and its subsidiaries ESI Bay Area GP, Inc., Green Ridge Power LLC and Altamont Power, LLC, as well as other defendants, In the U.S. District Court for the Northern District of California. The complaint alleges violations of certain sections of the California Business and Professions Code, unjust enrichment and certain violations of the Lanham Act. The complaint alleges that numerous birds have died as the result of collisions with wind turbines owned and operated by subsidiaries of FPL Energy In the Altamont area. The complaint requests Injunctive relief, restitution, penalties, forfeiture of the wind turbines, disgorgement of profits and attorneys' fees. As of February 26, 2004, none of the FPL Group-related entities named In the lawsuit have been served with this complaint.

On February 13, 2004, Albert Litter Studios, Inc. Instituted an action against FPL in the Circuit Court of the 1 1t Judicial Circuit in and for Miami-Dade County, Florida, seeking damages on behalf of Itself, and purportedly on behalf of all other similarly situated commercial entities In Florida. The plaintiff asserts that FPLs intentional use of allegedly defective thermal demand meters has resulted in overcharging it and certain other commercial customers millions of dollars and constitutes an unfair and/or deceptive practice In violation of the Florida Deceptive and Unfair Trade Practices Act, breach of an implied contract, and in breach of a duty of good faith and fair dealing. The complaint seeks damages in excess of $15,000, representing the amount of the alleged overcharges, interest, and such other relief as the court may order. FPL had determined in 2002 that, 76

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) based on sample testing of the approximately 3,900 1V thermal demand meters in service, the demand component of its IV meter population was exceeding allowable tolerance levels established by FPSC rules. In 2002, FPL proposed to replace and test all of the 1V meters in service and to issue refunds, as appropriate, within certain parameters. FPL was given administrative approval from the FPSC staff to proceed with the replacement of the 1V meters. By early 2003, all 1V meters had been replaced. Testing of all 1V meters disclosed that approximately 15% of the 3,900 meters were outside of allowed tolerances, with 10% under-registering and 5% over-registering electricity usage. In November 2003, the FPSC, as proposed agency action, approved a method for testing the meters and calculating refunds. On December 10, 2003, Southeastern Utility Services, Inc., on behalf of several commercial customers, filed a protest to the proposed agency action and requested a hearing. Southeastern Utility Services, Inc. alleges that, among other things, the proposed method for computing the amount of the refund is flawed. Discovery Is proceeding and no hearing date has been set.

FPL Group and FPL believe that they have meritorious defenses to the pending litigation discussed above and are vigorously defending the lawsuits. Management does not anticipate that the liabilities, if any, arising from the proceedings would have a material adverse effect on the financial statements.

In January 2002, Roy Oorbeek and Richard Berman filed suit against FPL Group (as an individual and nominal defendant); all its current directors (except James L. Camaren, Michael H. Thaman and Frank G. Zarb); certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Lewis Hay l1l, Dennis P. Coyle, Paul J. Evanson and Lawrence J. Kelleher. In March 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); all its current directors (except James L.

Camaren, Michael H. Thaman and Frank G. Zarb); certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Paul J. Evanson, Lewis Hay IlIl and Dennis P. Coyle. In February 2003, Donald E. and Judith B. Phillips, represented by the same attorneys who represent Klein, filed suit in the same court against the same defendants as the Klein lawsuit (plus Lawrence J. Kelleher). All three suits have been consolidated. In February 2004, by stipulation of the parties, FPL Group was removed as a defendant.

The lawsuits, taken together, allege that the proxy statements relating to shareholder approval of FPL Group's Long Term Incentive Plan (LTIP) and FPL Group's proposed, but unconsummated, merger with Entergy Corporation (Entergy) were false and misleading because they did not affirmatively state that payments made to certain officers under FPL Group's LTIP upon shareholder approval of the merger would be retained by the officers even if the merger with Entergy was not consummated and did not state that under some circumstances payments made pursuant to FPL Group's LTIP might not be deductible by FPL Group for federal income tax purposes. They also allege that FPL Group's LTIP required either consummation of the merger as a condition to the payments or the return of the payments if the transaction did not close, and that the actions of the director defendants in approving the proxy statements, causing the payments to be made, and failing to demand their return constitute corporate waste and a breach of fiduciary duties by those individual defendants. The plaintiffs seek to have the shareholder votes approving FPL Group's LTIP and the merger declared null and void, the return to FPL Group of $62 million of payments received by the officers, compensatory damages of $92 million (including the S62 million of payments received by the officers) from all defendants (except FPL Group) and attomeys' fees.

A special committee of non-management directors of FPL Group conducted an investigation of the claims made in the Oorbeek and Klein lawsuits and reported thereon to FPL Group's board of directors. The report concluded that pursuit of the claims is not in the best interest of FPL Group or its shareholders generally, and recommended that FPL Group seek dismissal of the lawsuits. After reviewing the special committee's report, FPL Group's board of directors (with only non-management directors participating) concluded likewise and filed with the court a statement of position setting forth the special committee's and the board's conclusions and authorizing the filing of a motion to dismiss the lawsuits, which motion was filed in October 2002. Messrs. Zarb, Camaren and Thaman joined the board in August 2002, October 2002 and July 2003, respectively, and did not participate in the proceedings relating to the statement of position or the filing of the motion to dismiss. On January 20, 2004, the court Issued an order denying FPL Group's motion to dismiss the lawsuits.

FPL Group's above-referenced statement of position reported that during the course of the special committee's investigation of the allegations in the lawsuits a separate question arose concerning the interpretation of the provisions of FPL Group's LTIP pursuant to which the payments to eight current and former senior officers were calculated. A change from the original interpretation could result in a repayment to FPL Group of up to approximately $9 million. FPL Group and the eight senior officers have entered into a binding arbitration agreement in order to resolve the issue.

In May 2003, the plaintiff's attorneys in the Klein lawsuit sent a new letter to FPL Group's board of directors (the May 2003 Letter) demanding among other things, that the board take action (i) to recover from the persons who approved such payments and/or otherwise breached their fiduciary duties, all of the above-described $92 million of LTIP payments made to officers and employees of FPL Group, allegedly on the grounds that the payments constituted a breach of fiduciary duty, bad faith, corporate waste and other unspecified wrongs, (ii) to investigate whether the proposed merger with Entergy was a plan by FPL Group's officers and directors to enrich themselves at the expense of the company, (iii) to seek the return of certain LTIP awards made in replacement of accelerated LTIP awards, (iv) to take immediate actions to secure the return of up to approximately $9 million in LTIP payments which is subject to an interpretation question under the LTIP, (v) to investigate and seek the return of stock options and restricted stock paid to Mr. Broadhead in January 2002 in connection with a consulting agreement and his retirement from FPL Group in December 2001, and (vi) to investigate whether punitive damages may be sought. In July 2003, FPL Group's board of directors appointed a special committee, composed of James L. Camaren and 77 I

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Michael H. Thaman, to Investigate the matters raised In the May 2003 Letter and to make a determination as to how FPL Group should respond to the matters raised therein. In August 2003, the plaintiffs attorney In the MKein lawsuit sent a letterto FPL Group's board of directors purporting to 'withdraw' the May 2003 Letter.

-In addition to those legal proceedings discussed herein, FPL Group and Its subsidiaries, Including FPL, are involved in a number of other legal proceedings and claims In the ordinary course of their businesses. In addition, generating plants In which FPL Group or FPL have an ownership interest are Involved in legal proceedings and claims, the liabilities from which, If any, would be shared by FPL Group or FPL. While management Is unable to predict with certainty the outcome of these other legal proceedings and claims, it is not expected that their ultimate resolution, individually or collectively, will have a material adverse effect on the financial statements.

I I Other Contingencies -

In connection with the redemption -In -1999 of its one-third ownership Interest in Olympus Communications, L.P. (Olympus), an Indirect subsidiary of FPL Group holds a note receivable from a limited partnership, of which Olympus Is a general partner. The note receivable is secured by a pledge of the redeemed ownership Interest.

Olympus is an Indirect subsidiary of Adelphia Comm unications Corp. (Adelphia). In June 2002, Adelphia and a number of its subsidiaries, including Olympus, filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11).

The note receivable plus accrued interest totaled approximately $127 million at December 31, 2003 and are Included In other Investments on FPL Group's consolidated balance sheets. The note was due on July 1, 2002 and is currently In default.

Based on the most recent publicly available financial information set forth In Olympus' Quarterly Report on Form 10-0 for the quarterly period ended September 30, 2001, total assets of Olympus exceeded liabilities by approximately $3.6 billion and Olympus served 1,787,000 basic subscribers. Olympus has not filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2001 or any subsequent Quarterly Reports on Form 10-0 or Annual Reports on Form 10-K with the SEC, and consequently-the September 30, 2001 financial Information may not be Indicative of Olympus' current financial position. Olympus has stated publicly that It expects to restate its financial statements for the years ended December'31, 2000 and 1999, and its Interim financial statements for 2001 and possibly other periods. In addition, current management of Olympus believes that other public information provided by the Rigas family, which controlled Adelphia, was unreliable. In July 2002, the SEC filed suit against Adelphia and certain of Its officers alleging that Adelphia fraudulently excluded billions of dollars of debt from its financial statements, misstated its financial and operating results and concealed rampant self-dealing by the Rigas family. In October 2003, Olympus filed certain limited financial Information as required by orders' of the bankruptcy court. However,'such Information was not useful to FPL Group In'its evaluation of the collectibility of the note receivable. In January 2004, the FPL Group subsidiary filed its proof of claims with the bankruptcy court.

In August 2002, an affidavit was filed in the bankruptcy court proceedings by a director of Lazard Freres & Co. LLC stating that, based on his analysis, the market value of FPL Group's secured Interest in Olympus exceeded the carrying value of the note receivable plus accrued interest. In February 2003, FPL Group obtained an evaluation of the Olympus assets from an independent third party. The results of the evaluation, which was based on the limited Information available, Indicated that there was no Impairment.

On February 25, 2004, Adelphia and certain of its affiliates and subsidiaries, Including Olympus, filed a disclosure statement (Disclosure Statement) and plan of reorganization (Plan). The Disclosure Statement provides for the 'deemed consolidation' of the Adelphia debtors Into ten separate groups for purposes of voting, confirmation and distribution under the Plan. The note receivable has been classified under the Plan by the Adelphia debtors as one of those groups and, under the proposed treatment under the Plan, the note receivable will be satisfied with shares of common stock of a reorganized Adelphia. -

FPL Group believes that the Disclosure Statement and the Plan have misclassified the note receivable and anticipates filing appropriate objections. FPL Group cannot predict whether Its objection to the Plan will result in changes to the Plan or whether the Plan will be approved. As such, the ultimate collectibility of the note receivable cannot be assured.

Subsidiaries of FPL Group, other than FPL, have Investments in several leveraged leases, two of which are with MCI Telecommunications Corporation (MCI). In July 2002, MCI filed for bankruptcy protection under Chapter 11. Due to the uncertainty of collectibility associated with these leveraged leases, FPL Group recorded reserves totaling approximately $48 million ($30 million after tax) In the third quarter of 2002. At December 31, 2003, Investments In leveraged leases with MCI totaled approximately $15 million and related deferred tax liabilities totaled approximately $11 million. An agreement has been reached with MCI that will consolidate and amend the leases upon the effective date of MCI's reorganization plan. On September 2, 2003, MCI was authorized by the bankruptcy court to assume the consolidated and amended lease, cure any prepetition arrearages and take all further action necessary or appropriate to effectuate the amended lease upon the effective date of MCI's reorganization plan. The amended lease would be classified as an operating lease and Is not expected to have a significant effect on FPL Group's financial statements. In October 2003, the bankruptcy court approved MCI's reorganization plan which is expected to become effective In early 2004.

78

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

18. 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. FPL Group's operating revenues derived from the sale of electricity represented approximately 97% of FPL Group's operating revenues for each of the three years ended December 31, 2003. Less than 1% of operating revenues were from foreign sources for each of the three years ended December 31, 2003. At December 31, 2003 and 2002, less than 1% of long-lived assets were located in foreign countries.

FPL Group's segment information is as follows:

2003 2002 2001 Operating revenues Operating expenses Interest charges Depreciation and amortization Equity in earnings of equity method investees Income tax expense (benefit) (ps Income (loss) before cumulative effect of changes in accounting principles (

Cumulative effect of changes in accounting principles, net of income taxes Net income (loss) (b)

Capital expenditures and investments Total assets (hXQ(g)

Investment in equity method investees Corp.

Corp.

Corp.

FPL and FPL and FPL and FPL Energ Other Total FPL Energy q')

Other Total FPL Enemy (

Other Total (millions)

S 8,293 S

1,252 S 85 S 9,630 S 7,378 691

$ 104

$ 8,173 S 7.477 S

611

$ 129 8,217 5 6,964 S

1,059

$ 76

$ 8,099

$ 6,052 707 S 189 S 6,948

$,200 487

$ 121 S 6,808 S

173 $

124

$ 82 $

379 166 S

86 S

59 $

311 187 S

74 S 63 S

324 898 $

187

$ 20 $

1,105 $

831 107 S

14 S 952 898$

77$

8$

983 S

89 S

- S 89 S

76 S

76 $

S 81 S

S 403 $

(4) S (31) $

368 413 S (54)

S (115) S 244 S

383 25 S (29) S 379 S

733 S

197 S (37) S 893 S

717 S

53()

$ (75)zXS 695 S

679 ') S 113 S (11)° $

781 S

- S (3 )t) $ -

(3) S (222)°h) $

S (222) S

-S 733 194 S (37) $

890 717 (169)(c

$ (75)IdS 473 S

679k) $

113

$ (11) $

781

$ 1,409 S 1.478 S 7 S 2,894

$ 1,256 S 2,103 21

$ 3,380 S 1,154 S

1,977

$ 128 S 3,259

$ 17,817 8,440

$ 678

$ 26,935

$ 16.032

$ 6,358

$ 795

$ 23,185

$15,174 4,957 S 582 S 20,713 346 S

346 310 S

310 S

276 S

276 FPL Energy's interest charges are based on a deemed capital structure of 50% debt for operating projects and 100% debt for projects under constrction. Residual non-utility interest charges are included In Corporate and Other.

i Includes, in 2002, favorable settlement of litigation with the IRS br wtsh a net tax benefit of 30 million was recognized at Corporate and Other.

(C) Includes restructuring and other charges of $73 million after tax.

t Includes restructuring and impairment charges of $64 million after tax at hPL FhberNet and a reserve for leveraged leases of $30 million after tax.

4 Includes merger-related expense of S16 million after tax

" Includes merger-related expense of $3 million after tax t Reflects the adoption of FN 46 in July2003. See Note 10.

° Reflects the adoption of FAS 142 in January 2002. See Note 5.

° See Note 16.

79

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

19. 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 Most of FPL Group Capital's debt and payment guarantees, Including its debentures, are fully and unconditionally guaranteed by FPL Group. Condensed consolidating financial Information Is as follows:

Condensed Consolidating Statements of Income

. Year Ended-,

December31. 2003 -

Year Ended December31. 2002 Year Ended December 31. 2001 FPL FPL Group Group Capital FPL Group Consoli-FPL Offer) dated Group FPL Group Capital OtherN)

(millions)

FPL Group Consol -

dated S 8.173 (6,948)

(311)

I FPL FPL Group FPL Group Consoi I Group Caital Other° dated Operating revenues Operating expenses Interest charges Other Income (de-ductions) - net ncome (laoss) before Income taxes and cumulative effect of changes In accounting principles Inoome tax expense (benefit)

Net Income (loss) before cumulative effect of changes In accounting phnc~es --

Cumulative effect of changes in accounting principles, nel of inome taxes Net income (loss)

S

$ 1,337 (1,135)

(28)

(204)

$ 8.293 (6,964)

(147)

$ 9,630 (8'099)

(5)

(379)

(28) 109 -

488 S

795 S 7.378 (896)

(6,047)

(144)

(139) 903 154 (94) 86 (549) 25

$ 741 S 7,476 I

• (608)

(6.200)

(29)

(136)

.(159) 788 134 (847) 759

131 270

$ 8,217 (6,808)

(324) 75 1.160 875 152 234 1.261 455 (159) 643 (I )

(20%

~

403.. E 368 (18)

(15i) 413 244 (22) 18 383 379 890 172 (169) 893 -

473 (8) 230 (3)

)

()

890 169 169)

S 890 S 473

$ (230)S 230 6 _

L_

695 781 113 (113) 781 473

$ 781 S 113 S (113) 781

" Represents FPL and consolidating adjustments.

80

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Condensed Consolidating Balance Sheets PROPERTY, PLANT AND EQUIPMENT Electric utility plant in service and other property Less accumulated depreciation and amortization Total property, plant and equipment - net CURRENT ASSETS Cash and cash equivalents Receivables Other Total current assets OTHER ASSETS Investment in subsidiaries Other Total other assets TOTAL ASSETS CAPITALIZATION Common shareholders! equity Preferred stock of FPL without sinking fund requirements Long-term debt Total capitalization CURRENT UABILITIES Accounts payable and short-term debt Other Total current liabilities OTHER LIABILITIES AND DEFERRED CREDITS Asset retirement obligations Accrued asset removal costs Accumulated deterred income taxes Other Total other liabilities and deterred credits COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES December 31, 2003 FPL FPL Group Group Capital Other'"

December 31, 2002 FPL Group FPL FPL Group Consoll-FPL Group Consoli-dated Group Capital Other )

dated (millions)

$7,783

$ 22,489 (738)

(9,237) 7045 13252 27 98 16 436 271 43 805 7,218 110 1,491 7I328 1,491

$ 7.371 S 9.341 4

735 883 1,622 (7,218) 2,567 (4,651)

$ 10.223

$ 30,272 (9.975) 20,297 129 1,187 1,154 2,470 4,168 4,168

$ 26,935

$ 5,745 (360) 5.385 5

261 460 269 240 465 770 68221 103 1,284 6,324 1,284

$ 6789

$ 7.43

$ 20.760 (8.445) 12,315 136 537 673 (6,221) 2,190 (4,031)

$ 8,957 S 26,505 (8 805) 17 700 266 665 777 3,577 3,577

$ 23,185 S 6,967 S 1,214 5.649 6,967 6,863 397 62 809 62 1.206 178 (5) 826 347 268 342 1.272 S 7.371 5 9.341 S (1,214)

S 6.967 S 6,390 S

839 (839)

S 6.390 5

3.074 1,865 1,065 1,0205 1,908 1,902 1,334 16129 6,273 5

8,723 15,695 1,462 1.891 3.353 2,086 1,902 2155 1,744 7,887 3,426 6,3 4265 1,563 17 812 17 2,375 164 (5) 412 387 223 382 799 226 2,364 1,751 1,092 427 1,51 9 3.396 1,140 1,151 5 687 226 5,790 12,406 2,655 1,256 3.911 3,560 1,547 1.761 6,868 I

$ 10.223

$ 26,935 5 6.789

$ 7.439 S 8.957 5 23.185

')

Represents FPL and consolidating adjustments.

81

FPL GROUP, INC; AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Condensed Consolidating Statements of Cash Flows Year Ended December 31, 2003 FPL..

FPL Group FPL Group Consoli-

.22P-Capital Ofter' dated Year Ended

.Year Ended December31, 2002 December31, 2001 FPL.

FPL FPL Group FPL Group FPL Group Consoli-FPL Group Consoli-Gru Capital Ohs) dated Group CaPhal Othed" dated (millions)

S 426 S,2 S

685 S 2,338 S 769 S 15 S 1,t S 1, NET CASH PROVIDED BY OPERATING ACTMTIES CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures and Independent power Invesbnents Capital contritions to FPL Group Capital and FPL Oter - net Net cash used In Investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issuances of long-term debt Retirements of long-term debt Retirerments of preferred stock - FPL Net change In short-term debt Issuances of coummon stock Dividends on common stock Other - net Net cash provided by (used in) finanrng activities Net Increase (decrease) In cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year S1,028 S 397 S 829 S 2.254 (2.105)

(1.154)

(3,259)

(1.486)

(1,408)

(2894)

(60) 600 (18)

(177)

(195)

(60)

(

)

(985)

(3,089)

(2.124)

(1,256)

(3,380)

(350) 3 350 (400) 400 208 (98) 113 (4)4 69 (10)

(1,916)

(1,004)

(3,2)

(404)

(2,036)

(829)

(3.269) 2,118 877 2,995 (43)

(388)

(431)

(228)

(228)

(1,116)

(122)

(1,238) 73 73 (425)

(425)

(54)

(I5) 21 48 (406) 94 160 698 22 (163) 4 (137) 5 261 266 27 S

98 S 4 S 129 1,177 593 1,770 (32)

(765)

(797) 920 (21) 378 (400)

(52)

5.

(74)

S 5

(276) 490 214 1,152 378 (400)

(377)

I -

869 318 1,113 (377) 2,051 180 (1) 184 (12) 30 81 1

82 12 51

$261 S

266 S S

81 920 (66)

(87)

(328) 824 (377)

(4)

I,8 (65)

(47) 66 129 S

t S

82

('

Represents FPL and consolidating adjustrents.

82

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Concluded)

20. Quarterly Data (Unaudited)

Condensed consolidated quarterly financial information is as follows:

March 3 1 (a)

June 30(a)

September30 (a)

December31 (a)

(millions, except per share amounts)

FPL GROUP:

2003 Operating revenues 10 Operating income lb Income before cumulative effect of a change in accounting principle "I Cumulative effect of adopting FIN 46 Net income ("

Earnings per share before cumulative effect of adopting FIN 46" Cumulative effect of adopting FIN 46 (c)

Eamings per share ">

Eamings per share before cumulative effect of adopting FIN 46 (assuming dilution) (')

Cumulative effect of adopting FIN 46 '

Eamings per share (assuming dilution) '

Dividends per share High-low common stock sales prices 2002

$2,082

$ 294

$ 175 S

$ 175

$ 0.99

$ 0.99 S 0.99

$ 0.99

$ 0.60 S63.77-53.55

$2,339 S 413

$ 239

$ 239

$ 1.35

$ 1.35 S 1.34

$ 1.34

$ 0.60

$68.08-57.74

$2,775

$ 565 S 334 (3)

$ 331 S 1.88 S (0.02)

S 1.86

$ 1.88

$ (0.02)

S 1.86 S 0.60

$67.66-60.01

$2,435

$ 259

$ 145 S

$ 145

$ 0.81

$ 0.81

$ 0.81 S 0.81 S 0.60 565.98-62.65 Operating revenues a' Operating income lb Income before cumulative effect of a change in accounting principle a' Cumulative effect of adopting FAS 142 Net income (loss) 0 Eamings per share before cumulative effect of adopting FAS 142 (basic and assuming dilution) (a)

Cumulative effect of adopting FAS 142 a" Eamings (loss) per share (basic and assuming dilution) ("

Dividends per share High-low common stock sales prices FPL:

2003 Operating revenues lb)

Operating income Net income a Net income available to FPL Group a}

2002 Operating revenues l Operating income '

Net income (b Net income available to FPL Group '

$1,716

$ 255

$ 166'*

$ (222)

$ (56)('

$ 0.98('

S (1.31)

$ (0.33)y'1

$ 0.58

$60.10-51.13

$2,113

$ 410 S 250

$ 250

$ 1.46

$ 1.46

$ 0.58

$65.31 -56.30

$2,302

$ 321 d

$ 150'1d

$ 150'4

$ 0.85(d)

$ 0.85'4 S 0.58

$60.08-45.00

$2,042

$ 239

$ 129

$ 129

$ 0.73

$ 0.73

$ 0.58

$61.40-48.35 I

$1,757

$ 252

$ 139

$ 135

$1,538

$ 233

$ 122

$ 118

$2,053

$ 361

$ 203 199 S 1,921 S 375

$ 209

$ 205

$2,383

$ 487

$ 281 S 277

$2,144

$ 502

$ 288

$ 284

$2,100

$ 229

$ 133

$ 122

$1,775

$ 216

$ 114

$ 111

) Inthe opnion of FPL Group and FPL. all adjustments, which consist of rormal 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) The sum of the quarterty amounts may not equal the total for the year due to rounding.

() The sum of the quarterly amounts may not equal the total for the year due to rounding and changes in weighted-average number of common shares outstanding.

(d) Indudes restructuring, impairment arndor other ctarges.

A' includes a gain from an income tax settlement 83

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures (a) Evaluation of Disclosure Controls and Procedures As of December 31, 2003, FPL Group and FPL performed an evaluation, under the supervision and with the participation of its management, including FPL Group's and FPLs chief executive officer and chief financial officer, of the effectiveness of the design and operation of each company's disclosure controls and procedures (as defined In Exchange Act Rule 13a-15(e) or 1 5d-1 5(e)). Based upon that evaluation, the chief executive officer and chief financial officer of each of FPL Group and FPL concluded that the company's disclosure controls and procedures are effective in timely alerting them to material information relating to the company and its consolidated subsidiaries required to be Included In the company's reports filed or submitted under the Exchange Act. Due to the inherent limitations of the effectiveness of any established disclosure controls and procedures, management of FPL Group and FPL cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be met.

(b)

Changes in Internal Controls There has been no change In FPL Group's or FPL's Internal control over financial reporting that occurred during FPL Group's and FPLs most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, FPL Group's or FPL's Internal control over financial reporting.

PART III Item 10. Directors and Executive Officers of the Registrants FPL Group - The information required by this item will be included in FPL Group's Proxy Statement which will be filed with the SEC in connection with the 2004 Annual Meeting of Shareholders (FPL Group's Proxy Statement) and Is incorporated herein by reference, or Is Included In Item 1. Business - Executive Officers of the Registrants.

FPL DIRECTORS')

Dennis P. Coyle. Mr. Coyle, 65, Is general counsel and secretary of FPL and FPL Group. Mr. Coyle has been a director of FPL since 1990.

Moray P. Dewhurst. Mr. Dewhurst, 48, is senior vice president, finance and chief financial officer of FPL and vice president, finance and chief financial officer of FPL Group. Mr. Dewhurst has been a director of FPL since 2001.

Lewis Hay Ill. Mr. Hay, 48, Is chairman and chief executive officer of FPL and chairman, president and chief executive officer of FPL Group. He Is a director of Harris Corporation and Capital One Financial Corporation. Mr. Hay has been a director of FPL and FPL Group since 2001. -

Lawrence J. Kelleher. Mr. Kelleher, 56, is senior vice president, human resources and corporate services of FPL and vice president, human resources of FPL Group. Mr. Kelleher has been a director of FPL since'1990.

Armando J. Olivera. Mr. Olivera, 54, is president of FPL. Mr. Olivera has been a director of FPL since 1999.

Antonio Rodriguez.- Mr. Rodriguez, 61, is senior vice president, power generation division of FPL. Mr. Rodriguez has been a director of FPL since 1999.

John A. Stall. Mr. Stall, 49, is senior vice president, nuclear division of FPL Mr. Stall has been a director of FPL since 2001.

Directors are elected annually and serve until Meir resignation, removal or until their respective successors are elected Each directors business experience during the past five years is roted either here or In the Executive Officers table hi Item 1. Business - Executive Officers of the Registrants.

Section 16(a) Beneficial Ownership Reporting Compliance - FPL's directors and executive officers are required to file Initial reports of ownership and reports of changes of ownership of FPL Group common stock with the SEC. Based upon a review of these filings and written representations from FPL directors and executive officers, all required filings were timely made In 2003, except for the late filing of a Form 4 for Paul I. Cutler.

FPL Code of Ethics - FPL Group has adopted a code of ethics for FPL's senior executive and financial officers, which is available in the Govemance' section on FPL Group's website at www.folgrouD.com.

84

Item 11. Executive Compensation FPL Group - The information required by this item will be included in FPL Group's Proxy Statement and is incorporated herein by reference, provided that the Compensation Committee Report, the Audit Committee Report (to the extent permitted by the rules of the SEC) and Performance Graphs which are contained in FPL Group's Proxy Statement shall not be deemed to be incorporated herein by reference.

FPL - The following table sets forth FPL's portion of the compensation paid during the past three years to FPL's chief executive officer and the other four most highly-compensated persons who served as executive officers of FPL at December 31, 2003.

Summary Compensation Table Annual Compensation Long-Term Compensation Name and Princial Position Lewis Hay IIl "

Chairman of the Board and Chief Executive Officer of FPL and Chairman of the Board. President and Chief Executive Officer of FPL Group Moray P. Dewhurst n Senior Vce President, Finance and Chief Financial Officer of FPL and Vice President, Finance and Chief Financial Officer of FPL Group Armando J. Ofivera '

President of FPL Dennis P. Coyfe General Counsel and Secretary of FPL and FPL Group Lawrence J. Kelleher Senior Vice President.

Human Resources and Corporate Services of FPL and Vice President, Human Resources of FPI Group Year Salary 2003

$ 794,600 2002 781,176 2001 254,264 Other Annual Compen-Bonus sation S 1,009,937 S 13,900 991,312 17,945 522,806 6.435 Restricted Stock Awards"'

S 2,782,371 525,696 1.116,930 Securiles Underlying Options 59,595 66,578 180,500 All Other LTIP Cormpen-Pavouts° 1

sation° 436,928 7,549 805,584 19,615 7,059 2003 389.354 2002 401,240 2001 163,443 359,795 377.983 366,780 2003 387,171 316.800 2002 285,100 172,200 2001 272,000 378,706 7,176 14,730 22,672 22,697 14.726 11,575 12,375 13,952 11.268 218,992 233,643 999,068 914,960 421.120 987,520 328,488 350,464 835,535 39,730 44,385 90,250 25,000 25,000 50,000 39,730 44,385 90,250 281,037 362,229 246,696 330,003 462,567 888,765 8,016 8,624 2.306 47,000 12,014 11,463 7,549 8,922 8,372 2003 398,540 2002 430,179 2001 418,489 255,543 271,015 77Z302 2003 31Z373 2002 33Z355 2001 323,366 218.674 240,922 600,855 10,316 13,225 10,169 547,479 584,107 1,392,558 39,730 44,385 90,250 378,327 7,549 702,635 10,724 10,511 At December 31, 2003, Mr. Hay held 72,083 shares of restricted common stock with a value of $4,715,670, of which 61,250 shares were granted in 2003, 7,500 shares were granted in 2002 and 3,333 were granted in 2001 and vest as to 20,833 shares in 2004, 17,500 shares in 2005, 13,750 shares in 2006, and 10,000 shares in each of years 2007 and 2008; Mr. Dewhurst held 18,334 shares of restricted common stock with a value of S1,199,410, of which 5,000 shares were granted in 2003, 3,334 shares were granted in 2002 and 10,000 shares were granted in 2001 and vest as to 8,333 shares In 2004, 8,334 shares in 2005 and 1,667 shares in 2006; Mr. Olivera held 20,834 shares of restricted common stock with a value of S1.362,960, of which 15,500 shares were granted in 2003 and 5,334 shares were granted In 2002 and vest as to 7,833 shares in 2004, 7,834 shares in 2005 and 5,167 shares in 2006; Mr. Coyle held 1Z500 shares of restricted common stock with a value of $817,750, of which 7,500 shares were granted in 2003 and 5,000 shares were granted in 2002 and vest as to 5,000 shares in each of years 2004 and 2005 and Z500 shares in 2006; Mr. Kelleher held 20,834 shares of restricted common stock with a value of $1,362,960, of which 12,500 shares were granted in 2003 and 8,334 shares were granted In 2002 and vest as to 8,333 in 2004, 8,334 in 2005 and 4,167 in 2006. Dividends at normal rates are paid on restricted common stock.

For 2002 and 2003, payouts of vested performance share awards were made in a combination of cash (for payment of income taxes) and shares of FPL Group common stock, valued at the closing price on the date payouts were approved. Mr. Hay deferred his 2003 performance share award payout under FPL Group s Deferred Compensation Plan. Mr. Dewhurst deferred his 2002 and 2003 performance share award payouts under FPL Groups Deferred Compensation Plan. For 200Z payouts of vested shareholder value awards were made in cash, based on the dosing price of FPL Group common stock on the date payouts were approved. For 2001, payouts were based on a performance period of one fiscal year and, in accordance with SEC njles, are reported for 2001 under the Bonus column of this table.

For 2003, represents employer matching contributions to thrift plans of $9,500 for Mr. Olivera and S7,549 for each of the other named officers. For Mr. Dewhurst, also includes employer contributions for life insurance of S467. For Mr. Olivera, also includes $37,500 moving expense incentive.

ld Mr. Hay joined FPL Group in July 1999 as vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL He served as president of FPL Energy from March 2000 to December 2001 and was elected president and chief executive officer of FPL Group on June 11, 2001.

He was elected chairman of the board of FPL Group and FPL and chief executive officer of FPL on January 1, 2002.

Mr. Dewhurst was appointed vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL in July 2001.

Mr. Olivera served as senior vice president, power systems of FPL from July 1999 to June 2003 and was appointed president of FPL on June 24, 2003.

85

Long Term Incentive Plan Awards - In 2003, performance share awards and non-qualified stock option awards under FPL Group's Amended and Restated Long Term Incentive Plan were made to the executive officers named in the Summary Compensation Table as set forth In the following tables.

Performance Share Awards Estimated Future Payouts Under Number of Performance Period Non-Stock Price-Based Plans Name Shares UnUti Payout Target #

Maximum 8 LewisHayil 34.133 1/1103 -

12/31105 34.133 54,612 Moray P. Dewhurst 9.493 1/1/03 -

12/31105 9,493 15.188 Armando J. Olvera 6,526 111103 -

12/31105 6,526 10,441 Dennis P. Coyle 9,717 1/1/03 -

1231105 9,717 15,547 LawrenceJ. Kelleher 7,616 1/1/03 -

12131/05 7,616 12,185 The performance share awards In the preceding table are, under normal circumstances, payable at the end of the performance period indicated. The amount of the payout Is determined by multiplying the participant's target number of shares by his average level of attainment, expressed as a percentage, which may not exceed 160%, of his targeted awards under the Annual Incentive Plans for each of the years encompassed by the award period. Under those plans, annual incentive compensation is based on the attainment of net income goals for FPL and FPL Group, which are established by the Compensation Committee of FPL Group's Board of Directors (the Committee) at the beginning of the year, and adjusted for specified Items Including any changes In accounting principles, any changes in the mark-to-market value of non-qualifying hedges, and certain charges or gains (adjusted net income). The amounts eamed on the basis of this performance measure are subject to reduction based on the degree of achievement of other corporate and business unit performance measures, and at the discretion of the Committee. FPLs portion of the performance share award payouts for the performance period ended December 31, 2003 Is Included In the Summary Compensation Table herein in the column entitled LTIP Payouts. Mr.

Hay's annual incentive compensation for 2003 was based on the achievement of FPL Group's adjusted net Income goals, and the following performance measures for FPL (weighted 75%) and the non-utility and/or new businesses (weighted 25%)

and upon certain qualitative factors. For FPL, the incentive performance measures were financial indicators (weighted 50%)

and operating indicators (weighted 50%). The financial indicators were operations and maintenance costs, capital expenditure levels, adjusted net Income, regulatory return on equity and operating cash flow. The operating Indicators were service reliability as measured by the frequency and duration of service Interruptions and service unavailability; system performance as measured by availability factors for the fossil power plants and an industry index for the nuclear power plants; employee safety; number of significant environmental violations; customer satisfaction survey results; load management installed capability; and conservation programs' annual installed capacity. For the non-utility and/or new businesses, the performance measures included total combined return on equity; non-utility adjusted net income and return on equity-corporate and other net Income; employee safety; number-of significant environmental violations; project-level and corporate budget targets; and level of hedged margin. The qualitative factors included measures to position FPL Group for Increased competition and Initiating other actions that significantly strengthen FPL Group and enhance shareholder value.

Option Grants in Last Fiscal Year Individual Grants Number t Seacrtes Percent of Total Underlying Options Granted Options to Employees in Exercise or Base EWiration Grant Date Name Grantedt'A Fiscal Year Price per Share Date Present Value5'° LewisHayPil 75,000 4.7%

$55.12 21132013 S630,000 Moray P. Deurst 50.000 3.1%

55.12 2/13/2013 420,000 Armando J. Olivera 25,000 '

1.6%

55.12 2132013 210.000 Dennis P. Coyle 50.000 3.1%

55.12 2/1312013 420,000 LawrenceJ. Kelleher 50000 3.1%

55.12 213/2013 420,000 Options granted are non-qualified stock options. All stock options will become exercisable one-third per year and be fully exercisable after three years. All options were granted at an exercise price per share of 100% of the fair market value of FPL Group common stock on the date of grant r The hypothetical values shown were calculated using the Black-Scholes option pricing model, based on the following assumptions. For an options, the volatility rate Is equal to 19.98% and the dividend yield (representing the current per share annualized dividends divided by the annualized fair market value of the common stock) is equal to 3.96%. The risk-free Interest rate Is equal to 3.64%, based on the Interest rate on a U.S. Treasury zero-coupon bond on the date of grant with a maturity corresponding to the estimated time until exercise of seven years. The values do not take into account risk factors such as non-transferability or risk of forfeiture.

-:^-

The preceding table sets forth information concerning Individual grants of common stock options during fiscal year 2003 to the executive officers named in the Summary Compensation Table. FPLs portion of'such awards is also listed in the Summary Compensation Table herein In the column entitled 'Securities Underlying Options."

86

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Number of Shares Acquired Name on Exercise Number of Securities Underling Unexerased Options at Fiscal Value Year-End Realized Exercisable Unexercisable Value of Unexercised In-The-Money Options at Fiscal Year-End Exercisable Unexercisable Lewis Hay Ill Moray P. Dewhurst Armando J. Olivera Dennis P. Coy4e Lawrence J. Kelleher 0

0 0

0 0

o 208,333 0

66.667 0

58,334 0

116,667 0

116,667 141,667 133,333 41,666 83,333 83,333

$ 1,210,163 716,504 291,509 583,004 583.004

$ 1,579,337 1.444,496 470.491 940,996 940,996 The preceding table sets forth information, with respect to the named officers, concerning the exercise of stock options during the fiscal year and unexercised options held at the end of the fiscal year. The named officers did not exercise any stock options during 2003. All the exercisable and unexercisable options shown in the preceding table were granted in 2001, 2002 and 2003. At December 31, 2003, the fair market value of the underlying securities (based on the closing share price of FPL Group common stock reported on the New York Stock Exchange) was $65.42 per share, and exceeded the exercise price of all of the exercisable and unexercisable options.

Retirement Plans - FPL Group maintains a non-contributory defined benefit pension plan and a supplemental executive retirement plan (SERP). The FPL Group Employee Pension Plan and SERP were amended to a cash balance style plan effective April 1, 1997. Employees who were SERP participants on that date were not affected by the change, however. The following table shows the estimated annual benefits to employees not affected by the change, which includes three of the executive officers named in the Summary Compensation Table, Messrs. Olivera, Coyle and Kelleher. Benefits are calculated on a straight-line annuity basis, payable assuming retirement in 2003 at age 65 after the indicated years of service.

Pension Plan Table Eligible Average Annual Compensation >'

$ 300,000 400,000 500,000 600,000 700,000 800,000 900,000 1,000,000 Years of Service 10 20 30 40 50 I

$ 58,365 78,365 98,365 118,365 138,365 158,365 178,365 198,365

$116,718 156,718 196,718 236,718 276,718 316,718 356,718 396,718

$ 145,083 195,083 245,083 295,083 345,083 395,083 445,083 495,083

$ 153,356 205,856 258,356 310,856 363,356 415,856 468,356 520,856

$ 155,744 208,244 260,744 313,244 365,744 418,244 470,744 523,244 The maximum eligible average annual compensation shown in the table is based on 120% of the 2003 pensionable earnings (which includes annual salary and bonus as shown on the Summary compensation Table) for the highest compensated named officer covered by the non-contributory derfied benefit pension plan and SEFIP and not affected by the change to a cash balance style plan, which is Mr. Coyle (Mr. Olivera as to FPL covered compensation).

FPLs portion of the compensation covered by the plans includes the 2003 annual salaries and bonus of Messrs. Olivera, Coyle and Kelleher, but no other amounts shown in the Summary Compensation Table. Estimated credited years of service for those named executive officers who participate in the plans are: Mr. Olivera, 31 years; Mr. Coyle, 14 years and Mr.

Kelleher, 36 years. All of Mr. Olivera's covered compensation is included in the Summary Compensation Table. Amounts shown in the pension plan table reflect deductions to partially cover employer contributions to social security. A supplemental retirement plan for Mr. Coyle provides for benefits based on two times his credited years of service.

Under the cash balance benefit formula, credits are accumulated in an employee's account and are determined as a percentage of the employee's monthly covered earnings in accordance with the following formula:

Years of Service 0-5 5 or more Percent of Compensation 4.5%

6.0%

In addition, the employees account is credited quarterly with interest at an annual rate that is based upon the yield on one-year Treasury Constant Maturities. A higher rate can be provided at FPL Group's discretion and was so provided in 2003. Benefits under the cash balance benefit formula are not reduced for employer contributions to social security or other offset amounts.

87

Mr. Hay and Mr. Dewhurst are the only named executive'officers covered by the cash balance style plan. Benefits under the plan are based upon annual salary and awards under the annual Incentive plan (FPL's portion of which for 2003 Is included in the Bonus' column of the Summary Compensation Table). The estimated age 65 annual retirement benefit payable under that plan, based upon total covered compensation from FPL Group and subsidiaries, Including FPL, which was Included In their 2003 taxable income (expressed as a joint and 50% survivor benefit) is $414,163 for Mr. Hay and $153,735 for Mr. Dewhurst: This estimate assumes their FPL Group 2003 pensionable earnings increase annually (salary by 3.5% per year, and annual Incentive awards equal to 120% of salary for Mr. Hay and 91% of salary for Mr. Dewhurst) until age 65 (year 2020 for each officer) and a cash balance Interest crediting rate of 5.0%. The estimated age 65 cash balance account was converted to an annuity based on a 5.31 % discount rate and 1994 GAR unisex mortality.

A supplemental retirement plan for Mr. Hay provides a benefit equal to 65%-of Mr. Hay's highest average annual compensation (annual salary plus annual incentive award) for the three consecutive calendar year periods out of the four consecutive calendar year period ending with the calendar year In which he retires (final average pay), reduced by the then annual amount of a joint and 50% survivor benefit (which is the actuarial equivalent of the benefits to which he is entitled under the non-contributory defined benefit pension plan and the SERP). If Mr. Hay terminates his employment prior to age 65, the benefit will be reduced on a pro rata basis if he fails to complete at least fifteen years of service with FPL Group or its subsidiaries, including FPL, and It will be further reduced on an actuarial basis as a result of its early distribution. The plan provides a minimum annual joint and 50% survivor benefit (50% of final average pay) payable to Mr. Hay and his surviving spouse upon his termination of employment with FPL Group and its subsidiaries on his normal retirement age (age 65),

reduced on an actuarial basis If he terminates before that age.-Under the supplemental plan, Mr. Hay's estimated age 65

.annual retirement benefit (expressed as a joint and 50% survivor benefit, and calculated based on the same covered compensation and the same assumed Increases In pensionable earnings as described in the preceding paragraph) would be Increased, over the estimate described above for the cash balance style plan and SERP benefits, by approximately $2,015,971.

FPL Group sponsors a split-dollar life insurance plan for certain of FPL's and FPL Group's senior officers, including the FPL executive officers named In the Summary Compensation Table except Mr. Dewhurst. Benefits under the split-dollar plan are provided by universal life insurance policies purchased by FPL Group. If the officer dies prior to retirement (defined to include age plus years of service), or for Messrs. Olivera or Kelleher during employment or after retirement but prior to age 65, the officer's beneficiaries generally receive two and one-half times the officers annual salary at the time of death. If the officer dies after retirement, or for Messrs. Olivera or Kelleher on or after age 65, but before termination of his split-dollar agreement, the officer's beneficiaries receive a percentage of the officer's final annual salary (100% to 180% depending upon age at time of death for Messrs. Olivera and Kelleher and 50% for the other named executive officers who participate in the plan). Upon termination of the agreement after 10 years, at age 65 or termination of employment which qualifies as retirement, whichever is later, the life Insurance policies will be assigned to the officer or his beneficiary. For 2003, each participating executive officer was taxable on the Insurance carrier's one-year term rate for his life Insurance coverage.

Employment Agreements 2000 Agreements - On December 15, 2000, when FPL Group's shareholders approved a proposed merger with Entergy, previously-existing employment agreements between FPL Group and certain officers, Including the Individuals named In the Summary Compensation Table except for Mr. Dewhurst, became effective (the 2000 Agreements). Mr. Olivera's 2000 Agreement expired November 30, 2003. The remaining 2000 Agreements provide that the officer shall be employed by FPL Group or its affiliates for a period of four years In a position at least commensurate with his position with FPL Group and/or its affiliates In December 2000. During the employment period, the officer shall be paid an annual base salary at least equal to his annual base salary for 2000, with annual Increases consistent with those awarded to other peer officers of FPL Group, but not less than the Increases In the consumer price Index; shall be paid an annual bonus at least equal to the highest bonus paid to him for any of the three years Immediately preceding 2000; be given the opportunity to earn long-term incentive compensation at least as favorable as such opportunities given to other peer officers of FPL Group during 2000 or thereafter; and shall be entitled to participate in employee benefit plans providing benefits at least as favorable as those provided to other peer officers of FPL Group during 2000 or thereafter.

In the event that during the employment period the officer's employment is terminated by FPL Group (except for death, disability, or cause) or If the officer terminates his employment for good reason, as defined in the 2000 Agreement, the officer Is entitled to severance benefits In the form of a lump-sum payment equal to the compensation due for the remainder of the employment period or for two years, whichever Is longer. Such benefits would be based on the officer's then base salary plus an annual bonus at least equal to the bonus for the year 2000.,The officer is also entitled to the maximum amount payable under all long-term Incentive compensation grants outstanding, continued coverage. under all employee benefit plans, supplemental retirement benefits and a full gross-up In respect of any excise tax Incurred as a result of the benefits received pursuant to the 2000 Agreement. ;

Amendments to12000 Agreements - In February 2002, each of Messrs. Hay, Olivera, Coyle and Kelleher agreed to amend his 2000 Agreement, and, at the same time, enter Into a new executive retention employment agreement with FPL Group (the 2002 Agreements). The definition of good reason contained In each 2000 Agreement was amended to provide FPL Group with greater flexibility to assign different duties and responsibilities to the named executive officers without triggering the officer's rights to terminate employment and be entitled to severance and other benefits. In order to avoidduplication of benefits, each 2000 Agreement was also amended to provide that if a change of control, as defined in the named executive officers 2002 Agreement, occurs prior to the expiration of the 2000 Agreement, the 2000 Agreement will terminate and the 2002 Agreement will become effective.

88

2002 Agreements - Each of the individuals named in the Summary Compensation Table is a party to a 2002 Agreement with FPL Group. In the case of Messrs. Hay, Coyle and Kelleher, if a change of control does not occur prior to the expiration of his amended 2000 Agreement, his 2002 Agreement will not become effective until the expiration of his amended 2000 Agreement and the subsequent occurrence of a potential change of control or a change of control, each as defined in the 2002 Agreement.

Change of control is defined in the 2002 Agreements as (i) the acquisition by any individual, entity or group of 20% or more of either FPL Group's common stock or the combined voting power of FPL Group other than directly from FPL Group or pursuant to a merger or other business combination which does not itself constitute a change of control, (ii) the incumbent directors of FPL Group ceasing, for any reason, to constitute a majority of the board of directors, unless each director who was not an incumbent director was elected, or nominated for election, by a majority of the incumbent directors and directors subsequently so elected or appointed (excluding those elected as a result of an actual or threatened election contest or other solicitation of proxies), (iii) approval by shareholders or, if specified by the board of directors in the exercise of its discretion, consummation of a merger, sale of assets, reorganization, or other business combination of FPL Group or any subsidiary with respect to which (x) the voting securities of FPL Group outstanding immediately prior to the transaction do not, immediately following the transaction, represent more than 60% of the common stock and the voting power of all voting securities of the resulting ultimate parent entity or (y) members of the board of directors of FPL Group constitute less than a majority of the members of the board of directors of the resulting ultimate parent entity, or there is no reasonable assurance that they, or their nominees, will constitute at least a majority of that board of directors for at least two years, or (iv) the shareholders approve the liquidation or dissolution of FPL Group. A potential change of control is defined as (i) announcement of an intention to take or consider taking actions which, if consummated or approved by shareholders, would constitute a change of control, or (ii) the acquisition by any individual, entity or group of 15% or more of either the common stock or the combined voting power of FPL Group other than directly from FPL Group or pursuant to a merger or other business combination which does not itself constitute a change of control.

Once effective, each named executive officers 2002 Agreement provides that he shall be employed by FPL Group for a period of three years in a position at least commensurate with his position with FPL Group in the ninety day period immediately preceding the effective date of the 2002 Agreement. During this three year employment period, each named executive officer shall be (i) paid an annual base salary at least equal to his annual base as in effect on the effective date, with annual increases consistent with those awarded to other peer officers of FPL Group, but not less than the increases in the consumer price index; (ii) paid an annual bonus (expressed as a percentage of his annual base salary) consistent with those of peer executives at FPL Group, but at least equal to the higher of (x) his targeted annual bonus for the then current fiscal year divided by his then current annual base salary or (y) the average percentage of his annual base salary (as in effect for the applicable years) that was paid or payable as an annual bonus for each of the three fiscal years preceding the fiscal year in which the effective date occurs (or, if higher, for each of the three fiscal years immediately preceding the fiscal year in which a change of control occurs, if a change of control occurs after the effective date); (iii) given the opportunity to earn long-term incentive compensation no less favorable than such opportunities given to him at any time during the 90 days preceding the effective date or, if more favorable, those provided at any time after the effective date to peer officers of FPL Group (but without duplication of awards granted in connection with the shareholder approval of the proposed merger with Entergy); and (iv) entitled to participate in savings, retirement and other employee benefit plans providing benefits no less favorable than those provided to him at any time during the 90 days preceding the effective date or, if more favorable, those provided at any time after the effective date to peer officers of FPL Group.

In the event of a change of control, each 2002 Agreement provides that (i) 50% of a named executive officers outstanding performance stock-based awards (for example, performance share awards and shareholder value awards) shall be vested and earned at an achievement level equal to the higher of (x) the targeted level of performance of each such award or (y) the average level (expressed as a percentage of target) of achievement In respect of similar awards maturing over the three fiscal years immediately prior to the year in which the change of control occurred; (ii) all other outstanding performance stock-based awards granted to the named executive officer shall be fully vested and eamed; (iii) all options and other exercisable rights granted to the named executive officer shall become exercisable and vested; and (iv) the restrictions, deferral limitations and forfeiture conditions applicable to all outstanding awards granted to the named executive officer shall lapse and such awards shall be deemed fully vested. However, no awards which were granted in connection with the shareholder approval of the proposed merger with Entergy shall become vested, earned or exercisable under the 2002 Agreements as a result of a change of control.

A named executive officer will receive the remaining 50% of the outstanding performance stock-based awards (calculated in the same manner as described above) on the first anniversary of the change of control if he has remained employed by FPL Group or an affiliate through such date or upon an earlier termination of employment by FPL Group (except for death, disability or cause) or by the named executive officer for good reason (defined in the same manner as in the amended 2000 Agreement). Upon such a termination of employment following a change of control and during the employment period, the named executive officer is entitled to, among other things, a lump sum severance payment equal to three times the sum of his annual base salary plus his annual bonus; a payment in respect of three years of foregone supplemental retirement benefits; continued coverage under all employee benefit plans, and certain other benefits and perquisites, for three years; and a full gross-up in respect of any excise tax incurred as a result of the benefits received pursuant to the 2002 Agreement. Such amounts and benefits would also be provided if such a termination of a named executive officer occurs following a potential change of control and prior to an actual change of control, and during the employment period, except that 100% of the outstanding performance stock-based awards (calculated as described above) would be vested and earned, excluding any such awards granted in connection with the shareholder approval of the proposed merger with Entergy. In addition, each named executive officer will also receive a pro 89

rata portion (based upon deemed employment until the end of the three year employment period) of each long term incentive compensation award granted to him on or after the date of the change of control; provided that he will not be eligible to receive any payment with respect to any non-vested portion of an'award which was granted In connection with the shareholder approval of the proposed merger with Entergy.

Director Compensation - All of the directors of FPL are salaried employees of FPL Group and its subsidiaries and do not receive any additional compensation for serving as a director.

Item 12. Security Ownership of Certaln Beneficial Owners and Management and Related Stockholder Matters FPL Group - The information required by this item relating to security ownership of certain beneficial owners and equity compensation plan Information will be included In FPL Group's Proxy Statement and Is Incorporated herein by reference.

FPL-FPL Group owns 100% of FPL's common stock. FPLs directors and executive officers beneficially own shares of FPL Group's common stock as follows:

Name Number of Shares"a)

Dennis P. Coyle 224,976"XcXdX.)

Moray P. Dewhurst 141.493 fbxdxm Lewis Hay IlIl 397,836 *X'd Lawrence J. Kelleher 239,783'Xc"('

Armando J. Olivera 136,022.

Antonio Rodriguez 4 8 372@xexdxI John A. Stall 62 0331bXd All directors and executive officers as a group 1,304,810bXcX0x Ft)

I information Is as of February 15, 2004, except for holdings under retirement plans, which are as of January 30, 2004, and except as Indicated. Unless otherwise Indicated, each person has sole voting and sole Investment power.

i )

Includes phantom shares for Messrs. Coyle (6,558), Dewhurst (1.107). Hay (3,824), Kelleher (3,016), Olivera (747), Rodriguez (445) and Stall (459) and a total of 16.868 phantom shares for an directors and executive officers as a group, credited to a Supplemental Matching Contribution Account under the Supplemental Executive Retirement Plan. Phantom shares have no voting rights.

Incdudes shares of restricted stock for Messrs. Coyle (15,000). Dewhurst (20,001), Hay (83,833), Kelleher (25,001), Olivera (23,500). Rodriguez (10,001) and Stall (21,001) and a total of 206,587 shares of restricted stock for all directors and executive officers as a group; such shares have voting but not Investment power.

t Includes shares underlying options to purchase shares held by Messrs. Coy4e (150,000), Dewhurst (100,000). Hay (258,334), Kefleher (150,000), Olivera (75,001), Rodriguez (20,000) and Stal (25,001) and a total of 799,636 shares underlying options to purchase shares for all directors and executive officers as a group.

7 Includes 25 shares owned by Mr. Coyle's wife, as to which Mr. Coyle disclaims beneficial ownership and 44,558 shares owned by Coyle Holdings Umited Partnership, as to which Mr. Coyle disclaims beneficial ownership except to the extent of his pecuniary Interest therein.

f Includes share units of Messrs. Dewhurst (10,801), Hay (10,070), Kelleher (15,709), Olivera (11,589). Rodriguez (4,385) and Stall (8.029) and a total of 68,242 share units for all directors and executive officers as a group under deferred compensation plans. Such units have no voting rights.

t Less than 1% of the FPL Group common stock outstanding.

90

Item 13. Certain Relationships and Related Transactions FPL Group - The information required by this item will be Included in FPL Group's Proxy Statement under a similar heading, if applicable, and under the headings Executive Compensation, Employment Agreements and Director Compensation and is incorporated herein by reference.

FPL - None Item 14. Principal Accountant Fees and Services FPL Group - The information requested by this item will be included in FPL Group's Proxy Statement under the headings 'Fees Paid to Deloitte & Touche LLP" and 'Policy on Audit Committee Pre-Approval of Audit and Non-Audit Services of Independent Auditor is incorporated herein by reference.

FPL - The following table presents fees billed for professional services rendered by Deloitte & Touche LU', the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, Deloitte & Touche), which includes Deloitte Consulting, for the fiscal years ended December 31, 2003 and 2002. The amounts presented below reflect allocations from FPL Group for FPL's portion of the fees, as well as amounts billed directly to FPL.

2003 2002 Audit fees

S 1,074,000 902,000 Audit-related fees ('

479,000 106,000 Tax fees ()

33,000 1,049,000 All other fees (d 1,704,000 Total

$ 1,586,000

$ 3,761,000 Audit fees consist of fees billed for professional services rendered for the audit of FPL~s and FPI. Group's annual consolidated finan~cial statements for the fiscal year, the reviews of the financial statements induded in FPLs and FPL Group's Quarterly Reports on Form 10-0 for the fiscal year. comfort letters, consents, and other services related to SEC matters, services in connection with annual and semi-annual filings of FPL Group's financial statements with the Japanese tAnistry of Finance and accounting consultations to the extent necessary for Deloitte & Touche to fulfill their responsibility under generally accepted auditing standards.

° Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of FPUs and FPL Group's consolidated financial statements and are not reported under audit fees. These fees primarily related to audits of subsidiary financial statements, comfort letters, consents and other services related to subsidlary (non-SEC registrant) financing activities, audits of employee benefit plans, due diligence pertaining to acquisitions, consultation on accounting standards and on transactions. and, in 2003, assistance with the implementation of Section 404 of the Sarbanes-Odey Act (SOA).

4 Tax fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning. In 2003 and 2002, all amounts relate to tax conpliance services.

AN other fees consist of tees for products and services other than the services reported under the other named categories. In 2003. there were no other fees incurred in this category. In 200Z2, these fees primarily related to integrated supply chain systems implementation and employee benefit consulting services. All other fees include S1,334,000 of fees billed by Deloitte Consulting for the year ended December 31, 20OC In accordance with the requirements of the SOA, FPL Group's Audit Committee's pro-approval policy for services provided by the independent auditor, and the Charter of the Audit Committee, effective May 1, 2003, all services performed by Deloitte &

Touche LLP are approved in advance by the Audit Committee. Audit and audit-related services specifically identified in an appendix to the pre-approval policy are pre-approved by the Audit Committee each year. This pre-approval allows management to request the specified audit and audit-related services on an as-needed basis during the year, provided any such services are reviewed with the Audit Committee at its next regularly scheduled meeting. Any audit or audit-related service for which the fee is expected to exceed $250,000, or that involves a service not listed on the pre-approval list, must be specifically approved by the Audit Committee prior to commencement of such work. In addition, the Audit Committee approves all services other than audit and audit-related services performed by Deloitte & Touche LLP in advance of the commencement of such work or, in cases which meet the de minimus exception in the SOA, prior to completion of the audit. The Audit Committee has delegated to the chairman of the committee the right to approve audit, audit-related, tax and other services, within certain limitations, between meetings of the Audit Committee, provided any such decision is presented to the Audit Committee at its next regularly scheduled meeting. The Audit Committee reviews on a quarterly basis a schedule of all services for which Deloitte & Touche LLP has been engaged and the estimated fees for those services. In fiscal year 2003, no fees paid to Deloitte & Touche LLP under the categories Audit-related, Tax and All other fees described above were approved by the Audit Committee after services were rendered pursuant to the de minimis exception established by the SOA.

91

PART IV Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1. Financial Statements Independent Auditors' Report FPL Group:

Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Page(s) 41 42 43 44 45 FPL:

Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders Equity Notes to Consolidated Financial Statements Financial Statement Schedules - Schedules are omitted as not applicable or not required.

46 47 48 49 50-83 2.

3. Exhibits (including those Incorporated by reference)

Exhibit Number Description

• 3(i)a Restated Articles of Incorporation of FPL Group dated December 31, 1984, as amended through December 17, 1990 (filed as Exhibit 4(a) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)

^3(i)b Amendment to FPL Group's Restated Articles of Incorporation dated June 27, 1996 (riled as Exhibit 3 to Form 1 -0 for the quarter ended June 30,1996, File No. 1-8841)

• 3(i)c Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No.

1.-3545)

'3(i)d Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992 (filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993, File No. 1-3545)

• 3(i)e Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992 (filed as Exhibit 3(i)c to Form 1 0-K for the year ended December 31, 1993, File No. 1-3545)

-3(i)f Amendment to FPL's Restated Articles of Incorporation dated March 12,1993 (filed as Exhibit 3(i)d to Form 1 -K for the year ended December 31, 1993, File No. 1-3545)

• 3(i)g Amendment to'FPL's Restated Articles of Incorporation dated June 16, 1993 (filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993, File No. 1-3545)

^3(i)h Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993 (filed as Exhibit 3(i)f to Form 10-K for the year ended December31,1993, File No. 1-3545)

^3(1)i Amendment to FPL's Restated Articles of Incorporation dated November 30, 1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31, 1993, File No. 1-3545) 3(i)j Amendment to FPL's Restated Articles of Incorporation dated January 20,2004 3(i)k Amendment to FPL's Restated Articles of Incorporation dated January 20,2004 92 FPL Grou2 FPL x

x x

x x

x x

x I

x x

x x

x x

x x

x x

Exhibit FPL Number Descrfition GrouD FPL

'3(ii)a Bylaws of FPL Group as amended February 12,2001 (filed as Exhibit 3(ii)a x

to Form 10-K for the year ended December 31, 2000, File No. 1-8841)

• 3(ii)b Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated x

May 1, 1992, File No. 1-3545) 4(a)

Form of Rights Agreement, dated as of July 1,1996, between FPL Group x

and EquiServe Trust Company, N.A. as successor to Fleet National Bank (ftk/a The First National Bank of Boston), as Rights Agent (filed as Exhibit 4 to Form 8-K dated June 17,1996, File No. 1-8841)

'4(b)

Second Amendment to Rights Agreement, dated as of December 26, 2002, x

between FPL Group and EquiServe Trust Company, N.A. as successor to Fleet National Bank (f/k/a The First National Bank of Boston), as the Rights Agent (filed as Exhibit 3 to Form 8-A/A dated January 3,2003, File No. 1-8841)

• 4(c)

Third Amendment to Rights Agreement, dated as of January 1, 2004, between x

FPL Group, Computershare Investor Services, ILC as successor rights agent, and EquiServe Trust Company, N.A. as predecessor rights agent (filed as Exhibit 4 to Form 8-A/A dated December 19,2003, File No. 1-8841) 4(d)

Mortgage and Deed of Trust dated as of January 1, 1944, and One hundred and x

x five Supplements thereto, between FPL and Deutsche Bank Trust Company Americas, Trustee (filed as Exhibit B-3, File No. 2-4845; Exhibit 7(a), File No. 2-7126; Exhibit 7(a), File No. 2-7523; Exhibit 7(a), File No. 2-7990; Exhibit 7(a),

File No. 2-9217; Exhibit 4(a)-5, File No. 2-10093; Exhibit 4(c), File No. 2-11491; Exhibit 4(b)-1, File No. 2-12900; Exhibit 4(b)-1, File No. 2-13255; Exhibit 4(b)-1, File No. 2-13705; Exhibit 4(b)-1, File No. 2-13925; Exhibit 4(b)-1, File No. 2-15088; Exhibit 4(b)-1, File No. 2-15677; Exhibit 4(b)-1, File No. 2-20501; Exhibit 4(b)-1, File No.2-22104; Exhibit 2(c), File No. 2-23142; Exhibit 2(c), File No. 2-24195; Exhibit 4(b)-1, File No. 2-25677; Exhibit 2(c), File No. 2-27612; Exhibit 2(c), File No. 2-29001; Exhibit 2(c), File No.2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c), File No. 2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File No. 2-41312; Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-46502; Exhibit 2(c), File No. 2-48679; Exhibit 2(c), File No. 2-49726; Exhibit 2(c), File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No. 2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228; Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No. 2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767; Exhibit 4(b), File No. 2-71542; Exhibit 4(b),

File No. 2-73799; Exhibits 4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c),

File No. 2-77629; Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment No. 5 to Form $-8, File No. 33-18669; Exhibit 99(a) to Post-Effective Amendment No.1 to Form S-3, File No. 33-46076; Exhibit 4(b) to Form 10-K for the year ended December 31, 1993, File No. 1-3545; Exhibit 4(i) to Form 10-0 for the quarter ended June 30, 1994, File No. 1-3545; Exhibit 4(b) to Form 10-0 for the quarter ended June 30, 1995, File No. 1-3545; Exhibit 4(a) to Form 10-0 for the quarter ended March 31,1996, File No. 1-3545; Exhibit 4 to Form 10-0 for the quarter ended June 30, 1998, File No. 1-3545; Exhibit 4 to Form 10-Q for the quarter ended March 31, 1999, File No. 1-3545; Exhibit 4(f) to Form 10-K for the year ended December 31, 2000, File No. 1-3545; Exhibit 4(g) to Form 10-K for the year ended December31, 2000, File No. 1-3545; Exhibit 4(o), File No. 333-102169; Exhibit 4(k) to Post-Effective Amendment No.1 to Form S-3, File No. 333-102172; Exhibit 4(l) to Post-Effective Amendment No. 2 to Form S-3, File No. 333-102172; and Exhibit 4(m) to Post-Effective Amendment No. 3 to Form S-3, File No. 333-102172)

• 4(e)

Indenture, dated as of June 1, 1999, between FPL Group Capital and x

The Bank of New York, as Trustee (filed as Exhibit 4(a) to Form 8-K dated July 16, 1999, File No. 1-8841) 4(f)

Guarantee Agreement between FPL Group (as Guarantor) and x

The Bank of New York (as Guarantee Trustee) dated as of June 1, 1999 (filed as Exhibit 4(b) to Form 8-K dated July 16,1999, File No. 1-8841)

I 93

Exhibit FPL Number Description Grouo FPL

• 4(g)

Officers Certificate of FPL Group Capital, dated June 29,1999, x

creating the 6 7/8% Debentures, Series due June 1,2004 (filed as Exhibit 4(c) to Form 8-K dated July 16,1999, File No. 1-8841)

• 4(h)

Officers Certificate of FPL Group Capital, dated June 29,1999, x

creating the 7 3/8% Debentures, Series due June 1, 2009 (filed as Exhibit 4(d) to Form 8-K dated July 16,1999, File No. 1-8841)

• 4(i)

Officers Certificate of FPL Group Capital, dated September 7, 1999, x

creating the 7 5/8% Debentures, Series due September 15, 2006 (filed as Exhibit 4 to Form 10-0 for the quarter ended September 30, 1999, File No. 1-8841)

• 40)

Officers Certificate of FPL Group Capital, dated May 11,2001, creating x

the 6 1/8% Debentures, Series due May 15,2007 (filed as Exhibit 4 to Form 10-0 for the quarter ended June 30,2001, File No. -8841)

'4(k)

Officers Certificate of FPL Group Capital, dated February 4,2002, x

creating the Series A Debentures due February 16,2007 (filed as Exhibit 40) to Form 10-Kfortheyearended December31,2001, File No.1-8841)

• 4(1)

Officers Certificate of FPL Group Capital, dated April 11,2003, creating the x

3 114% Debentures, Series due April 11,-2006 (filed as Exhibit 4(ao) to Post-Effective Amendment No. Ito Form S-3, File Nos. 333-102173, 333-102173-01, 333-102173-02 and 333-102173-03)

'4(m)

Officers Certificate of FPL Group Capital, dated September 30, 2003, x

creating the Floating Rate Debentures, Series due March 30,2005 (filed as Exhibit 4(ap) to Post-Effective Amendment No.2 to Form S-3, File Nos. 333-102173,333-102173-01, 333-102173-02 and 333-102173-03)

• 4(n)

Officers Certificate of FPL Group Capital, dated September 30, 2003, x

creating the 1 7/8% Debentures, Series due March 30,2005 (filed as Exhibit 4(aq) to Post-Effective Amendment No. 2 to Form S-3, File Nos. 333-102173, 333-102173-01,333-102173-02 and 333-102173-03)

'4(o)

Purchase Contract Agreement, dated as of February 1,2002, between x

FPL Group and The Bank of New York, as Purchase Contract Agent and Trustee (filed as Exhibit 4(k) to Form 10-K for the year ended December 31,2001, Fie No.1-8841)

'4(p)

Pledge Agreement, dated as of February 1,2002, by and among FPL Group, x

JPMorgan Chase Bank, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent (filed as Exhibit 4(l) to Form 10-K for the year ended December 31,2001, File No. 1-8841)

• 4(q)

Officers Certificate of FPL Group Capital, dated June 12,2002, creating x

the Series B Debentures due February 16,2008 (filed as Exhibit 4(a) to Form 10-0 for the quarter ended June 30,2002, File No. 1-8841)

'4(r)

Purchase Contract Agreement, dated as of June 1,2002, between FPL Group x

and The Bank of New York, as Purchase Contract Agent and Trustee (filed as Exhibit 4(b) to Form 10-Q for the quarter ended June 30,2002, File No. 1-8841)

• 4(s)

Pledge Agreement, dated as of June 1,2002, by and among FPL Group, x

JPMorgan Chase Bank, as Collateral Agent, Custodial Agent and Securities Intermediary, and The Bank of New York, as Purchase Contract Agent (filed as Exhibit 4(c) to Form 10-0 for the quarter ended June 30,2002, File No. 1-8841) 94

I -

Exhibit FPL Number Description Grouo FPL

• 10(a)

FPL Group Supplemental Executive Retirement Plan, amended and x

x restated effective April 1, 1997 (filed as Exhibit 10(a) to Form 10-K for the year ended December 31, 1999, File No. 1-8841)

• 10(b)

Amendments # I and 2 effective January 1, 1998 to FPL Group x

x Supplemental Executive Retirement Plan, amended and restated effective April 1, 1997 (filed as Exhibit 10(b) to Form 10-K for the year ended December 31, 1999, File No. 1-8841)

'10(c)

Amendment #3 effective January 1, 1999 to FPL Group Supplemental x

x Executive Retirement Plan, amended and restated effective April 1, 1997 (filed as Exhibit 10(c) to Form 10-K for the year ended December 31, 1999, File No. 1-8841)

• 10(d)

Supplemental Executive Retirement Plan for Dennis P. Coyle effective x

x November 15, 1993 (filed as Exhibit 10(f) to Form 10-K for the year ended December 31,2000, File No. 1-8841)

'10(e)

Supplement to the FPL Group Supplemental Executive Retirement Plan x

x as it applies to Lewis Hay IlIl effective March 22,2002 (filed as Exhibit 10(g) to Form 10-K for the year ended December 31, 2001, File No. 1-8841)

• 10(f)

FPL Group Amended and Restated Long Term Incentive Plan, as amended x

x and restated December 20, 2002 (filed as Exhibit 10(g) to Form 10-K for the year ended December 31,2002, File No. 1-8841)

• 10(g)

Form of 2003 Annual Incentive Plan (filed as Exhibit 10(i) to Form 10-K for x

x the year ended December 31,2002, File No. 1-8841) 10(h)

Form of Annual Incentive Plan x

x

• 10(i)

FPL Group Deferred Compensation Plan, amended and restated x

x effective January 1,2001 (filed as Exhibit 10(a) to Form 10-Q for the quarter ended June 30,2001, File No. 1-8841)

• 100)

FPL Group Deferred Compensation Plan, amended and restated effective x

x January 1, 2003 (filed as Exhibit 10(k) to Form 10-K for the year ended December 31, 2002, File No. 1-8841)

• 10(k)

FPL Group Executive Long Term Disability Plan effective January 1, 1995 x

x (filed as Exhibit 10(g) to Form 1 0-K for the year ended December 31, 1995, File No. 1-8841)

'10(I)

Employment Agreement between FPL Group and Dennis P. Coyle, x

x amended and restated as of May 10,1999 (filed as Exhibit 10(b) to Form 10-0 for the quarter ended September 30,1999, File No. 1-8841)

• 10(m)

Employment Agreement between FPL Group and Lewis Hay IlIl, dated x

x as of September 13, 1999 (filed as Exhibit 10(d) to Form 10-0 for the quarter ended September 30, 1999, File No. 1-8841)

• 10(n)

Employment Agreement between FPL Group and Lawrence J. Kelleher, x

x amended and restated as of May 10, 1999 (filed as Exhibit 10(e) to Form 10-0 for the quarter ended September 30,1999, File No. 1-8841)

• 10(o)

Employment Agreement between FPL Group and Armando J. Olivera, x

x dated as of June 12, 2000 (filed as Exhibit 10(a) to Form 10-0 for the quarter ended June 30, 2000, File No. 1-8841)

• 10(p)

Employment Agreement between FPL Group and Antonio Rodriguez, x

x dated as of June 12, 2000 (filed as Exhibit 10(b) to Form 10-0 for the quarter ended June 30,2000, File No. 1-8841)

I 95

Exhibit FPL Number Descriotion GrOup FPL

• 10(q)

FPL Group Non-Employee Directors Stock Plan dated as of March 17, x

1997 (filed as Appendix A to FPL Group's 1997 Proxy Statement, File No.

1-8841) l

• 10(r)

Form of Split-Dollar Agreement between FPL Group and each of x

x Dennis P. Coyle, Lewis Hay ll, Lawrence J. Kelleher, Armando J. Olivera and James L Robo (filed as Exhibit 10(w) to Form 10-K for the year ended December31, 2000, File No. 1-8841)

'10(s)

Form of Amendment to Employment Agreement between FPL Group and x

x each of Dennis P. Coyle, Lewis Hay IlIl, Lawrence J. Kelleher, Armando J. Olivera and Antonio Rodriguez (filed as Exhibit 10(c) to Form 10-0 for the quarter ended June 30,2002, File No. 1-8841)

'10(t)

Generic Form of Executive Retention Employment Agreement between x

x FPL Group and each of Dennis P. Coyle, Lewis Hay IlIl, Lawrence J. Kelleher, Armando J. Olivera and Antonio Rodriguez (filed as Exhibit 10(a) to Form 10-0 for the quarter ended June 30, 2002, File No. 1-8841)

• 10(u)

Generic Form of Executive Retention Employment Agreement between x

x FPL Group and each of Moray P. Dewhurst, John A. Stall and James L Robo (filed as Exhibit 10(b) to Form 10-0 for the quarter ended June 30,2002, File No. 1-8841)

'10(v)

Amendment to Employment Agreement between FPL Group and Armando J. Olivera, x

x dated as of October 17,2003 (filed as Exhibit 10(a) to Form 10-0 for the quarter ended September 30,2003, File No. 1-8841)

'10(w)

Guarantee Agreement between FPL Group and FPL Group Capital, x

dated as of October 14, 1998 (filed as Exhibit 1 0(y) to Form 1 0-K for the year ended December 31,2001, File No. 1-8841) 12(a)

Computation of Ratio of Earnings to Fixed Charges x

12(b)

Computation of Ratios x

21 Subsidiaries of FPL Group and FPL x

x 23 Independent Auditors' Consent x

x 31 (a)

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of FPL Group x -

31 (b)

Rule 13a-1 4(a)/ 5d-1 4(a) Certification of Chief Financial Officer of FPL Group x

31 (c)

Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of FPL x

31(d)

Rule 13a-1 4(a)/ Sd-1 4(a) Certification of Chief Financial Officer of FPL x

32(a)

Section 1350 Certification of FPL Group x

32(b)

Section 1350 Certification of FPL X

wincorporated herein by reference FPL Group and FPL agree to furnish to the SEC upon request any Instrument with respect to long-term debt that FPL Group and FPL have not filed as an exhibit pursuant to the exemption provided by Item 601 (b)(4)(iii)(A) of Regulation S-K.

(b) Reports on Form 8-K A current report on Form 8-K was filed with the SEC on October 3, 2003 by FPL Group reporting one event under Item 5. Other Events and Regulation FD Disclosure.

96

FPL GROUP, INC. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FPL Group, Inc.

LEWIS HAY IlIl Lewis Hay ill Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)

Date: February 26,2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Signature and Title as of February 26, 2004:

MORAY P. DEWHURST Moray P. Dewhurst Vice President, Finance and Chief Financial Officer (Principal Financial Officer)

K. MICHAEL DAVIS K. Michael Davis Controller and Chief Accounting Officer (Principal Accounting Officer)

I Directors:

H. JESSE ARNELLE H. Jesse Arnelle ALEXANDER W. DREYFOOS, JR Alexander W. Dreyfoos, Jr.

SHERRY S. BARRAT Sherry S. Barrat FREDERIC V. MALEK Frederic V. Malek ROBERT M. BEALL, II Robert M. Beall, II MICHAEL H. THAMAN Michael H. Thaman J. HYATT BROWN J. Hyatt Brown PAUL R. TREGURTHA Paul R. Tregurtha JAMES L. CAMAREN James L. Camaren FRANK G. ZARB Frank G. Zarb 97

FLORIDA POWER & LIGHT COMPANY SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Florida Power & Ught Company ARMANDO J. OLIVERA Armando J. Olivera

- President and Director Date: February26,2004 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date Indicated.

Signature and Title as of February 26, 2004:

I LEWIS HAY IlIl Lewis Hay III Chairman of the Board, Chief Executive Officer and Director (Principal Executive Officer)

MORAY P. DEWHURST Moray P. Dewhurst Senior Vice President, Finance and Chief Financial Officer and Director (Principal Financial Officer)

K. MICHAEL DAVIS K. Michael Davis Vice President, Accounting, Controller and Chief Accounting Officer (Principal Accounting Officer)

Directors:

DENNIS P. COYLE Dennis P. Coyle LAWRENCEJ. KELLEHER Lawrence J. Kelleher ANTONIO RODRIGUEZ Antonio Rodriguez JOHN A. STALL John A. Stall 98

Exhibit 31 (a)

Rule 13a-14(a)/15d-14(a) Certification I, Lewis Hay Ill, Chief Executive Officer of FPL Group, Inc. (FPL Group), certify that:

1.

I have reviewed the annual report on Form 10-K for the year ended December 31, 2003 of FPL Group (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-1 5(e) and 15d-1 5(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 26, 2004 LEWIS HAY IlIl Lewis Hay IlIl Chairman of the Board, President and Chief Executive Officer I

Exhibit 31(b)

Rule 13a-1 4(a)/1 5d-1 4(a) Certification I, Moray P. Dewhurst, Chief Financial Officer of FPL Group, Inc. (FPL Group), certify that:

1.

I have reviewed the annual report on Form 10-K for the year ended December 31, 2003 of FPL Group, (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the'statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present In all material respects the financial condition, results 'of operations and cash flows of the registrant as of, and for, the periods presented In this report;

4.

The registrant's other certifying 'officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 1 3a-1 5(e) and I 5d-1 5(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material Information relating to the registrant, including Its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period In which this report is being prepared; b)'

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented In this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change In the registrant's Intemal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth'fiscal quarter in the case of an annual report) that has materially affected, or Is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of Internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial Information; and b)

Any fraud, whether or not material, that Involves management or other employees who have a significant role In the registrant's internal control over financial reporting.

Date: February 26,2004 MORAY P. DEWHURST Moray P. Dewhurst Vice President, Finance and Chief Financial Officer

Exhibit 31(c)

Rule 1 3a-1 4(a)/1 5d-1 4(a) Certification I, Lewis Hay Ill, Chief Executive Officer of Florida Power & Ught Company (FPL), certify that:

1.

I have reviewed the annual report on Form 10-K for the year ended December 31, 2003 of FPL (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and

5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of Internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 26,2004 LEWIS HAY IlIl Lewis Hay III Chairman of the Board and Chief Executive Officer I

Exhibit 31 (d)

Rule 1 3a-1 4(a)I1 5d-1 4(a) Certification I, Moray P. Dewhurst, Chief Financial Officer of Florida Power & Ught Company (FPL), certify that:

1.

I have reviewed the annual report on Form 10K-K for the year ended December 31, 2003 of FPL (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial Information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-1 5(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material Information relating to the registrant, including Its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented In this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change In the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter.(the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or Is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses In the design or operation of internal control over financial reporting which are reasonably'likely to adversely affect the registrant's ability to record, process, summarize and report financial Information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's Internal control over financial reporting.

Date: February 26,2004 MORAY P. DEWHURST Moray P. Dewhurst Senior Vice President, Finance and Chief Financial Officer

Exhibit 32(a)

Section 1350 Certification We, Lewis Hay l1l, Chief Executive Officer of FPL Group, Inc. (FPL Group) and Moray P. Dewhurst, Chief Financial Officer of FPL Group, certify, pursuant to Section 906 of the Sarbanes-Oxtey Act of 2002, that:

(1) The Annual Report on Form 10-K of FPL Group for the year ended December 31,2003 (Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The Information contained In the Report fairly presents, in all material respects, the financial condition and results of operations of FPL Group.

Dated: February 26, 2004 LEWIS HAY IlIl Lewis Hay IlIl Chairman of the Board, President and Chief Executive Officer MORAY P. DEWHURST Moray P. Dewhurst Vice President, Finance and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to FPL Group and will be retained by FPL Group and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601 (b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and Is not to be incorporated by reference into any filing of FPL Group under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespecUve of any general incorporation language contained in such filing).

Exhibit 32(b)

Section 1350 Certification We, Lewis Hay l1l, Chief Executive Officer of Florida Power & Light Company (FPL) and Moray P. Dewhurst, Chief Financial Officer of FPL, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Annual Report on Form 10-K of FPL for the year ended December 31, 2003 (Report) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of FPL.

Dated: February26,2004 LEWIS HAY IlIl Lewis Hay IlIl Chairman of the Board and Chief Executive Officer MORAY P. DEWHURST Moray P. Dewhurst Senior Vice President, Finance and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to FPL and will be retained by FPL and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, Is not being filed with the Securities and Exchange Commission as part of the Report and Is not to be incorporated by reference into any filing of FPL under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, Irrespective of any general Incorporation language contained In such filing).

EXHIBIT 2

MROLJP.

L UNITED STATES SECURITIES AND EXCHANGE Washington, D.C. 20549 FORM 10-Q

.P.

.COMMISSION

[XI QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d):

OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR 3 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) -

OF THE SECURITIES EXCHANGE ACT OF 1934 Exact name of registrants as specified In their IRS Employer charters, address of principal executive offices and Identification registrants' telephone number Number FPL GROUP, INC.

59-2449419 FLORIDA POWER & LIGHT COMPANY

.59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 Commission File Number 1-8841 2-27612 State or other jurisdiction of incorporation or organization: Florida Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days.

Yes X No Indicate by check mark whether FPL Group, Inc. is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes X No Indicate by check mark whether Florida Power & Light Company is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).

Yes _

No X

APPLICABLE ONLY TO CORPORATE ISSUERS:

The number of shares outstanding of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $0.01 par value, outstanding at September 30, 2004: 185,588,626 shares.

As of September 30, 2004, there were issued and outstanding 1,000 shares of Florida Power & Light Company's common stock, without par value, all of which were held, beneficially and of record, by FPL Group, Inc.

This combined Form 10-0 represents separate filings by FPL Group, Inc. and Florida Power & Ught Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations.

CAUTIONARY STATEMENTS AND RISK FACTORS THAT MAY AFFECT FUTURE RESULTS In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) are hereby filing cautionary statements identifying important factors that could cause FPL Group's or FPL's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this combined Form 10-0, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, Is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could cause FPL Group's or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and FPL.

Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.

The following are some important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL Group's and FPL's actual results or outcomes to differ materially from those discussed in the forward-looking statements:

FPL Group and FPL are subject to changes In laws or regulations, including the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), and the Public Utility Holding Company Act of 1935, as amended (Holding Company Act),

changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the utility commissions of other states in which FPL Group has operations, and the U.S. Nuclear Regulatory Commission (NRC), with respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, operation and construction of plant facilities, operation and construction of transmission facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, return on common equity and equity ratio limits, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs). The FPSC has the authority to disallow recovery by FPL of costs that it considers excessive or imprudently incurred.

The regulatory process generally restricts FPL's ability to grow earnings and does not provide any assurance as to achievement of earnings levels.

FPL Group and FPL are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife mortality, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or increase costs. There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.

FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity. FPL Group and its subsidiaries will need to adapt to these changes and may face increasing competitive pressure.

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

The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters such as hurricanes), as well as the risk of performance below expected or contracted levels of output or efficiency. This could result in lost revenues and/or increased expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. In addition to these risks, FPL Group's and FPL's nuclear units face certain risks that are unique to the nuclear industry including the ability to store and/or dispose of spent nuclear fuel, as well as additional regulatory actions up to and including shutdown of the units stemming from public safety concerns, whether at FPL Group's and FPL's plants, or at the plants of other nuclear operators. Breakdown or failure of an FPL Energy, LLC (FPL Energy) operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages.

2

FPL Group's and FPL's ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin construction or capital improvements to existing facilities is contingent upon many variables and subject to substantial risks. Should any such efforts be unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of their investment in the project or improvement.

FPL Group and FPL use derivative instruments, such as swaps, options, futures and forwards to manage their commodity and financial market risks, and to a lesser extent, engage in limited trading activities. FPL Group could recognize financial losses as a result of volatility in the market values of these contracts, or if a counterparty fails to perform. In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative Instruments Involves management's judgment or use of estimates. As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts. In addition, FPL's use of such instruments could be subject to prudency challenges and if found imprudent, cost recovery could be disallowed by the FPSC. -

There are othbr risks associated with FPL Group's non-rate regulated businesses, particularly FPL Energy. In addition to risks discussed elsewhere, risk factors specifically affecting FPL Energy's success in competitive.wholesale markets include the ability to efficiently develop and operate generating assets, the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price andsupply of fuel, transmission constraints, competition from new sources of generation, excess generation capacity. and demand for power. There can be significant volatility In market prices for fuel and electricity, -and there, are other financial, counterparty and market risks that are beyond the control of FPL Energy. FPL Energy's inability or failure to effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly Impair FPL Group's future financial results. In keeping with industry trends, a portion of FPL Energy's power generation facilities operate wholly or partially without long-term power purchase agreements. As a result, power from these facilities is sold on the spot market or on a short-term contractual basis, which may affect the volatility of FPL Group's financial results. In addition, FPL Energy's business depends upon transmission facilities owned and operated by others; If transmission is disrupted or capacity Is Inadequate or unavailable, FPL Energy's ability to sell and deliver its wholesale power may be limited.

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

FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows. The inability of FPL Group and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms, particularly during times of uncertainty in the capital markets, which, in turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely increase Interest costs.

FPL Group's and FPL's results of operations can be affected by changes in the weather. Weather conditions directly influence-the demand for electricity and natural gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities. In addition, severe weather can be destructive, causing outages and/or property damage, which could require additional costs to be incurred.

FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the effect of new, or changes in, tax laws, rates or policies, rates of Inflation,

-accounting standards, securities laws or corporate governance requirements.

FPL Group and FPL are subject to direct and Indirect effects of terrorist threats and activities. Generation and transmission facilities, in general, have been identified as potential targets. The effects of terrorist threats and activities

-include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit-power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the United States, and the increased cost and adequacy of security and insurance.

FPL Group's and FPL's ability to obtain Insurance, and the cost of and coverage provided by such Insurance, could be affected by national events as well as company-specific events.

FPL Group and FPL are subject to employee workforce factors, including loss or retirement of key executives, availability of qualified personnel, collective bargaining agreements with union employees or work stoppage.

The issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face. Additional issues may arise or become material as the energy industry evolves. -The risks and uncertainties associated with these additional issues could impair FPL Group's and FPL's businesses in the future.

3

PART I - FINANCIAL INFORMATION Item 1. Financial Statements FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (millions, except per share amounts)

(unaudited)

I Three Months Ended Nine Months Ended September 30,.

September 30, 2004 2003 2004 2003

$2,983

$ 2,775

$7,933 S7,195 OPERATING REVENUES OPERATING EXPENSES Fuel, purchased power and interchange Other operations and maintenance Depreciation and amortization Taxes other than income taxes Total operating expenses OPERATING INCOME OTHER INCOME (DEDUCTIONS)

Interest charges Preferred stock dividends - FPL Equity in earnings of equity method investees Allowance for equity funds used during construction Other-net Total other deductions - net INCOME FROM OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE INCOME TAXES INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE FASB Interpretation No. 46, 'Consolidation of Variable Interest Entities,"

net of income taxes of $2 NET INCOME Earnings per share of common stock:

Earnings per share before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle Earnings per share Earnings per share of common stock - assuming dilution:

Earnings per share before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle Earnings per share Dividends per share of common stock Weighted-average number of common shares outstanding:

Basic Assuming dilution 1,488 435 298 239 2,460 1,318 3,889 383 1,262 282 897 227

-667 2,210 6,715

• 3,325 1,168 808 623 5,924 523 565 1,218 1,271 (122) 40 10 12 (60)

(106)

-(4)

(36 34 7

4 2

• 1 2

(71)

(23 8):

(267)

(11) 8 85

6.

8

!7 '

11 l7)

(174) 463 143 494 981 1,097 160 266 349 320 334 715 748 (3)

(3)

S 320 S 331

$ 715 S 745

$ 1.78 5

$ 1.78

$ 1.76 S

5 1.76

$ 1.88

$ (0.02)

$ 1.86

$ 1.88 S (0.02)

S 1.86

$ 3.99 S 3.99

$ 3.97

$ 3.97

$ 4.22

$ (0.02)

$ 4.20

$ 4.21

$ (0.02)

S 4.19 S 1.80 S 0.68

$ 0.60

$ 1.92 179.6 181.1 177.8 178.3 179.0 180.2 177.3 177.8 This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in the combined Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (2003 Form 10-K) for FPL Group and FPL.

4

FPL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (millions)

(unaudited)

_^

PROPERTY, PLANT AND EQUIPMENT Electric utility plant In service and other property Nuclear fuel Construction work in progress Less accumulated depreciation and amortization Total property, plant and equipment - net CURRENT ASSETS Cash and cash equivalents Customer receivables, net of allowances of $33 and $25, respectively Other receivables Materials, supplies and fossil fuel inventory - at average cost Deferred clause and franchise expenses Derivative assets Storm fund Other Total current assets OTHER ASSETS Special use funds Other Investments Regulatory assets:

Storm reserve deficiency Unamortized loss on reacquired debt Litigation settlement Other Other Total other assets TOTAL ASSETS CAPITALIZATION Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive Income (loss)

Total common shareholders' equity Preferred stock of FPL without sinking fund requirements Long-term debt Total capitalization CURRENT LIABILITIES Commercial paper Notes payable..

Current maturities of long-term debt Accounts payable Customers' deposits Accrued Interest and taxes Deferred clause and franchise revenues Derivative regulatory liability Other Total current liabilities OTHER LIABILITIES AND DEFERRED CREDITS Asset retirement obligations Accumulated deferred income taxes Regulatory liabilities:

Accrued asset removal costs Storm and property Insurance reserve Asset retirement obligation regulatory expense difference Unamortized Investment tax credits Other Other Total other liabilities and deferred credits COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES September 30, 2004 28,720.

503 -:

1,912

• (10,391)7.

20,744.

December 31,

, - 2003 28,445 463 1,364 (9,975) 451l 129 948 809 449 379 377 458 286 348 305 188

.214 258 159 3,2BB-2,470 2,156 2,248 734 810

.368 46 48 56 89 19 22 1,114 951

-4486 4168 28,518 26,935 2

S.

,.2.,

S.

2 3,360 3,216

4,116 3,745 4

7,428, 6,967 5

5

~8,5511 6,723 15,984 15,695 457 708 71 -,.212 712

'367 679 542 393.

357

• 398 226 29 48 183 93 1245.

800

_ 4,096 3,353

-2176 2,086 2,699 2,155 1,982 195.

1 86, 141 1,159 8,438 1,902 327 180 100 160 977 7,887

$. 28,518 26.935 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2003 Form 10-K for FPL Group and FPL.

5

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)

(unaudited)

Nine Months Ended September 30, 2004 2003 CASH FLOWS FROM OPERATING ACTIVITIES Net income Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization Nuclear fuel amortization Cumulative effect of change in accounting principle Storm-related costs of FPL, net of insurance reimbursements Deferred income taxes and related regulatory credit Cost recovery clauses and franchise fees Equity in earnings of equity method investees Distribution of earnings from equity method investees Changes in operating assets and liabilities:

Restricted cash Customer receivables Other receivables Material, supplies and fossil fuel inventory Other current assets Deferred pension cost Accounts payable Customers' deposits Interest, income taxes and other taxes Other current liabilities Other liabilities Other-net

. Net cash provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL Nuclear fuel purchases Independent power investments Sale of independent power investments Capital expenditures of FPL FiberNet, LLC Contributions to special use funds Sale of Olympus note receivable Funding of secured loan Other-net Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issuances of long-term debt Retirements of long-term debt Net change in short-term debt Issuances of common stock Dividends on common stock Other-net Net cash provided by (used in) financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

'Additions to capital lease obligations Additions to debt through adoption of FIN 46 Additions to property, plant and equipment - net through the adoption of FIN 46 715 745

&E

-i (lE SE (I

1:

(1 (11 2,1 14 71 i3) 10 76 78) 19 775 38 5

385 (353)

(85) 27 (9E (E

(3c (11 (1,3 4

(96)

19)

(298) 24 16 14 36

0)

(20)

11)

(92) 16 173 16 35 78 287

16)

(12) 51 (30) l1 73 2

1,609

10)

(946)

16)

(29)

15)

(1,108) 13 (5)

(6)

'5)

(143) 26

9)

20) 19

_)

(2,213) 57 2,430

0)

(183) i7)

(684) 53 i

55

65)

(318)

27)

(27)

9) 1,273 22 669 29 266 5i S

935 41 515 346 SE (41 (4E E

(34 (61 32 12 S 4E S

S This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2003 Form 10-K for FPL Group and FPL.

6

FLORIDA POWER &'LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (millions)

(unaudited)

Three Months Ended September 30, 2004 2003 S 2,485, S 2,383 Nine Months Ended

- :September 30, 2004 2003

$ 6,600

$ 6,193 OPERATING REVENUES OPERATING EXPENSES Fuel, purchased power and interchange Other operations and maintenance Depreciation and amortization Taxes other than income taxes Total operating expenses 1,248 1,170 3,342 2,949 323 292 938 900 227

.224 686 666 221 210 613 578 2,019 1,896 5,579 5,093 466 487 1,021 1,100

( 4 4

( 15,-

1 8 OPERATING INCOME OTHER INCOME (DEDUCTIONS)

Interest charges Allowance for equity funds used during construction Other-net Total other deductions - net INCOME BEFORE INCOME TAXES (44) 10 (4)

(38)

(44) 4 (4)

(44) 443

13 )_.

(128) 26.

I 8

- (8);

(8)

I I (117)

(128) 904 972 428 INCOME TAXES NET INCOME 153 275 162 '

318 350 281 586 622 PREFERRED STOCK DIVIDENDS 4

1 11 NET INCOME AVAILABLE TO FPL GROUP S

275 S

277 585 S

611 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2003 Form 10-K for FPL Group and FPL.

7

FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (millions)

(unaudited)

September 30, December 31, 2004 2003 ELECTRIC UTLUTY PLANT Plant In service 21,636 21,368 Nuclear fuel 408 380 Construction work in progress 1,106 741 Less accumulated depreciation and amortization (9,438)

(9,237)

ElectrIc utility plant - net 13,712 13,252 CURRENT ASSETS Cash and cash equivalents 51 4

Customer receivables, net of allowances of $20 and $11, respectively 741 636 Other receivables 425 151 Materials, supplies and fossil fuel inventory - at average cost 303 355 Deferred clause and franchise expenses 286 348 Derivative assets 206 130 Storm fund 214 Other 155 49 Total current assets 2,381 1,673 OTHER ASSETS Special use funds 1,872 1,974 Other Investments 9

9 Regulatory assets:

Storm reserve deficiency 361 Unamortized loss on reacquired debt 46 48 Ltigation settlement 56 89 Other 19 22 Other 855 750 Total other assets 3,218 2,892 TOTALASSETS 19,311 17,817 CAPITALIZATION Common stock s

1,373 1,373 Additional paid-in capital 4,319 4,318 Retained eamings 376 313 Total common shareholders equity 6,068 6,004 Preferred stock without sinking fund requirements 25 5

Long-term debt 3,313 3,074 Total capitalization 9,406 9,083 CURRENT LIABIUTIES Commercial paper 457 630 Accounts payable 566 435 Customers' deposits 378 346 Accrued interest and taxes 304 160 Deferred clause and franchise revenues 29 48 Derivative regulatory liability 183 93 Other 953 423 Total current liabilities 2,870 2,135 OTHER LIABIUTIES AND DEFERRED CREDITS Asset retirement obligations 1,988 1,908 Accumulated deferred income taxes 1,929 1,415 Regulatory liabilities:

Accrued asset removal costs 1,982 1,902 Storm and property insurance reserve 327 Asset retirement obligation regulatory expense difference 195 180 Unamortized investment tax credits 86 100 Other 141 160 Other 714 607 Total other liabilities and deferred credits 7,035 6,599 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES 19,311 17,817 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2003 Form 10-K for FPL Group and FPL.

8

FLORIDA POWER& LIGHT COMPANY*.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (millions)

(unaudited)

Nine Months Ended September 30, 2004 2003 586 622 CASH FLOWS FROM OPERATING ACTIVITIES Net Income

-Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization Nuclear fuel amortization Storm-related costs, net of insurance reimbursements Deferred income taxes and related regulatory credit Cost recovery clauses and franchise fees Changes In operating assets and liabilities:

Customer receivables Other receivables Material, supplies and fossil fuel inventory Other current assets Deferred pension cost Accounts payable '

Customers' deposits Interest, income taxes and other taxes Other current liabilities Other liabilities Other - net Net cash provided by operating activities 653 51 (153) 489 76 (105)

(86) 52 (16)

(74) 131 32

. (45)

(20) 47 26 1,644 632

' 17 168 (353)

(253) 13 23 (19)

(74) 129 27

' 310 6:

• (14) 44 1 278 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures Nuclear fuel purchases Contributions to special use funds Other-net Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Issuances of preferred stock Issuances of long-term debt Retirements of long-term debt Net change in short-term debt Capital contributions from FPL Group, Inc.

Dividends Net cash provided by (used in) financing activities (980)..

'. (946)

(74)

(13)'

(104)

(130) 1 (1,157)

.- (1,089)

';'I.'

20 236

-(173)

(523)

(440) 47 4

51 585 (164)

(445) 600 (534) 42 231 S 231 Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES

. Additions to capital lease obligations Additions to debt through adoption of FIN 46 S

S 41:

164 This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2003 Form 1 O-K for FPL Group and FPL.

' I 9

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the 2003 Form 10K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior years consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period will not give a true indication of results for the year.

1. Employee Retirement Benefits FPL Group sponsors a noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. In addition, FPL Group sponsors a substantially contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries, meeting certain eligibility requirements who elect participation at the time of retirement.

The following table provides the components of net periodic benefit (income) cost for the plans:

Pension Benefits Other Benefits Pension Benefits Other Benefits Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended September 30, September 30, September30, September 30, 2004 2003 2004 2003 2004 2003 2004 2003 (millions) servicecost 13 13 5 2

2 39 385 6

S 5

Interest cost 21 21 7

7 62 62

.20 21 Expectedreturnon planassets (52)

(50)

(1)

(1)

(155)

(149)

(3)

(3)

Amortiationoftransition(asset)obligation (6)

(6) 1 1

(18)

(18) 3 3

Amortization of prior service benefit (1)

(1)

(4)

(4)

Amortizationof(gains)losses (6)

(8) 1 1

(I5)

(21) 3 4

Netperiodicbenefit(income)costatFPLGroup (31)

S (31)

S 10 S

10 S

(91)

S (92)

S 29 S

30 Net periodic benefit (imcome) cost at FPL (25)

S (25)

S 9

9 S

(74)

(75) 26 26 During the nine months ended September 30, 2004, FPL Group contributed approximately $14 million to the other benefits plan, with a total of approximately $20 million anticipated in calendar year 2004. FPL Group does not expect to make any contributions to the pension plan in calendar year 2004. By the end of 2004, FPL Group plans to transfer up to $25 million of pension plan assets to fund claims associated with retiree medical benefits, as allowed by current tax law.

In December 2003, the Medicare Prescription Drug, Improvement and Modemization Act of 2003 (Act) was signed into law. The Act introduces a voluntary prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care plans that provide at least an actuarially equivalent benefit. The Department of Health and Human Services (HHS) is expected to issue regulations that define actuarial equivalence later this year. As a result of this Act, in May 2004, the Financial Accounting Standards Board (FASB) issued Staff Position FAS 106-2, 'Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Under Staff Position FAS 106-2, benefit obligations are required to be remeasured and reported as an actuarial gain if enactment of the Act is determined to be a 'significant event' pursuant to the provisions of Financial Accounting Standards No. (FAS) 106, 'Employers' Accounting for Postretirement Benefits Other Than Pensions.' FPL Group considered the effects of the Act on a subset of the retiree population that FPL Group believes is certain to meet the HHS actuarial equivalence definition, when established, and determined those effects not to be a significant event. Consequently, a remeasurement of the other benefits obligation was not performed. In the; absence of a definition of actuarial equivalency, FPL Group was unable to conclude if the Act would have a significant effect on benefit obligations related to the remaining retiree population. FPL Group will remeasure the other benefits obligation when HHS establishes actuarial equivalency definitions if it is determined that enactment of the Act is significant to the other benefits obligation.

2. Derivative Instruments Derivative instruments, when required to be marked to market under FAS 133, 'Accounting for Derivative Instruments and Hedging Activities,' as amended, are recorded on FPL Group's and FPL's consolidated balance sheets as either an asset or liability (in derivative assets, other assets, other current liabilities and other liabilities) measured at fair value. FPL Group and FPL use derivative instruments (primarily forward purchases and sales, swaps, options and futures) to manage the commodity price risk inherent in fuel and electricity transactions, as well as to optimize the value of power generation assets. At FPL, substantially all changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses are passed through the fuel and purchased power cost recovery clause (fuel clause) and the capacity cost recovery clause (capacity clause). For FPL Group's non-rate regulated operations, predominantly FPL Energy, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized net in operating revenues; fuel purchases and sales are recognized net in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied.

10

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited),

Unrealized mark-to-market gains (losses) on derivative transactions for both consolidated subsidiaries and equity method investees are as follows:

Consolidated subsidiaries Equity method investees

3. Comprehensive Income FPL Group's comprehensive income is as follows:

Net income of FPL Group Net unrealized gains (losses) on commodity hedges:

Effective portion of net unrealized losses (net of S14 and S10 tax benefit, respectively)

Reclassification from OCI to net income (net of $0.4 tax expense and $8 tax benefit, respectively)

Net unrealized gains on available for sale securities (net of S0.4 tax expense)

Net unrealized losses on interest rate hedges (net of $3 and $4 tax benefit, respectively)

Comprehensive income of FPL Group Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 (millions)

(26) 16

$.- (27)

(2) 4 S

(1) 18 16 Three Months Ended September 30, 2004 2003 (millions) 320 331 (22)

(16)

1:

v (12)

,1 4) 295 9(5)

S 299 Nine Months Ended September 30, 2004 2003 (millions)

Net income of FPL Group Net unrealized gains (losses) on commodity hedges:

Effective portion of net unrealized gains (losses)

(net of $35 tax benefit and $17 tax expense, respectively)

Reclassification from OCI to net income (net of $0.5 and

$23 tax benefit, respectively)

Net unrealized gains (losses) on available for sale securities (net of $0.4 tax benefit and $6 tax expense, respectively)

Net unrealized gains (losses) on interest rate hedges (net of S1 715

, I :

1) 745 27 (36) 9 tax expense and $3 tax benefit, respectively) 2 (5)

Comprehensive income of FPL Group 5 661 740 At September 30, 2004, FPL Group had cash flow hedges with expiration dates through December 2010 for energy contract derivative Instruments and interest rate cash flow hedges with expiration dates through December 2017. Approximately $26 million of losses included in FPL Group's accumulated other comprehensive income at September 30, 2004 will be reclassified into earnings within the next 12 months as either the hedged fuel is consumed, electricity Is sold or interest payments are made, and assume no change in fuel prices, power prices or interest rates, respectively. Accumulated other comprehensive income (loss) is separately displayed on the condensed consolidated balance sheets of FPL Group.

4. Stock-Based Compensation Effective January 1, 2004, FPL Group adopted the fair value recognition provisions of FAS 123, 'Accounting for Stock-Based Compensation. FPL Group selected the modified prospective method of adoption described in FAS 148, 'Accounting for Stock-Based Compensation-Transition and Disclosure. Under that method, stock-based. employee compensation cost recognized in 2004 is the same as that which would have been recognized had the fair value recognition provisions of FAS 123 been applied from its original effective date. Prior to 2004, FPL Group accounted for its stock-based compensation plans under the intrinsic value based method as permitted by FAS 123.

11

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

The following table illustrates the effect on net income and earnings per share of common stock as it FPL Group's compensation expense had been determined using the fair value based method in each period:

Three Months Ended Nine Months Ended September 30, September 30.

2004 2003 2004 2003 (millions, except per share amounts)

Net Income, as reported Add: total stock-based employee compensation expense included in reported net income, net of related income tax effects Deduct: total stock-based employee compensation expense determined under fair value based method, net of related income tax effects Pro forma net income Earnings per share of common stock:

Basic - as reported Basic - pro forma Assuming dilution - as reported Assuming dilution - pro forma S

320 S

331 S

715 745 5

2 13 8

(13)

(13)

S 320 S

329 S 715 740 1.78 1.86

$ 3.99 4.20 S

1.78 S

1.85 S 3.99 S

4.17 1.76 S

1.86 5 3.97 S

4.19 1.76 1.85

$ 3.97 4.16

5. Earnings Per Share of Common Stock The reconciliation of FPL Group's basic and diluted earnings per share of common stock is shown below:

Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 (millions, except per share amounts)

Numerator - net income 320 S

331 S 715 745 Denominator Weighted-average number of common shares outstanding - basic Restricted stock, performance share and shareholder value awards, options and equity units '

Weighted-average number of common shares outstanding - assuming dilution Earnings per share of common stock:

Basic Assuming dilution 179.6 1.5 177.8 0.5 179.0 177.3 1.2 0.5 181.1 178.3 180.2 177.8 1.78 S

1.86 S 3.99 4.20 S

1.76 S

1.86 S 3.97 S

4.19 Perfomiance share awards and shareholder value awards are included in diluted weighted-average number of common shares outstanding based upon what would be issued it the end of the reporting period was the end of the term of the award. Restricted stock, performance share awards, shareholder value awards, options and equity units (known as Corporate Units) are included in diluted weighted-average number of common shares outstanding by applying the treasury stock method.

Common shares issuable upon the exercise of stock options, which were not included in the denominator above due to their antidilutive effect, were approximately 0.4 million and 0.7 million for the three months ended September 30, 2004 and 2003, respectively, and approximately 0.4 million and none for the nine months ended September 30, 2004 and 2003, respectively.

6. Variable Interest Entities Effective March 31, 2004, FPL Group and FPL completed the adoption of FASB Interpretation No. (FIN) 46, as revised (FIN 46R). FIN 46R requires the consolidation of entities which are determined to be variable interest entities (VlEs) when the reporting company determines that it will absorb a majority of the VIE's expected losses, receive a majority of the VIE's residual returns, or both. The company that is required to consolidate the VIE is called the primary beneficiary. Conversely, the reporting company would be required to deconsolidate VlEs that are currently consolidated when the company is not considered to be the primary beneficiary. Variable interests are contractual, ownership or other monetary interests in an 12

.FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited) entity that change as the fair value of the entity's net assets, excluding variable interests, change. An entity Is considered to be a VIE when Its capital is insufficient to permit it to finance its activities without additional subordinated financial support or Its equity Investors, as a group, lack the characteristics of having a controlling financial interest.

FPL has Identified two potential VIEs (Projects), both of which are considered qualifying facilities (QFs) as defined by PURPA. PURPA requires FPL to purchase the electricity output of the Projects. As a result, FPL has entered Into purchased

,power agreements (PPAs) with these OFs to purchase substantially all of the Projects' electrical output over, a substantial portion of their estimated useful lives; For each megawatt-hour (mwh) provided, FPL pays a per mwh price (energy payment) based upon FPLs avoided cost, which is determined at the time the PPAs are executed. With regard to the Projects, FPLs avoided cost Is based on the cost of avoiding the construction and operation of a coal unit. The energy component is primarily based on the cost of coal at an FPL jointly-owned coal-fired facility. The avoided cost is the incremental cost to the utility of the electric energy or capacity,-or both, which is avoided by neither generating the electricity nor purchasing It from another source. The Projects have capacities of 136 megawatts (mw) and 250 mw. After making exhaustive efforts, FPL was unable to obtain the Information from the Projects necessary to determine whether the Projects are VIEs or whether FPL Is the primary beneficiary of either or both of the Projects. The PPAs with the Projects contain no provisions which legally obligate the Projects to release this Information to FPL. The energy payments paid by FPL will fluctuate as coal prices change. This does not expose FPL to losses since the energy payments paid by FPL to the Projects are passed on to FPLs customers through the fuel clause as approved by the FPSC. Notwithstanding the fact that FPL's energy payments are recovered through the fuel clause, if one or both of the Projects were determined to be a VIE, the absorption of some of the Projects' fuel price variability might cause FPL to be the primary beneficiary. During the three'and nine months ended September 30, 2004, FPL purchased 690,646 mwh and 1,952,556 mwh, respectively, from the Projects at a total cost of approximately S54 million and $159 million, respectively. This compared to 791,027 mwh and 2,043,403 mwh at a total cost of approximately

$52 million and $157 million for the three and nine months ended September 30, 2003, respectively. 'FPL will continue to make exhaustive efforts to obtain the necessary Information from the Projects in order to determine if the Projects are VlEs and, if so, whether FPL is the primary beneficiary.

In March 2004, a trust created by FPL Group sold 12 million shares of 5 718% preferred trust'securities to the public and common trust securities to FPL Group. The trust is considered a VIE because FPL Group's investment through the common trust securities' is not considered equity at risk in accordance with FIN 46R. The proceeds from the sale of the preferred and common trust securities were used to buy 5.7/8% junior subordinated debentures maturing in March 2044, from FPL Group Capital Inc (FPL Group Capital). The trust exists only to issue its preferred trust securities and common trust securities and to hold the junior subordinated debentures of FPL Group Capital as trust assets. Since FPL Group, as the common security holder, Is not considered to have equity at risk and will therefore not absorb any variability of the trust, FPL Group is not the primary beneficiary and 'does not consolidate the trust in accordance with FIN 46R. FPL Group Includes the junior subordinated debentures issued by FPL Group Capital on its condensed consolidated balance sheets. See Note 9.

FPL Group and FPL expect additional implementation guidance to be issued regarding FIN 46R and are unable to determine what effect, if any, this additional guidance might have on FPL Group's and FPL's financial statements.

7. Investments Partnerships and Joint Ventures - During the first quarter of 2004, FPL Energy recorded a net gain of approximately $52 million ($31 'million after tax) related to the termination of ra gas supply contract and a steam agreement at one of Its investments' In joint' ventures. These agreements were terminated in connection with an amended power purchase agreement that allows the Investee to source power from the wholesale market.

Also during the first quarter of 2004, FPL Energy recorded an Impairment loss of approximately $50 million ($30 million after tax) to write down its investment in a combined-cycle power plant in Texas to Its fair value as a result of agreeing to sell its interest in the project. The sale was completed in the second quarter of 2004.

The results of the above transactions are reflected In equity in earnings of equity method investees In FPL Group's condensed consolidated statements of income for the nine months ended September 30, 2004.

Other-In June 2004, an indirect subsidiary of FPL Group sold a note receivable from a limted partnership of which Olympus Communications,^L.P. (Olympus) is a general partner. Olympus is an indirect subsidiary of Adelphia Communications Corporation.(Adelphia). In June 2002, Adelphia, Olympus and the limited partnership filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code (Chapter 11), and the note, which was due July 1, 2002,-Is In default. The note receivable, which was previously recorded in other investments in FPL Group's condensed consolidated balance sheet, was sold for its net book value of approximately S127 million, including accrued interest through the date of the commencement of the Chapter 11 proceedings, less related transactions costs which were not significant.

13

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

8. Regulatory Matters Storm Reserve Deficiency-During the third quarter of 2004, FPL was impacted by Hurricanes Charley, Frances and 'Jeanne, each of which did major damage in parts of FPL's service territory and collectively resulted in over 5.4 million' power outages with approximately three-quarters of FPL's customers losing power during at least one hurricane. Damage to FPL property was primarily to the transmission and distribution systems. Although FPL has not completed' the final accounting of all restoration costs, FPL accrued restoration costs during the quarter ended September 30, 2004 of approximately $710 million, which are expected to be recoverable from the storm and property insurance reserve (storm reserve). The unpaid portion of these accrued costs is included in.other current liabilities on FPL Group's and FPL's condensed'consolidated balance sheets. In addition, based on assessments as of September 30, 2004, FPL'estimated it had sustained other property losses totaling approximately $108 million, which has been or Is expected to be recovered from Insurance carriers. The costs recoverable from the storm reserve exceeded the balance of the storm reserve by approximately $361 million at September 30, 2004. This deficiency has been deferred pursuant to an FPSC order and recorded as a regulatory asset on FPL Group's and FPL's condensed consolidated balance sheets. FPL intends to seek recovery of. the $361 million regulatory asset. FPL is in the process of reviewing and finalizing its cost estimates associated with the three hurricanes. The exact timing and manner of recovery have yet to be determined. The FPSC has the right to review FPL's storm charges for reasonableness and prudence. The funds set aside to cover the cost of FPL's storm damage were reclassified to a current asset on FPL Group's and FPL's condensed consolidated balance sheets.

2002-2005 Rate Agreement - In October 2004, the Florida Supreme Court affirmed the FPSC's approval of the 2002-2005 rate agreement, which had been appealed by the South Florida Hospital and Healthcare Association and certain hospitals in April 2002. The appellants have until November 5, 2004 to request a rehearing.

9. Debt and Preferred Stock Long-term Debt - In January 2004, FPL issued $240 million principal amount of 5.65% first mortgage bonds maturing in February 2035. The proceeds were used to repay a portion of its short-term borrowings and for other corporate purposes.

In March 2004, FPL Group Capital sold $309 million of 5 7/8% junior subordinated debentures maturing in March 2044, which are included in long-term debt on FPL Group's condensed consolidated balance sheets. The proceeds were used to repay a portion of commercial paper issued to fund investments by FPL Group Capital in independent power projects. The junior subordinated debentures were purchased by an unconsolidated 100%-owned finance subsidiary of FPL Group using proceeds from the March 2004 sale by that finance subsidiary of $300 million of preferred trust securities to the public and $9 million of common trust securities to FPL Group. FPL Group has fully and unconditionally guaranteed the junior subordinated debentures and the preferred trust securities.

In January 2004, FPL Group Capital entered into a variable interest rate swap agreement, which expires In March 2005, to protect $200 million of its 1.875% debentures maturing in March 2005 against changes in fair value due to changes in interest rates. In April and May 2004, FPL entered into two S250 million variable interest rate swap agreements to protect $500 million of its 6.875% first mortgage bonds maturing in December 2005 against changes in fair value due to changes in interest rates. Both of the swap agreements expire in December 2005. Also in April 2004, a subsidiary of FPL Energy entered into an interest rate swap agreement, which expires in December 2017, whereby the FPL Energy subsidiary receives the London InterBank Offered Rate (LIBOR) and pays a fixed rate of 3.845% on $32 million of its variable rate debt maturing in December 2017. In October 2004, FPL Group Capital entered into several variable interest rate swap agreements, which expire in April 2006, to protect S500 million of its 3 1/4% debentures maturing in April 2006 against changes in fair value due to changes in interest rates.

Preferred Stock - In January 2004, FPL sold 200,000 shares of 4 1/2% Series V preferred stock with an aggregate par value of $20 million to FPL Group.

10. Commitments and Contingencies Commitments - FPL Group and its subsidiaries have made commitments in connection with a portion of their projected capital expenditures. Capital expenditures at FPL consist of the cost for construction or acquisition of additional facilities and equipment to meet customer demand, as well as capital improvements to and maintenance of existing facilities. At FPL Energy, capital expenditures include, among other things, the construction of a gas-fired power plant and wind projects, and the procurement of nuclear fuel (including capitalized interest). FPL FiberNet, LLC's (FPL FiberNet) capital expenditures primarily include costs to meet customer specific requirements and sustain its fiber-optic network.

14

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

At September 30, 2004, planned capital expenditures for the remainder of 2004 through 2008 are estimated to be as follows:

2004 2005 2006 2007 2008 Total Generation: A'

.. New" A Existing Transmission and distribution Nuclear fuel.

General and other Total (mlllons).

S 70

. $ -300 215 480 180 700 5

75

- 60.

150 S 530

$1,705

.S 265 360 690 80 175 S 1,570

• S 105 450 700 100 180 S 1,535 275 715 80 160

$ 1,230

$ 740 1,780

• 2,985 340 725 S 6,570 FPL Energy:

Wind {

85 170 5

5 5

$ 270

Gas, 40 15 5

60 Nuclear fuel and other 50 50 115 95 60 370 Total S 175 S 235 S 125 S 100 65

$ 700 FPL FiberNet S

10 10 10 10 40

' Includes allowance for funds used during construction (AFUDC) of approximately $20 million, $53 million, $36 million and $39 million in 2004,2005,2006 and 2007, respectively.

0') Includes generating structures, transmission interconnection and integration, licensing and AFUDC.

° FPL Energys capital expenditures for new wind projects are estimated through 2005. when the production tax credits are scheduled to expire, and assume the addition of 241 mw which are currently under construction. See Part II - Item 5 (v).

In addition to estimated capital expenditures listed above,, FPL and FPL Energy have long-term contracts related to purchased powerand/or fuel (see Contracts below). At September 30,' 2004, FPL Energy had approximately $1.1 billion in firm commitments primarily for natural gas transportation and storage, firm transmission service, nuclear fuel and a portion of its capital expenditures. Additionally, during 2003, a subsidiary of FPL Group Capital committed to lend up to $250'million under a secured loan to a third party, which matures no later than June 30, 2006. At September 30, 2004, $126 million had been drawn on under the loan. FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most payment obligations under FPL Group Capital's debt.

FPL Group and FPL each account for payment guarantees and related contracts, for which it or a subsidiary is the guarantor, under FIN 45, 'Guarantor's Accounting and Disclosure Requirements for Guarantees' Including Indirect Guarantees of Indebtedness of Others," which requires that the fair value of guarantees provided to unconsolidated entities entered into after December 31, 2002, be recorded on the balance sheet. At September 30, 2004, subsidiaries of FPL Group, other than FPL, have guaranteed debt service payments relating to agreements that existed at December 31, 2002. The term of the guarantees is equal to the term'of the related debt, with remaining terms ranging from 1 year to 14 years. The maximum potential amount of future payments that could be required under these guarantees at September 30, 2004 was approximately $14 million. At September 30, 2004, FPL Group did not have any liabilities recorded for these guarantees' In certain Instances, FPL Group can seek recourse from third parties for 50% of any amount paid under the guarantees. Guarantees entered Into subsequent to December 31, 2002, and the related fair value, were not material as of September 30; 2004.

FPL Energy has guaranteed certain performance obligations of a power plant owned by'a wholly-owned subsidiary as part of a power purchase agreement that expires in 2027. Under this agreement, the subsidiary could incur market-based liquidated damages for failure to meet contractual minimum outputs. 'In addition, certain'subsidiaries of FPL'Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result in the FPL Energy subsidiary incurring' specified liquidated damages. Based on past performance of these and similar:projects and current forward prices, management believes that the exposure associated with these guarantees is not material.-

An FPL Energy subsidiary is committed to purchase oil and gas inventory remaining In certain storage facilities at December 31, 2005 at its weighted-average cost. At September 30, 2004, the subsidiary's commitment Is estimated to be from $0 to approximately $78 million, based on a potential range of zero to full storage volume at the current average forward price of oil and gas.

Contracts -

FPL has entered into long-term purchased power and fuel contracts. FPL is obligated under take-or-pay purchased power contracts with JEA and with subsidiaries of The Southern Company (Southern subsidiaries) to pay for approximately 1,300 mw of power through mid-2010 and 381 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 2005 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 subsidiaries' contract is subject to minimum quantities. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. FPL has various agreements with several electricity suppliers to

' 15

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited) purchase an aggregate of up to approximately 1,500 mw of power with expiration dates ranging from 2004 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 contracts for natural gas storage, and the transportation and supply of natural gas, coal and oil with various expiration dates through 2028.

FPL Energy has contracts primarily for the supply, transportation and storage of natural gas and firm transmission service with expiration dates ranging from 2004 through 2033. FPL Energy also has several contracts for the supply, conversion, enrichment and fabrication of Seabrook Station's (Seabrook) nuclear fuel with expiration dates ranging from 2004 to 2014.

The remaining required capacity and minimum payments under these contracts as of September 30, 2004. are estimated to be as follows:

2004 2005 2006 2007 2008 Thereafter FPU (millions)

Capacity payments: '

JEA and Southem subsidiaries a' 50

$ 190

$ 200

$ 200

$ 200

$ 920 Qualifying facilities i 90

$ 360

$ 310

$ 320

$ 320

$ 4,000 Other electricity suppliers 'l 20 80

$ 70 10 Minimum payments, at projected prices:

Southern subsidiaries-energy a' 15 60 60 60 60 90 Natural gas, including transportation and storage°

$ 465

$1,800

$ 820

$ 280

$ 255

$ 2,910 Coa l' 10 45 35 30 20 O'l 160 FPL Energy 35 65 50 50 50 730

' capacity payments under these contracts, the majority of which is recoverable through the capacity clause, totaled $182 million and $174 million for the three months ended September 30, 2004 and 2003, respectively, and $509 million and $490 million for the nine months ended September 30. 2004 and 2003.

respectively.

(b) Energy payments under these contracts, which are recoverable through the fuel clause, totaled $99 million for both the three months ended September 30, 2004 and 2003 and $271 million and S263 million for the nine months ended September 30, 2004 and 2003, respectively.

( Recoverable through the fuel clause.

In addition, in August 2004, FPL entered into long-term purchased power agreements with the Southem subsidiaries for approximately 955 mw of power from mid-2010 through 2015. The firm purchased power agreements provide for fixed capacity and variable energy payments. Energy payments will be based on actual power taken under the agreements. In addition, FPL will be obligated to pay the Southern subsidiaries for firm gas transportation. These agreements are contingent upon certain events, including approval by the FPSC. If approved, the fixed capacity payments and firm gas transportation commitments under these agreements, which are estimated to be approximately $100 million per year, will be recoverable through the capacity and fuel clauses.

Insurance-Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan. In accordance with this act, FPL Group maintains $300 million of private liability insurance per site, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $518 million (S414 million for FPL) per incident at any nuclear reactor in the United States, payable at a rate not to exceed $52 million ($41 million for FPL) per incident per year. FPL Group and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook and St. Lucie Unit No.2, which approximates $12 million and $15 million per incident, respectively. The Price-Anderson Act expired on August 1, 2002 but the liability limitations did not change for plants, including FPL's four nuclear units and Seabrook, with operating licenses issued by the NRC prior to August 1, 2002.

FPL Group participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage per occurrence per site for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL Group also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service for an extended period of time because of an accident. In the event of an accident at one of FPL Group's or another participating insured's nuclear plants, FPL Group could be assessed up to $107 million ($84 million for FPL) in retrospective premiums. FPL Group and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook and St. Lucie Unit No. 2, which approximates $2 million and $3 million, respectively.

In the event of a catastrophic loss at one of FPL Group's nuclear plants, the'amount of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses, to the extent not recovered through rates in the case of FPL, would be borne by FPL Group and FPL and could have a material adverse effect on FPL Group's and FPLs financial condition and results of operations.

16

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY, NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

FPL self-insures transmission and distribution property due to the high cost and limited coverage available from third-party insurers. As approved by the FPSC, FPL maintains a storm reserve for uninsured property storm damage or assessments' under the nuclear insurance program. However, at September 30, 2004, FPL had a $361 million storm reserve deficiency as a result of restoration costs associated with the three hurricanes' that struck FPLs service territory during the'third quarter of 2004. See Note 8 - Storm Reserve Deficiency. FPL Group Is 'also self-insured for FPL FiberNet's fiber-optic cable located throughout Florida'.

Litigation-In 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA),

brought an action against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Clean Air Act. In May 2001, the EPA amended its complaint. The amended complaint alleges, among other things, that Georgia Power' Company constructed and Is continuing to operate Scherer Unit No. 4, in which FPL owns a 76%

interest, without obtaining proper permitting, and without complying with performance and technology standards as required by the Clean Air Act. 'It also alleges that unspecified major modifications have been made at Scherer Unit No. 4 that require its compliance with the aforementioned Clean Air Act provisions. The EPA seeks injunctive relief requiring the Installation of best available control technology and civil penalties of up to S25,000 per day for each violation from an unspecified date after June 1, 1975 through January 30, 1997 and $27,500 per day for each violation thereafter. The EPA further revised its civil penalty rule in February 2004, such that the maximum penalty is S32,500 per day for each violation after March 15, 2004. Georgia Power Company has answered the amended complaint, asserting that it has complied with all requirements of the Clean Air Act, denying the plaintifs allegations of liability, denying that the plaintiff Is'entitled to any of the relief that it seeks and raising various other defenses. In June 2001, a federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery in several Clean Air Act cases that was filed with a Multi-District Litigation (MDL) panel. In August 2001, the MDL panel denied the motion for consolidation. In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery.. Georgia Power Company opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals ruled on the Tennessee Valley Authority's (TVA) appeal of an EPA administrative compliance order relating to legal Issues that are also central to this case. In August 2002, the federal district court denied without prejudice the EPAs motion to reopen. In June 2003,'the Eleventh Circuit issued its order dismissing the TVAs appeal because it found the provision of the Clean Air Act allowing the EPA to issue binding administrative compliance orders was unconstitutional, and hence found that the TVA order was a non-final order that courts of appeal do not have jurisdiction to review. In September 2003, the Eleventh Circuit denied the EPA's motion for rehearing. In May 2004, the U.S. Supreme Court denied the EPA's petition for review of the Eleventh Circuit order. The EPA has not yet moved to reopen the Georgia Power Company case.;

In 2001, J. W. and Ernestine M. Thomas, Chester and Marie Jenkins (since substituted for by Hazel and Lamar Jenkins), and Ray Norman and Jack Teague, as Co-Personal Representatives on behalf of the Estate of Robert L. Johns, served FPL Group, FPL, FPL FiberNet, FPL Group Capital and FPL Investments, Inc. (FPL Investments) as defendants In a civil action filed in the Florida circuit court. This action is purportedly on behalf of all property owners in Florida (excluding railroad and public rights of way) whose property is encumbered by easements in favor of FPL, and on whose property defendants have installed or intend to install fiber-optic cable which defendants currently lease, license or convey or intend to lease, license or convey for non-electric transmission or distribution purposes. The lawsuit alleges that FPLs easements do not permit the installation and use of fiber-optic cable for general communication purposes. -The plaintiffs have asserted claims for unlawful detainer, unjust enrichment and constructive trust and seek injunctive relief and compensatory damages. 'In May 2002, plaintiffs filed an amended complaint, adding allegations regarding the installation of wireless communications equipment on some easements, and adding a claim for declaratory relief. Defendants filed an answer and affirmative defenses to 'the amended complaint in August 2002. Motions for summary judgment by FPL Group, FPL Group Capital and FPL Investments have been granted, and they have been dismissed from this lawsuit. The court has not set a time for a hearing on whether this case will proceed as a class action.

In August 2001, Florida Municipal Power Agency (FMPA) filed with the U.S. Court of Appeals for the District of Columbia (DC Circuit) a petition for review asking the DC Circuit to'reverse and remand orders of the FERC denying FMPAs request for credits for transmission facilities owned by FMPA' members. The transmission credits sought by FMPA' Would offset the transmission charges that FPL bills FMPA for network transmission service to FMPA's member cities. FMPA member cities have been taking network transmission service under FPL's open access transmission tariff since" 1996.. In the orders appealed by FMPA, FERC ruled that FMPA would be entitled to credits for any FMPA facilities that were mintegrated with the FPL transmission system. Based on the evidence submitted, FERC concluded that none of the FMPA facilities met the integration test and, therefore, FMPA was not entitled to credits against FPLs charges fortransmission service. In January 2003, the DC Circuit upheld FERCs order denying FMPA -credits for its facilities; in March 2003, the DC Circuit denied FMPA's rehearing request of the DC Circuit's decision; and in October 2003, the U.S. Supreme Court denied FMPA's petition for review of the DC Circuit's decision.

FMPA also has requested that FERC decide the same crediting issue in a separate FERC proceeding. That proceeding dates back to a filing by FPL in 1993 of a comprehensive restructuring of its then-existing tariff structure. All Issues in that case were settled 'in September 2000 except for three issues reserved by FMPA: (i) the crediting issue, (ii) treatment of behind-the-meter generation and load ratio pricing for network integration transmission service, and (iii) exclusions from FPL's transmission rates of the costs of FPL's facilities that failed to meet the same integration test that was applied to FMPA's 17

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited) facilities with respect to the crediting issue. In December 2003, FERC issued an order addressing the three reserved issues. With respect to the crediting issue, FERC stated that it had previously determined that FMPA was not entitled to credits for its facilities in the related proceeding discussed above and saw no persuasive reason to revisit that determination in this proceeding. Regarding the issue of behind-the-meter generation, FERC stated that it had addressed the issue of load ratio pricing for network integration transmission service and the related issue of behind-the-meter generation in Order Nos.

888 and 888-A, and saw no persuasive reason to revisit that determination in this proceeding. With respect to the third issue, FERC directed FPL to make a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same integration test applied to the FMPA facilities.

In January 2004, FMPA requested a 'conditional rehearing on the Commission's failure to order rate credits solely in the event that Commission does not adequately reduce FPLs rate base to achieve comparability," and challenging FERC's determination not to revisit the issue of behind-the-meter generation and load ratio pricing for network integration transmission service. In March 2004, FERC issued an order denying FMPA's rehearing request. In April 2004, FMPA petitioned the DC Circuit for review of FERC's December 2003 order and March 2004 order. FMPA filed its initial brief in that proceeding on October 1, 2004. FMPA's arguments are limited to the issue of behind-the-meter generation and load ratio pricing for network integration transmission service in instances when, according to FMPA, FPL cannot provide transmission service because of "physical transmission limitations." FERC's reply brief is due on December 1, 2004. FPL has been granted party status as an intervenor, and its brief is due on December 16, 2004. Oral argument is scheduled for March 22, 2005. FPL estimates its exposure for refunds to FMPA on this issue to be approximately $1 million at September 30, 2004.

In May 2004, FPL made a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same Integration test that was applied to the FMPA facilities. Pursuant to this filing, 1.63% of FPL's transmission facilities do not satisfy the integration standard and FPL's current network transmission rate would be reduced by $0.02 per kilowatt (kw) per month, resulting in a refund obligation to FMPA of approximately $1 million at September 30, 2004. In June 2004, FMPA filed a protest to FPL's compliance filing, which protest would exclude approximately 30% of FPL's transmission facilities and reduce FPLs current network transmission rate by approximately $0.41 per kw per month, potentially resulting in a refund obligation to FMPA of approximately S25 million at September 30, 2004. Any reduction in FPLs network service rate would also apply effective January 1, 2004 to Seminole Electric Cooperative Inc. (Seminole), FPL's other network customer. The refund obligation to Seminole at September 30, 2004 would be approximately S0.2 million under FPL's filing and approximately $3 million based on FMPA's position. Possible next steps by the FERC include ruling on the matter based on the record, setting the matter for hearing before an administrative law judge (AU), or referring the matter to an AU for settlement discussions.

In 1995 and 1996, FPL Group, through an indirect subsidiary, purchased from Adelphia 1,091,524 shares of Adelphia common stock and 20,000 shares of Adelphia preferred stock (convertible into 2,358,490 shares of Adelphia common stock) for an aggregate price of approximately $35,900,000. On January 29, 1999, Adelphia repurchased all of these shares for

$149,213,130 in cash. On June 24, 2004, Adelphia, Adelphia Cablevision, L.L.C. and the Official Committee of Unsecured Creditors of Adelphia filed a complaint against FPL Group and its indirect subsidiary in the U.S. Bankruptcy Court, Southern District of New York. The complaint alleges that the repurchase of these shares by Adelphia was a fraudulent transfer, in that at the time of the transaction Adelphia (i) was insolvent or was rendered insolvent, (ii) did not receive reasonably equivalent value in exchange for the cash it paid, and (iii) was engaged or about to engage in a business or transaction for which any property remaining with Adelphia was an unreasonably small capital. The complaint seeks the recovery for the benefit of Adelphia's bankruptcy estate of the cash paid for the repurchased shares, plus interest. FPL Group believes that the complaint is invalid because, among other reasons, Adelphia will be unable to demonstrate that (i) Adelphia's repurchase of shares from FPL Group, which repurchase was at the market value for those shares, was not for reasonably equivalent value, (ii) Adelphia was insolvent at the time of the repurchase, or (iii) the repurchase left Adelphia with unreasonably small capital.

In February 2003, Scott and Rebecca Finestone brought an action on behalf of themselves and their son Zachary Finestone in the U.S. District Court for the Southern District of Florida alleging that their son has developed cancer (neuroblastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The complaint includes counts against FPL for strict liability for allegedly engaging in an ultra-hazardous activity and for alleged negligence in operating the plant in a manner that allowed emissions of the foregoing materials and failing to limit its release of nuclear fission products as prescribed by federal and state laws and regulations. The plaintiffs seek damages in excess of $1 million. After initially denying FPL's motion to dismiss, the court granted it with respect to plaintiffs' count for strict liability. The court has also granted FPL's motion for a ruling that the only duty owed by FPL to the plaintiffs is established exclusively by federal regulations and not general negligence standards. The plaintiffs subsequently filed an amended complaint on' the same factual grounds, including a count against FPL for strict liability, which appears identical in all material elements to the strict liability claim in plaintiffs' initial complaint, and counts against FPL for alleged negligence based on duties allegedly established by federal and state laws and regulations. FPL has again moved to dismiss the strict liability claim. FPL has further moved to dismiss all negligence claims that are not based on the duty that the court has recognized governs this action. FPL has answered the one count in the amended complaint that is based on that duty, denying any liability. Plaintiffs have also moved to vacate or modify the court's order establishing the duty owed. FPL has opposed that motion, which remains pending. Discovery is proceeding.

18

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

In May 2003, Tish Blake and John Lowe, as personal representatives of the Estate of Ashton Lowe, on behalf of the estate and themselves, as surviving parents, brought an action in the U.S. District Court for the Southern District of Florida alleging that their son developed cancer (medulo-blastoma) as a result of the release and/or dissipation Into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials,'including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The allegations, counts and damages demanded in the complaint are virtually identical to those contained in the Finestone lawsuit described above. As in the Finestone case, the court has granted FPLs motion to dismiss the plaintiffs' count for strict liability. Similarly, the court has also granted FPLs motion for a ruling that the only duty owed by FPL to the plaintiffs is established exclusively by federal regulations and not general negligence standards. The plaintiffs subsequently filed an amended complaint on the same factual grounds, Including a count against FPL for strict liability, which appears Identical in all material elements to the strict liability claim In plaintiffs' initial complaint, and counts against FPL for alleged negligence based on duties allegedly established by federal and state laws and regulations. FPL has again moved to dismiss the strict liability claim; FPL has further moved to dismiss all negligence claims that are not based on the duty that the court has recognized governs this action. FPL has answered the one count in the amended complaint that Is based on that duty, denying any liability. Plaintiffs have also moved to vacate or modify the court's order establishing the duty owed. FPL has opposed that motion, which remains pending. Discovery is proceeding.

In June 2003, Monty and Kathryn Wooldridge brought an action on behalf of themselves and their son, Kevin Allen Wooldridge, in the Circuit Court of the 9m Judicial Circuit In and for Orange County, Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, the American Dental Association, the Florida Dental Association, FPL and the Orlando Utilities Commission (OUC), alleging that their son has suffered toxic neurological effects from mercury poisoning. The sources of mercury exposure are alleged to be vaccines containing a preservative called thimerosal that were allegedly manufactured and distributed by the drug companies, mercury amalgam dental fillings, and emissions from FPL and OUC power plants in Florida, including Brevard County. The complaint includes counts against all defendants for civil battery and against FPL for alleged negligence in operating the plants such that the son was exposed to mercury and other heavy metals emissions. The damages demanded from FPL are for, injuries and losses allegedly suffered by the son as a result of his exposure to the plants' mercury emissions and the parents' alleged pain and suffering, medical expenses, loss of wages, and loss of their son's services and companionship. No amount of damages is specified. The court has granted the drug manufacturing and distribution companies' and the dental associations' motions to dismiss the complaint against them. The plaintiffs are appealingthose orders. FPL's motion to dismiss is pending.

In August 2003, Pedro C. and Emilia Roig brought an action on behalf of themselves and their son, Pedro Anthony Roig, in the Circuit Court of the '1 11h Judicial Circuit in and for Miami-Dade County, Florida (the state court), which was removed in October 2003 to the U.S. District Court for the Southern District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies and FPL, alleging that their son' has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in' the complaint with respect to FPL are virtually identical to those contained in the Wooldridge lawsuit described above. The U.S. District Court remanded the action back to the state court. All parties anticipate that the'drug manufacturing and distribution companies will move to dismiss the action. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until the state court rules'on those motions.

In December 2003,' Edward and Janis Shiflett brought an action on behalf of themselves and their son, Phillip Benjamin Shiflett, in the Circuit Court of the 18th Judicial Circuit In and for Brevard County, Florida (the state court), which was removed in January 2004 'to the U.S. District 'Court for the Middle District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, FPL and the OUC, alleging that their son has suffered toxic neurological effects from 'mercury poisoning. The allegations, counts and damages 'demanded In the complaint with respect to FPL are virtually identical to those contained in the Wooldridge and Roig lawsuits. FPL's motion to dismiss the complaint-was denied. The U.S. District Court 'subsequently remanded the action back to the state court. All parties anticipate that the drug manufacturing and distribution companies will move to dismiss action. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until the state court rules on those motions.,

In February 2604, Albert Litter Studios, Inc. instituted an action against FPL in the Circuit Court of the 11t lJudicial Circuit in and for Miami-Dade County, Florida, seeking damages on behalf of itself, and purportedly' on behalf of all other similarly situated commercial entities in Florida. The plaintiff asserts that FPLs intentional use of allegedly defective thermal demand meters has resulted in overcharging It and certain other commercial customers millions of dollars and constitutes an unfair and/or deceptive practice in violation of the Florida Deceptive and Unfair Trade Practices Act, breach of an implied contract, and breach of the duty of good faith and fair dealing. The complaint seeks damages in excess of $15,000, representing the amount of the alleged overcharges, interest, and such other relief as the court may order. FPL'moved to dismiss the case on the grounds that the FPSC has exclusive jurisdiction over this type of complaint. The court denied the motion on July 13, 2004. FPL has appealed the ruling. FPL's motion to stay the proceedings pending resolution of the'appeal was denied by the trial court. This order is being appealed by FPL as well.

FPL determined in 2002 that, based on sample testing of the approximately 3,900 1 V thermal demand meters in service, the demand component of Its IV meter population was exceeding allowable tolerance levels established byFPSC rules. In 2002, FPL proposed to replace and test all of the lV meters in service and to issue refunds, as appropriate, within certain parameters. FPL was given administrative approval from the FPSC staff to proceed with the replacement of the lV 19

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited) meters. By early 2003, all 1V meters had been replaced. Testing of all 1V meters disclosed that approximately 15% of the 3,900 meters were outside of allowed tolerances, with 10% under-registering and 5% over-registering electricity usage. In November 2003, the FPSC, as proposed agency action, approved a method for testing, the.. meters and calculating refunds. On December 10, 2003, Southeastern Utility Services, Inc., on behalf of several commercial customers, filed a protest to the proposed agency action and requested a hearing. Southeastern Utility Services, Inc. alleges that, among other things, the proposed method for computing the amount of the refund is flawed. Discovery is proceeding and a hearing has been set for November 4, 2004.

FPL Group and FPL believe that they have meritorious defenses to the pending litigation discussed above and are vigorously defending the lawsuits. Management does not anticipate that the liabilities, if any, arising from the proceedings would have a material adverse effect on the financial statements.

In January 2002, Roy Oorbeek and Richard Berman filed suit against FPL Group (as an individual and nominal defendant); all its current directors (except James L. Camaren, Michael H. Thaman and Frank G. Zarb); certain former directors; and certain' current and former officers of FPL Group and FPL (James L. Broadhead, Lewis Hay Ill, Dennis P. Coyle, Paul J. Evanson, Lawrence'J.

Kelleher, Armando J. Olivera, Thomas F. Plunkett and Antonio Rodriguez.). In March 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); all its current directors (except James L Camaren, Michael H. Thaman and Frank G. Zarb); certain former directors; and certain current and former officers of FPL Group and FPL (James L. Broadhead, Paul J. Evanson, Lewis Hay Ill, Dennis P. Coyle and Thomas F. Plunkett). In February 2003, Donald E. and Judith B. Phillips, represented by the same attorneys who represent Klein, filed suit in the same court against the same defendants as the Klein lawsuit (plus Lawrence J.

Kelleher). All three suits have been consolidated. In February 2004, by stipulation of the parties, FPL Group was removed as a defendant.

The lawsuits, taken together, allege that the proxy statements relating to shareholder approval of FPL Group's Long Term Incentive Plan (LTIP) and FPL Group's proposed, but unconsummated, merger with Entergy Corporation (Entergy) were false and misleading because they did not affirmatively state that payments made to certain officers under FPL Group's LTIP upon shareholder approval of the merger would be retained by the officers even if the merger with Entergy was not consummated and did not state that under some circumstances payments made pursuant to FPL Group's LTIP might not be deductible by FPL Group for federal income tax purposes. They also allege that FPL Group's LTIP required either consummation of the merger as a condition to the payments or the return of the payments if the transaction did not close, and that the actions of the director defendants in approving the proxy statements, causing the payments to be made, and failing to demand their return constitute corporate waste and a breach of fiduciary duties by those individual defendants. The plaintiffs seek to have, the shareholder votes approving FPL Group's LTIP and the merger declared null and void, the return to FPL Group of $62 million of payments received by the officers, compensatory damages of $92 million (including the $62 million of payments received by the officers) from all defendants and attorneys' fees.

A special committee of non-management directors of FPL Group conducted an investigation of the claims made in the Oorbeek and Klein lawsuits and reported thereon to FPL Group's board of directors. The report concluded that pursuit of the claims is not in the best interest of FPL Group or its shareholders generally, and recommended that FPL Group seek dismissal of the lawsuits. After reviewing the special committee's report, FPL Group's board of directors (with only non-management directors participating) concluded likewise and filed with the court a statement of position setting forth the special committees and the board's conclusions and authorizing the filing of a motion to dismiss the lawsuits, which motion was filed in October 2002. Messrs. Zarb, Camaren and Thaman joined the board in August 2002, October 2002 and July 2003, respectively, and did not participate in the proceedings relating to the statement of position or the filing of the motion to dismiss. On January 20, 2004, the court issued an order denying FPL Group's motion to dismiss the lawsuits. A trial date has been set for July 2005.

FPL Group's above-referenced statement of position reported that during the course of the special committee's investigation of the allegations in the lawsuits a separate question arose concerning the interpretation of the provisions of FPL Group's LTIP pursuant to which the payments to eight current and former senior officers were calculated. A change from the original interpretation could result in a repayment to FPL Group of up to approximately S9 million. FPL Group and the eight senior officers have entered into a binding arbitration agreement in order to resolve the issue, which would be obviated by court approval of the Stipulation and Agreement of Settlement described below.

In May 2003, the plaintiffs attorneys in the Klein lawsuit sent a new letter to FPL Group's board of directors (the May 2003 Letter) demanding among other things, that the board take action (i) to recover from the persons who approved such payments and/or otherwise breached their fiduciary duties, all of the above-described S92 million of LTIP payments made to officers and employees of FPL Group, allegedly on the grounds that the payments constituted a breach of fiduciary duty,' bad faith, corporate waste and other unspecified wrongs, (ii) to investigate whether the proposed merger with Entergy was a plan by FPL Group's officers and directors to enrich themselves at the expense of the company (iii) to seek the return of certain LTIP. awards made in replacement of accelerated LTIP awards, (iv) to take immediate actions to secure the return of up to approximately $9 million in LTIP payments which is subject to an interpretation question under the LTIP, (v) to investigate and seek the return of stock options and restricted stock paid to Mr. Broadhead in January 2002 in connection with a consulting agreement and his retirement from FPL Group in December 2001, and (vi) to investigate whether punitive damages may be sought. In July 2003, FPL Group's board of directors appointed a special committee, composed of James L. Camaren and 20

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

Michael H. Thaman, to investigate the matters raised in the May 2003 Letter and to make a determination as to how FPL Group should respond to the matters raised therein. In August 2003; the plaintiff's attorney In the Klein lawsuit sent a letter to FPL Group's board of directors purporting to "withdraw' the May 2003 Letter.

In August 2004, the plaintiffs, the individuals named as defendants, and FPL Group entered into a Stipulation and Agreement of Settlement that would resolve all matters raised In the lawsuits. Under the terms of the settlement, which Is subject to approval by the court, eight current and former senior executive officers of FPL Group and an Insurance carrier will pay to FPL Group a total of S22.25 million, representing a portion of the compensation that the executives received in December 2000 in connection with the shareholder-approved, but unconsummated, merger with Entergy. In addition, FPL Group agreed to implement several changes to its corporate governance policies and procedures, Including limiting the number of boards of directors on which a director of FPL Group may serve; affirming the right of the non-management directors of FPL Group to retain, at the company's expense, legal and other advisors of their choice; requiring the replacement every five years of at least a majority of the members of the Audit, Compensation, and Governance & Nominating Committees of the Board; and prohibiting the payment by FPL Group in any fiscal year of more than $200,000 for property, goods or services to any company of which an independent director is an executive officer or employee unless such payment Is reviewed by a majority of the other independent directors. Notice of the proposed settlement was mailed to all shareholders of record as of September 25, 2004; the court hearing on the proposed settlement has been set for November 12, 2004. If the settlement is approved, a portion of the net amount of the payment received by FPL Group would be allocated to FPL.

In addition to those legal proceedings discussed herein, FPL Group and its subsidiaries, including FPL, are Involved In a number of other legal proceedings and claims in the ordinary course of their businesses. In addition, generating plants in which FPL Group or FPL have an ownership interest are involved in legal proceedings and claims, the liabilities from which, if any, would be shared by FPL Group or FPL. While management is unable to predict with certainty the outcome of these other legal proceedings and claims, it is not expected that their ultimate resolution, individually or collectively, will have a material adverse effect on the financial statements.

11. 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. FPL Group's segment information is as follows:

Three Months Ended September 30, 2004 2003 FPL

- Corporate FPL Corporate FPL Energy"

& Other Total FPL Energyqv) 8 Other Total (millions)

Operating revenues 2,485 S

477 S

21 S 2,983 2,383 S

374 S

18.i S

2,775 Operating expenses 2.019 S

420 S

21

$ 2.460 S 1.896 S

295 S

19 S

2210 Income (loss) before cumulative effect of changelnaccountingprinciple S

275

_.61.

(16)

S 320 S

277 66 (9) 334 Cumulative effect of change in accounting principle netofIncometaxes S

S S

S (3 )fb S S

(3)

Net income (loss) 275 S

61 S

(16)

S 320 S

277 S

63 S

(9)

S 331 Nine Months Ended September 30,

• 2004 2003 FPL Corporate FPL Corporate FPL Ener0*')

& Other Total FPL Energyav)

& Other Total (millions)

Operating revenues S 6,600 S 1,272 S

61 S 7,933 S 6,193 S

935 S

67 S 7,195 Operating expenses S

5.579 S 1,070 S

66 S 6,715 5,093 772 59 5,924 Income (loss) before cumulative effect of changeinaccountingprinciple 5

585 S

183 S

(53)

S 715 S

611 159 S

(22)

S 748 Cumulative effect of change in accounting principle, netof Incometaxes S

S -

S S

(3)m)S S

(3)

Netincome (loss)

S 585 S

183 S

(53)

S 715 S

611 S

156 S

(22)

S 745 September 30, 2004 December 31, 2003 FPL Corporate FPL Corporate FPL Energy

& Other Total FPL Energy

& Other Total (millions)

Total assets

$ 19,311 S

8,434 S

773 S28,518 S 17,817 8,440 S

678 S 26,935 1 FPLEnergys interest charges are based on a deemed capital structure of 50% debtforoperating projects and 100% debtforprojects underconstuction. Residual non-utilityinterest charges are hduded in Corporate and Other.

c Reflects the adoption of FIN 46 in July2003. See Note 6.

21

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

12. 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. Most of FPL Group Capital's debt and payment guarantees, including its debentures, are fully and unconditionally guaranteed by FPL Group. Condensed consolidating financial information is as follows:

Condensed Consolidating Statements of Income Three Months Ended September 30.

2004 2003 FPL FPL Group Group Capital FPL Group FPL Qthers Consolidated Group (millions)

FPL Group Capital FPL Group Other' Consolidated Operating revenues Operating expenses Interest charges Other Income (deductions) - net Income from operations before income taxes and cumulative effect of change In accounting principle Income tax expense (benefit)

Income (loss) before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle.

net of income taxes Net Income (loss)

S (7) 325 498 (441)

(76) 59 S 2.485 (2.019)

(39)

(322)

S 2,983 (2,460)

(122) 62 463 143 S

392 (314)

(7)

(61) 330 44

$ 2,383 (1,896)

(38)

_(339) 318 40 105 (2)

(9) 154 323 61 110 (8) 5 163 2.775 (2.210)

(106) 35 494 160 334 (3)

S 331 320 49 (49) 320 331 56 (53)

S 320 S

49 S

(49)

S 320 (3

)3)

S 331 S

53 S

(53)

Nine Months Ended September 30, 2004 2003 FPL FPL Group Group Capital OtherX )

FPL Group FPL Consolidated Group (millions)

FPL Group Capital Other(&)

Operating revenues Operating expenses Interest charges Other Income (deductions) - net Income from operations before income taxes and cumulative effect of change In accounting principle Income tax expense (benefit)

Income (loss) before cumulative effect of change In accounting principle Cumulative effect of change in accounting principle, net of income taxes Net Income (toss)

S

$ 1.334 (1,137)

(21)

(230) 732 125 S 6,599 (5.578)

(117)

(726) 7.933 (6,715)

(368) 131 S 1.002 (831)

(21)

(138) 754 123 S 6.193 (5,093)

(108)

(784) 208 350 FPL Group Consolidated 7.195 (5.924)

(267) 93 1,097 349 748 711 92 178 (4)

(48) 318 715 140 (140)

S 715 140 S (140) 981 733 156 266 (12) 11 715 745 145 (142)

(3 )(bI (3) 745 S

142 S (142) 745 by) Represents FPL and consolidating adjustments.

01 Reflects the adoption of FIN 48 in July 2003. See Note 6.

22

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con6clude'd)'..I (unaudited) l, pmbpI I

.n Condensed Consolidating Balance Sheets Sernft embr 30. 2004 PROPERTY, PLANT AND EQUIPMENT Electric utility plant In service and other property Less accumulated depreciation and amortization Total property, plant and equipment - net CURRENT ASSETS Cash and cash equivalents Receivables Other Total curreant assets OTHER ASSETS Investment In subsidiaries Other Total other assets

• TOTAL ASSETS CAPITALIZATION Common shareholders'equity Preferred stock of FPL without sinking fund

• requirements Long-term debt Total capitalization CURRENT UIABILITIES Accounts payable and short-term debt

• Other Total current liabilities OTHER UIABILITIES AND DEFERRED CREDITS Asset retirement obligations Accumulated deferred Income taxes Regulatory liabilities Other Total other liabilities and deferred credits COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES

Represents FPL and consolidating adjustments.

FPL FPL Group Group Capital Other'1

$ 7,985

$ 23,150 (5) (9,438) 7,0322 13.712 6

394 51 7

347 1,043 20 1,160

'13 1,2 2.2S4 7,643 (7.643) 94 1,459 2,933 7.737 1,459 (4,710),

S 7,750 S 9.512 S 11.256 S 7,428 5 1.556 S (1,556) 5

.15,238 3,313 7,428 6.794 1,762 113 1.023 27 1,212 1,721 27 1,325 2,744

• FPL FPL Group FPL Group

.FPL Group Consolidated Group Caia Otherio

'Consolidated (millions)

S 31,135 S

$ 7,783 S 22489 S

30,272 (10.391)

,,9,237ff )

, 755 20,744 7,045 1325 20.297 451

'27

-98 4

129 1.397.

16 436

.735 1.187 1.440 21 83 1.154 3,288

-43 805 2,470 7,218.

.(7,218) 4.486 110 1,491 2,56 4.1 68 4.486 7,328.

1,491 J4,65) 4,168 5

28,518 S7.371

$ 9,341 S 10,223 S

26,935 s

7.428 S 6.967 '5 1.214 S(1,214) S 6,967.

8,5515,64 3.074 872 15.984 6,67 6,863 1,6 15.695 1,136 397 1,065 1,462 29 62 809 02 189 4,096 662 1,206 2,8 3.353 2,176.178 1,908 2,086 2,699 (5) 826 1,334 2,155 2,404 2,669 2,669 1,1 59 347

.268 362 977 8.438 342 1,272 6,273 7,8 S 28.518 S 7,371' 59.341 S 10D223 5

26,935 (5)

-300 295

..189 831 373 1.393 I. 1.987

.1,873 2,404 486 6.750 S;. 7,750 S 9.512 S 11.256 Condensed Consolidating Statements ot Cash Flows Nine Months Ended September 30, 2004 2003.-

FPL FPL.

FPL

'~Group FPL Group FPI_

Group FPL Group Group

.Capital Other"I Consolidated Group Capital Other")

Consolidated (millions)

NET CASH PROVIDED BY (USED IN)

OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures and Independent power Investments Sale of independent power Investments Sale of Olympus note receivable Other -net Net cash used InrInaveitiri6'activities CASH FLOWS FROM FINANCING ACTIVITIES issuances of long-term debt Retirements of long-term debt Net change In short-term debt issuances of common stock Dividends on common stock Other - net Net cash provided by (used In) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period S 327 S 86 (321) 93.

126

• 29 (192 322.

.(410)

(284) 63 (345)

(3 )

j4 (319)

(376)

(21) 296 27 98

$ 6 S

394 S 1.121 S

$ 2,312 S 919 AJJS"

4)

S 7

.(1,055)

(95).

(1,150) 235 (173) 14 76 47 4

S 51

• (1,~

I S,(

376) 111 98 93 126

?14)

(6J~

'20 456 557 1,84S

• 585 110)

(19)

(184) 1I57)

.(239)

. (445) 63 S5s 345)

(318) 319)

(303) 1.587,,,..J.)

322 16 422 231 S 1,60 (2.089)

(2,213) 2,430 (183)

(684) 55 (318) 669 266 S

93S 129 151 5

261 S

21 S

683 S

231 "I Represents FPL and consolidating adjustments.

23

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) appearing in the 2003 Form 10-K for FPL Group and FPL The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year.

Results of Operations Overview - FPL Group's net income for the third quarter of 2004 was $320 million compared to $331 million for the same period in 2003. FPL Group's net income for the three months ended September 30, 2004 reflects reduced earnings at FPL and FPL Energy and higher interest expense at Corporate and Other. For the nine months ended September 30, 2004, FPL Group's net income was $715 million compared to $745 million for the same period in 2003. FPL Group's net income for the nine months ended September 30, 2004 reflects reduced earnings at FPL and higher interest expense at Corporate and Other partially offset by increased earnings at FPL Energy. FPL Group's and FPL's results for the three and nine months ended September 30, 2004 reflect the impacts of three hurricanes that struck FPL's service territory during the third quarter of 2004. These storms resulted in lost revenues and an increase to the reserve for uncollectible accounts for FPL Group and FPL, and reduced FPL Group's earnings per share by 14 cents for the three and nine months ended September 30, 2004. The impact of these storms is estimated to reduce FPL Group's earnings per share by an additional 1 cent during the fourth quarter of 2004. See Note 8 - Storm Reserve Deficiency.

FPL Group's net income for the three and nine months ended September 30, 2004 include net unrealized mark-to-market losses of $6 million and $2 million, respectively, from non-qualifying hedge activity compared to net unrealized gains of $8 million and $9 million for the corresponding periods in 2003. All periods presented have been reclassified to reflect the guidance of Emerging Issues Task Force Issue No. 03-11 and the SEC staff which was issued in 2003. FPL Group and its subsidiaries segregate unrealized mark-to-market gains and losses on derivative transactions into two categories. The first category, referred to as trading and managed hedge activities, represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts.. The second category, referred to as non-qualifying hedges, represents the net unrealized effect of derivative transactions entered into as economic hedges (but which do not qualify for hedge accounting under FAS 133) and the ineffective portion of transactions accounted for as cash flow hedges. Any position that is moved between non-qualifying hedge activity and trading and managed hedge activity is transferred at its fair value on the date of reclassification. These transactions have been entered into to reduce FPL Group's aggregate commodity price risk inherent in fuel and electricity transactions.

In addition, FPL Group's net income for the three and nine months ended September 30, 2003 reflect a $3 million charge due to a change in accounting principle. See Note 11 for segment information. FPL Group's effective tax rate for all periods presented reflect production tax credits for wind projects at FPL Energy.

FPL Group's management uses earnings excluding non-qualifying hedge activity (adjusted earnings) internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and for FPL Group's employee incentive compensation plans. FPL Group also uses adjusted earnings when communicating its earnings outlook to analysts and investors. FPL Group's management believes adjusted earnings provide a more meaningful representation of the company's fundamental earnings power. Although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles, both the size and nature of such items can make period to period comparisons of operations difficult and potentially confusing.

FPL - FPL's net income available to FPL Group for the three months ended September 30, 2004 was $275 million compared to $277 million for the same period in 2003. The results of the third quarter of 2004 reflect the impacts of three hurricanes that struck FPL's service territory between mid-August and late September 2004. These storms resulted in lost revenues of approximately S36 million during the three months ended September 30, 2004 and have made 2005 results at FPL more difficult to estimate due to the uncertainty of the impact of the storms on revenue growth in the near future. The negative impact of the hurricanes was partially offset by strong customer growth during the quarter. Other operations and maintenance (O&M) expenses and depreciation expense increased for the third quarter of 2004 negatively impacting FPL's earnings for that period. For the nine months ended September 30, 2004, FPL's net income available to FPL Group was $585 million compared to $611 million for the same period in 2003. The effect of three hurricanes and otherwise milder weather were strong contributors to the decrease in FPL's net income during the nine months ended September 30, 2004, partly offset by strong customer growth. Increased depreciation and O&M expenses further reduced net income for the nine months ended September 30, 2004.

24

FPL's operating revenues consisted of the following:

Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 (millions)

Retail base operations S 1,057 S 1,050

$ 2,793

$ 2,824 Cost recovery clauses and other pass-through costs' 1,412 1,320 3,755 3,326 Other 16 13 52 43 Total

$ 2,485

,383

$6,600

$ 6,193 The Increase In retail base revenues for the three months ended September 30, 2004 was primarily due to an increase in the average number of customer accounts which was partially offset by a decrease in usage per retail customer. A 2.8%

increase In the average number of customer accounts during the third quarter of 2004 Increased revenues from retail base operations by approximately $29 million. This Increase was partially offset by. a 2.2% decrease in usage per retail customer, which decreased revenues from retail base operations by approximately $22 million. The decline in usage per retail customer was primarily associated with three hurricanes hitting FPL's service territory In the last two months of the third quarter of 2004, partly offset by underlying usage growth.

The decrease in retail base revenues for the nine months ended September 30, 2004 was primarily due to a decrease in usage per retail customer, partially offset by an increase in the average number of customer accounts. 'A 3.5% decrease In usage per retail customer resulted in a decrease in revenues from retail base operations of approximately $100 million, primarily due to milder weather and storm activity. This decrease was partially offset by strong customer growth during the first nine months of 2004. A 2.6% increase in the average number of customer accounts, as well as other factors, Increased revenues from retail base operations by $69 million.

Revenues from.cost recovery clauses and other pass-through costs, such as franchise fees and revenue'taxes, do not significantly affect net Income; however, under-or over-recovery of such costs can significantly affect FPL Group's and FPL's operating cash flows. Fluctuations in these revenues, as well as In fuel, purchased power and Interchange expense are primarily driven by changes in energy sales, fuel prices and capacity charges. The increase in revenues from cost recovery clauses and other pass-through costs for the three and nine' months ended September 30, 2004 reflects higher fuel charges to customers primarily to recover previously underrecovered fuel-related costs resulting from higher than projected fuel costs.

FPL's O&M expenses for the three and -nine months ended September 30, 2004 continue to reflect'higher nuclear maintenance and insurance costs. O&M'expenses for the nine months ended September 30, 2004 also Increased due to higher employee benefit expenses. These increases were partially offset by productivity improvements In other areas and by the absence of certain legal expense accruals that occurred in last year's first quarter.

FPL performed volumietric insp6ctions 'of Turkey Point Unit No. 3's bottom mounted instrumentation penetrations during its refueling outage in the fall of 2004 and found no evidence of leakage from these penetrations. FPL Is planning to perform volumetric rather than visual inspections of the bottom mounted instrumentation penetrations at Turkey Point Unit No. 4 during its next scheduled refueling outage in the spring of 2005. St. Lucie Units Nos. 1 and 2 do not have bottom mounted Instrumentation penetrations.

During 2003,' nuclear utilities, other than FPL, identified that pressurizer heater sleeves made with a particular material (alloy 600) were experiencing penetrationcracks and leaks as a result of primary water stress corrosion cracking. As a result, in May 2004, the. NRC issued a bulletin requesting utilities to identify and inspect all alloy 600 and weld 'materials in all pressurizer locations and connected steam space piping. FPL and FPL Energy have filed a response to the bulletin. In' the spring of 2004, prior to the issue of the NRC bulletin, St. Lucie Unit No. 1 performed visual inspections within the scope of the bulletin and no leaks were identified. St. Lucie Unit No.;2 and:Seabrook will perform similar inspections at their next scheduled refueling outages. Due to the cost and outage Impact associated with potential leaks, FPL has decided to replace St. Lucie Unit No. 1's pressurizer during Its scheduled refueling and reactor vessel head replacement outage in the fall of 2005. The estimated 'cost for -the pressurizer Is'. included In estimated capital expenditures. See Note 10 -

Commitments. FPL'has decided to repair St. Lucie Unit No. 2's pressurizer heater sleeve penetrations during its scheduled refueling and steam generator and reactor vessel head replacement outage in the fall of 2007.. The estimated cost of this repair Is approximately $12 million, which will be chargedto O&M expense. All pressurizer penetrations and welds at Turkey Point Units Nos. 3 and 4 utilize a different material.

Depreciation and amortization expense increased for the three and nine months ended September 30, 2004 primarily as a result of project expansions that went Into service during 2003, as well as FPL's continued investment In generation and distribution expansion to support customer growth and demand.

FPL' Energy - FPL Energy's net income for the third quarter of 2004 was $61 million compared to $63 million 'for the third quarter of 2003. Net income for the nine months ended September 30, 2004 was $183 million compared to $156 million for the same period in 2003. Net income for both the three and nine months ended September 30, 2004 benefited primarily from project additions, improved contract coverage and better market conditions particularly in the Electric Reliability Council of Texas (EFRCOT) region, partially offset by higher interest expense. During the third quarter of 2004, FPL Energy recorded S6 million of after-tax net unrealized mark-to-market losses from non-qualifying hedges compared to after-tax net unrealized gains of S8 million during the same period in 2003. For the nine months ended September 30, 2004, FPL Energy recorded 25

$2 million of after-tax net unrealized mark-to-market losses from non-qualifying hedges compared to after-tax net unrealized gains of $9 million during the comparable period in 2003. For further discussion of derivative instruments, see Note 2. In connection with the enactment of legislation extending the wind production tax credits through the end of 2005, FPL Energy expects to add 250 mw to 750 mw of new wind projects by the end of 2005, including 241 mw currently under construction.

FPL Energy's third quarter 2004 net income benefited from the effect of additions to the wind portfolio partially offset by losses from new gas merchant assets added in 2003. The operating results of 1,320 mw of wind and gas-fired generation added during or after the third quarter of 2003 contributed $5 million to third quarter 2004 net income. FPL Energy's operating revenues for the third quarter of 2004 increased S1 03 million primarily driven by increased generation due to improved market conditions in the ERCOT region, new wind and new gas merchant asset additions and the commencement of a contract for the sale of the remaining 50% of the capacity of a natural gas-fired facility in Alabama, partially offset by mark-to-market losses in non-qualifying hedges in 2004 compared to gains in 2003. FPL Energy's operating expenses for the third quarter of 2004 increased $125 million, primarily driven by increased generation due to improved market conditions in the ERCOT region and the 2003 new wind and new gas merchant asset additions.

Eamings from investments in partnerships and joint ventures for the quarter ended September 30, 2004, presented as equity in earnings of equity method investees, increased $6 million from the prior year quarter due primarily to the. mark-to-market effect of non-qualifying hedge activity in the portfolio, as well as the absence of losses from a combined-cycle power plant in Texas, which was sold in the second quarter of 2004, partially offset by a gain recognized in 2003 on a gas contract restructuring.

Interest charges for the third quarter of 2004 increased by approximately $7 million primarily due to growth in FPL Energy's asset base and higher average interest rates.

FPL Energy's net income for the nine months ended September 30, 2004 also benefited from project additions discussed above. The operating results of these project additions contributed $29 million to net income for the nine months ended September 30, 2004. FPL Energy's operating revenues for the nine months ended September 30, 2004 increased $337 million, primarily driven by project additions, increased generation due to improved market conditions in the ERCOT region and the commencement of a contract for the sale of the remaining 50% of the, capacity of a natural gas-fired facility in Alabama. FPL Energy's operating expenses for the nine months ended September 30, 2004 increased $298 million primarily driven by project additions and increased generation due to improved market conditions in the ERCOT region.

Earnings from investments in partnerships and joint ventures for the nine months ended September 30, 2004 decreased $7 million from the prior year period primarily due to a gain recognized in 2003 on a gas contract restructuring and the effect of higher fuel costs in 2004 partially offset by the absence of losses from a combined-cycle power plant in Texas, which was sold in the second quarter of 2004, and an increase in the net unrealized mark-to-market gains from non-qualifying hedge activity in the portfolio in 2004. Also, in the first nine months of 2004, FPL Energy recorded a net gain of approximately $52 million on the termination of a gas supply contract and a steam agreement which was essentially offset by an impairment loss recorded as a result of agreeing to sell its interest in the combined-cycle power plant in Texas.

Interest charges for the nine months of 2004 increased by approximately $49 million primarily due to growth in FPL Energy's asset base, as well as an increase in average interest rates compared with the same period in 2003.

FPL Energy's 2004 earnings are subject to variability due to, among other things, operational performance, commodity price exposure, counterparty performance, weather conditions and project restructuring 'activities. FPL Energy's exposure to commodity price risk is reduced by the degree of contract coverage obtained for 2004 and 2005. During the first quarter of 2004, FPL Energy changed how it classifies its contract coverage categories to more closely reflect how these assets are managed intemally. The wind category remained unchanged while non-wind assets under long-term contract are now, called contracted. The contracted category includes all projects with mid-to long-term purchased power contracts for substantially all, of their output. Some of the newer projects with long-term contracts were previously included in the merchant category. The merchant category now includes only those facilities which require active hedging and is subdivided into the following three subcategories: New England Power Pool (NEPOOL), ERCOT and all other. As of September 30, 2004, FPL Energy's, capacity under contract for the remainder of 2004 and 2005 is as follows:

Remainder of 2004 2005 Available

% MW Available

% MW Project Portfolio Category MW "

Under Contract MW '

Under Contract Wind 2,746 100%>'

2,746(c) 100%'b)

Contracted 2,170 99%

2,170 99%

Merchant:

NEPOOL 2,309 70%(d) 2,301 (C) 64%'

ERCOT 2,790 75%('

2,732 69%'d' All Other 557 44%('

1,275 8%'4 Total portfolio 10,572 84%

11,224 74%

' Weighted to reflect in-service dates, planned maintenance and a refueling outage at Seabrook in 2005.

fb' Reflects round-the-clock mw under contract.

° Excludes 241 mw of new wind generation announced in October 2004 and 71 mw for a planned power uprate at Seabrook in 2005.

(d) Represents on-peak mw under contract 26

FPL Energy Is currently constructing a gas-fired plant that Is expected to add approximately 744 mw of generation In' the PJM Interconnection LLC. (PJM) market by the end of 2004, as well as 241 mw of wind generation expected to be In-service by mid-2005. FPL Energy expects its future portfolio growth to come from a mix of asset acquisitions and wind development due to the extension of the production tax credit program through 2005 for new wind facilities.

Corporate and Other -Corporate and Other is primarily comprised of FPL FiberNet and other corporate income and expenses, such as interest income and interest expense. Corporate and Other's net loss for the three and nine months ended September 30, 2004 was $16 million and $53 million, respectively, compared to a net loss of $9 million and $22 million for the respective periods in 2003, primarily reflecting increased interest expense. FPL FiberNet's results declined for the nine months ended September 30, 2004 due to the absence of gains associated with restructuring two transactions which were reflected In'the first quarter of 2003. Corporate and Other allocates interest charges to FPL Energy based on a deemed Tcapital structure at FPL Energy of 50% debt for operating projects and 100% debt for projects under construction. Interest expense at Corporate and Other increased for all periods presented due to allocating less interest expense to FPL Energy as a result of the completion of a number of projects during 2003 that were previously under construction.

Liquidity and Capital Resources FPL Group and its subsidiaries, including FPL; require funds to support and grow their businesses. These funds are used for working capital, capital expenditures, investments in or acquisitions of assets and businesses, to pay, maturing debt obligations and, from time to time, to redeem outstanding debt and preferred stock. It is anticipated that these requirements will be satisfied through a combination of internally generat6d funds and the issuance, from time to time, of debt and equity securities, consistent with FPL Group's and FPL's objective of maintaining, on a long-term basis, a capital structure that will support a strong investment grade credit rating. Credit ratings can affect FPL Group's and FPL's ability to obtain short-and long-term financing, the cost of such financing and the execution of their financing strategies. -In July 2004, FPL Group Increased its quarterly dividend on its common stock from $0.62 to $0.68 per share. In May 2004, the authorized common stock of FPL Group was increased 100,000,000 shares fromn 300,000,000 to 400,000,000 shares.

In October 2004, FPL and FPL Group Capital refinanced their short-term credit facilities by entering Into new five-year revolving credit facilities and amending their respective three-year credit facilities. Bank lines of credit currently available to FPL Group and its subsidiaries, including FPL, are as follows:

FPL FPL Group Capital Total Maturity Date (millions) 500 -

1,000 1,500 October 2006 1,000 1,000 2,000 October 2009 (a 1,500 S

2,000 3,500 A These facilities provide for the issuance of letters of credit of up to S1.5 billion ($750 million for FPL and S750 million for FPL Group Capital). The issuance of letters of credit is subject to the aggregate commitment under the applicable facility.

These credit facilities are available to support the companies' commercial paper programs and to provide additional liquidity in

• the event of a transmission and distribution property loss-(in the case of FPL), as well as for general corporate purposes.' At September 30, 2004, letters of credit totaling $166 million were outstanding under FPL Group Capital's credit facilities and no amounts were outstanding under FPL's credit facilities. FPL Group (which guarantees payment of FPL 'Group Capital credit facilities) is required to maintain a minimum ratio of funded debt to capitalization under the terms of FPL Group Capital's credit facilities and FPL is' required to maintain a minimum ratio of funded debt to capitalization under the terms of FPL's credit facilities. At September 30, 2004, FPL Group and FPL were in compliance with their respective ratio.

In addition, FPL Group Capital and FPL have each established an uncommitted credit facility with a bank to be used for general corporate purposes. The bank may at its discretion, upon the request of FPL Group Capital or FPL, make 'a short-term loan or loans to FPL Group Capital or FPL in an aggregate amount determined by the bank, which Is subject to change at any time. The terms of the specific borrowings under the uncommitted credit facilities, including maturity, are set at the time borrowing requests are made by FPL Group Capital or FPL. At September 30, 2004, there were no amounts outstanding for either FPL Group Capital or FPL under the uncommitted credit facilities.

In June 2004, a consolidated FPL VIE that leases nuclear fuel to FPL increased its senior secured revolving credit facility, which provides backup support for its commercial paper program, from S65 million to $100 million and extended the expiration date from June 2004 until June 2009. FPL has provided an unconditional guarantee of the payment obligations of the VIE under the credit facility, which are included in the guarantee discussion below. At September 30, 2004, the VIE had no outstanding borrowings under the revolving credit facility and approximately $52 million under the commercial paper program. FPL also provides an unconditional payment guarantee of the VIE's $135 million of 2.34% senior secured notes, issued in June 2003 and maturing in June 2006, which is included in the guarantee discussion below.

27

At September 30, 2004, FPL Group and FPL Group Capital had approximately $2.0 billion (issuable by either or both of them up to such aggregate amount) of available capacity under shelf registration statements. Securities that may be issued under the FPL Group and FPL Group Capital shelf registration statements, depending on the registrant, include common stock, stock purchase contracts, stock purchase units, preferred stock, senior debt securities, preferred trust securities and related subordinated debt securities, and guarantees relating to certain of those securities. This capacity is available for, among other things, new investment opportunities. At September 30, 2004, FPL had approximately S1.0 billion of available capacity under its shelf registration statement. Securities that may be issued under FPLs shelf registration statement include preferred stock, first mortgage bonds, preferred trust securities and related subordinated debt securities and guarantees.

During the nine months ended September 30, 2004, FPL sold 200,000 shares of $100 par value 4 1/2% Series V preferred stock to FPL Group and Issued $240 million of 5.65% first mortgage bonds maturing in 2035, FPL Group Capital sold S309 million of 5 7/8% junior subordinated debentures maturing in 2044 and FPL Energy drew $22 million from a construction term credit facility. The junior subordinated debentures were purchased by an unconsolidated 100%-owned finance subsidiary of FPL Group using proceeds from the March 2004 sale by that finance subsidiary of $300 million of preferred trust securities to the public and $9 million of common trust securities to FPL Group. FPL Group has fully and unconditionally guaranteed the junior subordinated debentures and the preferred trust securities. The junior subordinated debentures are included in long-term debt on FPL Group's condensed consolidated balance sheets. See Note 9. During the nine months ended September 30, 2004, FPL Group Capital also repaid two variable rate term loans totaling $175 million and had $175 million of 6.875%

debentures mature.

Subsidiaries of FPL Group also entered into four interest rate swap agreements during the nine months ended September 30, 2004. The swaps consisted of two variable interest rate swap agreements at FPL to protect $500 million of its outstanding 6.875% first mortgage bonds maturing in 2005 against changes in fair value due to changes in interest rates, a variable interest rate swap agreement at FPL Group Capital to protect $200 million of its outstanding 1 7/8% debentures against changes in fair value due to changes in interest rates and an interest rate swap agreement whereby an FPL Energy subsidiary receives LIBOR and pays a fixed rate of 3.845% on approximately $30 million of its variable rate debt In order to limit cash flow exposure. In October 2004, FPL Group Capital entered into several variable interest rate swap agreements to protect $500 million of its outstanding 3 1/4% debentures maturing in 2006 against changes in fair value due to changes in interest rates.

The following provides various metrics regarding FPL Group's (including FPL's) and FPL's outstanding debt:

FPL Group FPL September 30, December 31, September 30, December 31, 2004 2003 2004 2003 Weighted-average year-to-date interest rate &'

5.0%

4.9%

5.1%

4.5%

Weighted-average life (years) 9.0 7.3 14.7 13.6 Year-to-date average of floating rate debt to total debt &'

28%

31%

33%

33%

w Caiculations include interest rate swaps, if any.

In June 2004, an indirect subsidiary of FPL Group sold a note receivable from a limited partnership of which Olympus is a general partner. Olympus is an indirect subsidiary of Adelphia. In June 2002, Adelphia, Olympus and the limited partnership filed for bankruptcy protection under Chapter 11, and the note, which was due July 1, 2002, is in default. The note receivable, which was previously recorded in other investments on FPL Group's condensed consolidated balance sheet, was sold for its net book value of approximately $127 million, including accrued interest through the date of the commencement of the Chapter 11 proceedings, less related transactions costs which were not significant. Proceeds from the sale of the note were used to reduce FPL Group Capital's debt.

28

FPL Group's commitments at September 30, 2004 were as follows:

2004 2005 2006 2007 2008 Thereafter Total (millions)

Long-term debt, including Interest: '

IFPL S

55 $

659 $

263 S

127 321

$ 4,587

$ 6,012 FPL Energy!

59 217 206 501 396 997 2,376 Corporate and Other 59 812 1,300 1,187 577 1,605 5,540 Corporate Units 9

18 2

- 29 Purchase obligations:

FPL*'

1,340 4,240

. 3,065 2,435 2,085 7,920 21,085 FPL Energy 61 67 54 69 52 784 1,087 Asset retirement activities:

FPL 7,056 7,056 FPL Energy '

4

1621 1,625 Other commitments:

Corporate and Other 61 63 124 Total

$ 1,644 $ 6,080 S 4,890 -5 4,319 $

5 3,431

$ 24,570

$ 44,934

- Includes pncipal, interest and interest rate swaps. Variable rate interest was computed using September 30,2004 rates.

& Represents required capacity and minimum payments under long-temi purchased power and fuel contracts, the majority of which Is recoverable through various cost recovery clauses (see Note 10 - Contracts), and projected capital expenditures through 2008 to meet Increased electricity usage and customer growth, as well as capital Improvements to and maintenance of existing facilities (see Note 10 - Commitments).

' Represents firm commitments primarily In connection with natural gas supply, transportation and storage, firm transmission service. nuclear fuel and a portion of Its capital expenditures. See Note 10 - Contracts. In addition. in October 2004, FPL Energy entered Into a contract to purchase wind turbines in 2004 and 2005 totaling

$182 million.

'i Represents expected cash payments adjusted for Inflation for estimated costs to perform asset retirement activities.

° At September30, 2004, FPL had st,872 million In restricted trust funds for the payment of future expenditures to decommission FPL's nuclear units. which are Included in special use funds.

• At September 30. 2004, FPL Energy's 88.23% portion of Seabrook's restricted trust fund for the payment of future expenditures to decommission Seabrook was $284 million and Is included In FPL Group's special use funds.

FPL Group and FPL obtain letters of credit and issue guarantees to facilitate commercial transactions with third parties and financings. At September 30, 2004, FPL Group had standby letters of credit of $375 million ($10 million for FPL) and $3,852 million notional amount of guarantees ($235 million for FPL), of which $3,425 million ($235 million for FPL) have expirations within the next five years. These guarantees support the buying and selling of wholesale energy commodities, debt related reserves and other contractual agreements. FPL Group and FPL believe it is unlikely that they would be required to perform or otherwise incur any losses associated with these guarantees and as a result, at September 30, 2004, FPL Group and FPL did not have any liabilities recorded for these guarantees. In addition, FPL Group has guaranteed certain, payment obligations of FPL Group Capital, including most of those under FPL Group Capital's debt, including all of its debentures and commercial paper issuances, as well as most of its guarantees, and FPL Group Capital has guaranteed certain debt and other obligations of FPL Energy and its subsidiaries. See Note 10 - Commitments.

In addition to the above, FPL Energy has guaranteed certain performance obligations of a power plant owned by a wholly-owned subsidiary as part of a power purchase agreement that expires in 2027. Under this agreement, the subsidiary could incur market-based liquidated damages for failure to meet contractual minimum outputs. In addition, certain subsidiaries of FPL Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result In the FPL Energy subsidiary incurring specified liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these guarantees is not material.

An FPL Energy subsidiary is committed to purchase oil and gas inventory remaining in certain storage facilities at December 31, 2005 at Its weighted-average cost. At September 30, 2004, the subsidiary's commitment is estimated to be from $0 to approximately $78 million, based on a potential range of zero to full storage volume at the current average forward price of oil and gas.

During the third quarter of 2004, FPL was impacted by Hurricanes Charley, Frances and Jeanne, each of which did major damage in parts of FPLs service territory and collectively resulted in over 5.4 million power outages with'approximately three-quarters of FPL's customers losing power during at least one' hurricane. Damage' to FPL property 'was primarily to the transmission and distribution systems. Although FPL has not completed the final accounting of all restoration costs, FPL accrued restoration costs during the quarter ended September 30, 2004 of approximately $710 -million, which are expected to be recoverable from the storm reserve. The unpaid portion of these accrued costs is included in other current liabilities on FPL Group's and FPL's condensed consolidated balance sheets. In addition, based on assessments as of September 30, 2004, FPL estimated it had sustained other property losses totaling approximately $108 million, which has been or is expected to be recovered from insurance carriers. The costs recoverable from the storm reserve exceeded the balance of the storm reserve by approximately $361 million at September 30, 2004. This deficiency has been deferred pursuant to an FPSC order and recorded as a regulatory asset on FPL Group's and FPL's condensed consolidated balance sheets. FPL intends to seek recovery of the S361 million regulatory asset. FPL is in the process of reviewing and finalizing its cost estimates associated with the three hurricanes. The exact timing and manner of recovery have yet to be determined. The FPSC has the right to review FPL's storm charges for reasonableness and prudence. The funds set aside to cover the cost of FPL's storm damage were reclassified to a 29

current asset on FPL Group's and FPL's condensed consolidated balance sheets. FPL Group expects to receive a $73 million federal tax refund in the fourth quarter of 2004 as a result of casualty losses associated with the hurricanes. In addition, costs associated with the hurricanes will also reduce FPL Group's 2004 and 2005 tax liabilities. FPLs bank lines of credit discussed above are also available if needed to provide additional liquidity for storm restoration costs.

New Accounting Rules and Interpretations Vanable Interest Entities - In December 2003, the FASB revised FIN 46, 'Consolidation of Variable Interest Entities, which partially delayed its effective date for public companies until the first quarter of 2004. FPL Group and FPL. finalized their analysis on other investments and contractual relationships and determined that no other entities needed to be consolidated or deconsolidated in accordance with FIN 46R. FPL Group and FPL expect additional implementation guidance to be issued regarding FIN 46R and are unable to determine what effect, if any, this additional guidance might have on FPL Group's and FPL's condensed consolidated financial statements. See Note 6.

Pensions and Other Postretirement Benefits - In May 2004, the FASB issued Staff Position FAS 106-2, Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.- See Note 1.

Accumulated Other Comprehensive Income Total other comprehensive income (OCI) activity for the nine months ended September 30, 2004 is as follows:

Accumulated Other Comprehensive Income (Loss)

Net Unrealized Losses On Cash Flow Hedges Other Total (millions)

Balances, December 31,2003 (10) 14 4

Commodity hedges Effective portion of net unrealized loss:

Consolidated subsidiaries (net of $35 tax benefit)

(54)

-(54)

Reclassification from OCI to net income:

Consolidated subsidiaries (net of $0.5 tax benefit)

(1)

(1)

Interest rate hedges Effective portion of net unrealized gain (net of $1 tax expense) 2 2

Net unrealized loss on available for sale securities (net of $0.4 tax benefit)

(1)

(1)

Balances, September 30,2004 (6) 15 5

(50)

Total OCI activity for the nine months ended September 30, 2003 was as follows:

Accumulated Other Comprehensive Income (Loss)

Net Unrealized Gains (Losses)

On Cash Flow Hedges Other Total (millions)

Balances, December 31,2002 19 (3)

S 16 Commodity hedges Effective portion of net unrealized gain:

Consolidated subsidiaries (net of $11 tax expense) 17 17 Equity investments (net of $6 tax expense) 10 10 Reclassification from OCI to net income:

Consolidated subsidiaries (net of $17 tax benefit)

(27)

(27)

Equity investments (net of $6 tax benefit)

(9)

(9)

Interest rate hedges Effective portion of net unrealized loss (net of $3 tax benefit)

(5)

(5)

Net unrealized gain on available for sale securities (net of $6 tax expense) 9 9

Balances, September 30, 2003 S

5 S

6 11 30

Energy Marketing and Trading and Market Risk Sensitivity Energy Marketing and Trading - Certain of FPL Group's subsidiaries, including FPL and FPL Energy, use derivative instruments (primarily forward purchases and sales, swaps, options and futures) to manage the commodity price risk inherent in fuel and electricity transactions, as well as to optimize the value of power generation assets. To a lesser extent, FPL Energy engages in limited energy trading activities to take advantage of expected future favorable price movements.

Derivative Instruments, when required to be marked to market under FAS 133, as amended, are recorded on FPL Group's and FPL's consolidated balance sheets as either an asset or liability (in derivative assets, other assets, other current liabilities and other liabilities) measured at fair value. At FPL, substantially all changes In fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses are passed through the fuel clause and the capacity clause. For FPL Group's non-rate regulated operations, predominantly FPL Energy, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized net in operating revenues; fuel purchases and sales are recognized net in fuel, purchased power and interchange expense; and the equity method investees' related activity Is recognized in equity In earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied.

The changes in the fair value of FPL Group's consolidated subsidiaries' energy contract derivative instruments for the three and nine months ended September 30, 2004 were as follows:

Hedoes on Owned Assets Three months ended September 30,2004 Fair value of contracts outstanding at June 30, 2004 Reclassification to realized at settlement of contracts Effective portion of changes hI fair value recorded in OCI Ineffective portion of changes In fair value recorded in earnings Changes In fair value excluding reclassification to realizedr Fair value of contracts outstanding at September 30. 2004 Net option premium payment (receipts) 7 Total mark-to-market energy contract net assets (liabffities) at Septerrber 30,2004

- FPL Cost Proprietary Non-Recovery Trading Managed Oualiyng OCt Causes (millions) 5 13 S

3 (65) S 127 (8)

(3) 2 (44)

(36).

(

(14) 12 4

(2)

(15)

(99) 205 (3) 26 4

S (2) 5 (18) 5(99) S 231 Hedges on Owned Assets FPL Group TTotal 78 (53)

(36)

(1) 105 23 S

116 Proprietary Trading Managed Non-Oualifying OC0 (millions)

FPL Cost Recovery Causes FPL Group Total Nine months ended September 30,2004 Fair value of contracts outstanding at December31, 2003 Recssification to realized at settlement of contracts Effective portion of changes In fair value recorded In OCI Ineffective portion of changes hI fair value recorded hI earnings Changes hI fair value excluding reclassification to realized Fair value of contracts outstanding at September30, 2004 Net option premium payment (receipts)

Total mark-to-market energy contract net assets (liabifities) atSeptember30 2004 S

7 1

S.

21 (14)

(2)

(40)

(7) 11 (1)

' 11 4

(2)

(15)

(11)

S.

94 112 (125)

(181)

(88)

(88)

(7) 236 257 (99) 205 93 26 23 4

S (2)

S (18) 5 (99)

S 231 116 FPL Group's total mark-to-market energy contract net assets at September 30, 2004 consolidated balance sheet as follows:

Derivative assets Other assets Other current liabilities Other liabilities FPL Group's total mark-to-market energy contract net assets at September 30, 2004 shown above are included in the I

. I I

September 30.

2004 I(millions)

5 304 57 (134)

-eI.

(111)

S

116, 31

The sources of fair value estimates and maturity of follows:

Proprietary Trading:

Actively quoted (.e., exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - Managed:

Actively quoted (i.e., exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - Non-Oualfying:

Actively quoted (i.e., exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - OCI:

Actively quoted (i.e., exchange trade) prices Prices provided by other external sources Modeled Total Owned Assets - FPL Cost Recovery Clauses:

Actively quoted (I.e., exchange trade) prices Prices provided by other external sources Modeled Total Total sources of fair value energy contract derivative instruments at September 30. 2004 are as Maturity 2004 2005 2006 2007 2008 Thereafter (miuions)

S S

1 5

1 S

(3) 10

-)

1 2

.. 2 Total (3) 16 (9) 4 (5) 3 (2)

(5)

.3

)

1

(-7)

()

L6)

(5)

(4)

(6)

(4)

(6}

15 4

(5) 14 11 4

.26 9

(50)

(I )

(2)

(1)

(2)

(36)

(7)

(45)

(26)

(1)

(27)

(18)

(1)

(19)

(2)

(4) 60 119 20 6

80 125

_ 94 70 S

(32)

(1)

(82)

(16)

(99) 179 26 205 S

93 5

(24)

'(10)

S (5)

The changes in the fair value of FPL Group's consolidated subsidiaries' energy contract derivative Instruments for the three and nine months ended September 30, 2003 were as follows:

Proprietary Trading Three months ended September 30,2003 Fair value of contracts outstanding at June 30,2003 Redassification to realized at settlement of contracts Effective portion of changes in fair value recorded in OCI Changes in valuation assumptions Changes in fair value excluding reclassification to realized Fair value of contracts outstanding at September 30, 2003 Net option premium payment (receipts)

Total mark-to-market energy contract net assets at September 30,2003 S

4 (2) 4 6

Hedges on Owned Assets FPL Cost Non-Recovery Managed Oualifing OCI Clauses (millions) 1$

(7) $

46 8 16 (1) 8 (16)

(18) 5 (34) 6 12 (18)

(18 S

S 1

S 12 S

Hedges on Owned Assets S

6 FPL Group Total S

60 (11)

(18)

(25) 6 13 19 FPL Group Total S

52 (63) 28 2"'

(13) 6 13 Proprietary Non-Trading Managed Oualifying OCI (millions)

FPL Cost Recovery Clauses Nine months ended September 30 2003 Fair value of contracts outstanding at December 31* 2002 Reclassification to realized at settlement of contracts Effective portion of changes in fair value recorded in OCI Changes in valuation assumptions Changes in lair value excluding reclassification to realized Fair value of contracts outstanding at September 30, 2003 Net option premium payment (receipts)

Total mark-to-market energy contract net assets at September30. 2003 4

5 S

8 (6)

(1) 10 2

8 1

(14) 6 6

(As)

S 28 5

12 (44)

(22) 28 (a) 12 (18) 18 S

6 1

S 12 S

S 19 A' Change in valuation assumption from applying volatility skewness (selection of an input assumption among alternatives based on the moneyness of the option) in option valuation.

Market Risk Sensitivity - Financial instruments and positions affecting the financial statements of FPL Group and FPL described below are held primarily for purposes other than trading. Market risk is measured as the potential loss in fair value resulting from hypothetical reasonably possible changes in commodity prices, interest rates or equity prices over the next year. Management has established risk management policies to monitor and manage market risks. FPL Group's Exposure Management Committee (EMC), which is comprised of certain members of senior management, is responsible for the overall 32

approval of market risk management policies and the delegation of approval and authorization levels. The EMC receives periodic updates on market positions and related 'exposures, credit exposures and overall risk management activities. FPL Group and FPL manage their interest rate exposure by monitoring current Interest rates and adjusting their variable rate debt In relation to total capitalization.

FPL Group and its subsidiaries are also exposed to credit risk through their energy marketing and trading operations. Credit risk Is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfill Its financial obligation. FPL Group manages counterparty credit risk for its subsidiaries with energy marketing and trading operations through established policies, including counterparty credit limits, and in some cases credit enhancements, such as cash prepayments, letters of credit, cash and other collateral and guarantees. Credit risk is also managed through the. use of master netting agreements. FPL Group's credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis.

Commodity price risk - FPL Group uses a value-at-risk (VaR) model to measure market risk In Its trading and mark-to-market portfolios. The VaR Is the estimated nominal loss'of market value based on a one-day holding period at a 95% confidence level using historical simulation methodology. As of September 30, 2004 and December 31, 2003, the VaR figures are as follows:

Non-Oualifying Hedges Trading and Managed Hedges and Hedges In OCI °)

FPL FPL FPL FPL FPL Energy Group FPL Energy Group (millions)

FPL-

.7 Tot FPL

- Energ FPL y

Group 4

S 26 7

• S 26 December31, 2003 September30, 2004 Average forthe period ended September30 2004 S

S 1

25 S

5 S

26 25 1

26 5

6 S

28 26

-r I I S

1 1

S 26 5

23 S

26 5 6 2-23 FAJ Nn-qualifiyng hedges are employed to reduce the market risk exposure to physical assets which are not marked to market The VaR figures forthe non-qualiying hedges and hedges In OCI category do not represent the economic exposure to commodity price movements.

Interest rate risk - FPL Group and FPL are exposed to risk resulting from changes In Interest rates as a result of their issuances of debt, investments in special use funds, Including the storm fund, and interest rate swaps. 'FPL Group and FPL manage their Interest rate exposure by monitoring current Interest rates and adjusting their variable rate debt in relation to total capitalization.

The following are estimates of the fair value of FPL Group 's and FPL's financial instruments:

I I

September 30, 2004 December 31, 2003 Carrying Estimated Carrying Estimated Amount Fair Value

• Amount Fair Value (millions) 9,263 S

9,615k' S 9,090 S 9,548P' FPL Group:

Long-term debt, including current maturities Fixed income securities:

Special use funds, including storm fund Other Investments Interest rate swaps - net unrealized loss FPL:

Long-term debt, including current maturities Fixed Income securities:'

Special use funds, including storm fund Interest rate swaps - net unrealized loss 1,414 S

.69 S

(10) 1,414'tI)

., 69"'

. (10)"

1,316 57

$.-.; -(10)1

$ 1,316 "'

57(e)

(1 0)KI 3,313 I

~s 1,278 (2)

$ '3409"'a

$S -1,27 8 *t 2)

$ '3,074

$ 3,193"'

S 1,188 em

$ 1,1 88b11 A) Based on market prices provided by external sources.

• Based on quoted market prices for these or similar Issues.

k) Based on market prices modeled intemally.

The special use funds of FPL Group include restricted funds set aside to cover the cost of storm damage for FPL and for the decommissioning of FPL Group's and FPL's nuclear'power plants. At September 30, 2004, the special use funds set aside to cover the cost of storm damage for FPL'were reclassified to a current asset.on.FPL Group's and FPL's condensed consolidated balance sheets as FPL expects to utilize these funds during the next twelve months. A portion of the special use funds is invested in fixed income debt securities carried at their market value. Adjustments to market value result in a corresponding adjustment to the related liability accounts based on current regulatory treatment for FPL. The market value adjustments of FPL Group's non-rate regulated operations result in a corresponding adjustment to OCI. Because the funds set aside by FPL for storm damage could be needed at any time, the related investments are generally more liquid and, therefore, are less sensitive to changes in interest rates. The nuclear decommissioning funds, in contrast, are generally invested in longer-term securities, as decommissioning activities are not expected to begin until at least 2012.

33

FPL Group and its subsidiaries use a combination of fixed rate and variable rate debt to manage interest rate exposure. Interest rate swaps are used to adjust and mitigate interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements. At September 30, 2004, FPL Group had the following interest rate swaps:

Notional Effective Maturity Rate Rate Estimated Amount Date Date Paid Received Fair Value (millions)

(millions)

Fair value hedges - FPL:

S 250 April 2004 December 2005 variable" 6.875%

(1)

S 250 May 2004 December 2005 variables

'6.875%

(1)

Fair value hedges - FPL Group Capital:

$ 150 July 2003 September 2006 variable"1) 7.625%

(2)

$ 150 July 2003 September 2006 variable' 7.625%

(2)

S 200 January 2004 March 2005 variable"'

1.875%

(1)

Total fair value hedges (7)

Cash flow hedges - FPL Energy:

S 98 July 2002 December 2007 4.41 %

variables)

(3)

S 200 August 2003 November 2007 3.557%

variable's (1)

S 94 December 2003 December 2017 4.245%

variable"'

S 30 April 2004 December 2017 3.845%

variables" 1

Total cash flow hedges (3)

Total Interest rate hedges

$ (10) 1'4 Six-month LIBOR plus 3.7285%

(b)

Six-month LIBOR plus 3.6800%h

{

Six-month LIBOR plus 4.9900%/

t Six-month LIBOR plus 4.9925%

) Six-month LIBOR less 0.1375%

to Three-month LIBOR Based upon a hypothetical 10% decrease in interest rates, which is a reasonable near-term market change, the net fair value of FPL Group's net liabilities would increase by approximately $199 million ($83 million for FPL) at September 30, 2004.

Equity price risk - Included in the special use funds of FPL Group are marketable equity securities carried at their market value of approximately S957 million and $926 million ($809 million and $781 million for FPL) at September 30, 2004 and December 31, 2003, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges, which is a reasonable near-term market change, would result in a $96 million ($81 million for FPL) reduction in fair value and corresponding adjustments to the related liability accounts based on current regulatory treatment for FPL, or adjustments to OCI for FPL Group's non-rate regulated operations, at September 30, 2004.

Credit risk - For all derivative and contractual transactions, FPL Group's energy marketing and trading operations, which includes FPL's energy marketing and trading division, are exposed to losses in the event of nonperformance by counterparties to these transactions. Relevant considerations when assessing FPL Group's energy marketing and trading operations' credit risk exposure include:

Operations are primarily concentrated in the energy industry.

Trade receivables and other financial instruments are predominately with energy, utility and financial services related companies, as well as municipalities, cooperatives and other trading companies in the United States.

Overall credit risk is managed through established credit policies.

Prospective and existing customers are reviewed for creditworthiness based upon established standards, with customers not meeting minimum standards providing various credit enhancements or secured payment terms, such as letters of credit or the posting of cash collateral.

The use of master netting agreements to offset cash and non-cash gains and losses arising from derivative instruments with the same counterparty. FPL Group's policy is to have master netting agreements in place with significant counterparties.

Based on FPL Group's policies and risk exposures related to credit, FPL Group and FPL do not anticipate a material adverse effect on their financial positions as a result of counterparty nonperformance. As of September 30, 2004, approximately 100% of FPL Group's and 100% of FPL's energy marketing and trading counterparty credit risk exposure is associated with companies that have at least investment grade credit ratings.

34

Item 3. Quantitative and Qualitative Disclosures About Market Risk See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity - Market Risk Sensitivity.

Item 4. Controls and Procedures (a) Evaluatior6 of Disclosure Controls and Procedures

'As of September 30, 2004, FPL Group and FPL had performed an evaluation, under the supervision and with the participation of its management, including FPL Group's and FPL's chief executive officer and chief financial officer, of the-effectiveness of the design and operation of each company's disclosure' controls and procedures (as'defined In

'Exchange Act Rule 13a-15(e) or 15d-15(e)). Based upon that evaluation, the chief executive officer and chief financial officer of FPL Group and FPL concluded that the company's disclosure controls and procedures are effective in timely alerting them to material Information relating to the company and Its consolidated subsidiaries required to be included In the company's reports filed or submitted under the Exchange Act. FPL Group and FPL each have a Disclosure Committee, which Is made'up of several key management employees and reports directly to the'chief executive officer and chief financial officer of each company,'to monitor and evaluate these disclosure controls and procedures. Due to the Inherent limitations of the effectiveness of any established disclosure controls and procedures, management of FPL Group and FPL cannot provide absolute assurance that the objectives of its disclosure controls and procedures will be met.

(b) Changes in Internal Controls FPL Group and FPL are continuously seeking to improve the efficiency and effectiveness of their operations and of their internal controls. This results in refinements to processes throughout FPL Group and FPL. However, there has been no change In FPL Group's or FPL's Internal control over financial reporting that occurred during FPL Group's and FPL's most recent fiscal quarter that has materially affected, or Is reasonably likely to materially affect, FPL Group's or FPL's Intemal control ov'er financial reporting.'

'35

PART 11-OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Item 3. Legal Proceedings in the 2003 Form 10-K for FPL Group and FPL and Part II, Item 1. Legal Proceedings in the Quarterly Reports on Form 10-0 for each of the periods ended March 31, 2004 and June 30, 2004 for FPL Group and FPL.

On October 1, 2004, FMPA filed its initial brief in the proceeding related to the DC Circuit review of FERC's December 2003 order and March 2004 order. FERC's reply brief is due on December 1, 2004. FPLs brief Is due on December 16, 2004. With respect to FPLs compliance filing and FMPA's protest of such, the potential refund obligation, to FMPA at September 30, 2004 would be approximately $1 million under FPLs filing and approxiriately $25 million based on FMPAs position. Any reduction in FPL's network service rate would also apply effective January 1, 2004 to. Seminole. Electric Cooperative Inc. (Seminole), FPLs other network customer. The refund obligation to Seminole at September 30, 2004 would be approximately $0.2 million under FPL's filing and approximately $3 million based on FMPA's position..

In the Finestone lawsuit, the court has granted FPLs motion for a ruling that the only duty owed by FPL to the plaintiffs is established exclusively by federal regulations and not general negligence standards. The plaintiffs subsequently filed an amended complaint on the same factual grounds, including a count against FPL for strict liability, which appears identical in all material elements to the strict liability claim in plaintiffs' initial complaint, and counts against FPL for alleged negligence based on duties allegedly established by federal and state laws and regulations. FPL has again moved to dismiss the strict liability claim. FPL has further moved to dismiss all negligence claims that are not based on the duty that the court has recognized governs this action. FPL has answered the one count in the amended complaint that Is based on that duty, denying any liability. Plaintiffs have also moved to vacate or modify the court's order establishing the duty owed. FPL has opposed that motion, which remains pending.

In the Blake and Lowe lawsuit, as in the Finestone case, the court has also. granted FPL's motion for a ruling that the only duty owed by FPL to the plaintiffs is established exclusively by federal regulations and not general negligence standards. The plaintiffs subsequently filed an amended complaint on the same factual grounds, including a count against FPL for strict liability, which appears identical in all material elements to the strict liability claim in plaintiffs' initial complaint, and counts against FPL for alleged negligence based on duties allegedly established by federal and state laws and regulations. FPL has again moved to dismiss the strict liability claim. FPL has further moved to dismiss all negligence claims that are not based on the duty that the court has recognized governs this action. FPL has answered the one count in the amended complaint that is based on that duty, denying any liability. Plaintiffs have also moved to vacate or modify the court's order establishing the duty owed. FPL has opposed that motion, which remains pending.

In the Wooldridge lawsuit, the court has granted the drug distribution companies' motion to dismiss the complaint against them, and the plaintiffs are appealing that order. FPL's motion to dismiss is pending.

In each of the Roig and Shiflett lawsuits, the U.S. District Court remanded the action back to the state court. All parties anticipate that the drug manufacturing and distribution companies will move to dismiss the action. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until the state court rules on those motions.

With respect to the Center For Biological Diversity, Inc. (Center) lawsuit, on August 12, 2004, the Center dismissed the case against all defendants, without prejudice.

In the Albert Litter lawsuit, FPL has appealed the court order denying FPL's motion to dismiss. FPLs motion to stay the proceedings pending resolution of the appeal was denied by the trial court. This order is being appealed by FPL as well.

A hearing has been set for November 4, 2004 on the Southeastern Utility Services, Inc.'s protest to the FPSC's November 2003 proposed agency action regarding the 1 V thermal demand meters.

With respect to the Oorbeek and Berman, Klein and Phillips lawsuits, in August 2004, the plaintiffs, the individuals named as defendants, and FPL Group entered into a Stipulation and Agreement of Settlement that would resolve all matters raised in the lawsuits. Under the terms of the settlement, which is subject to approval by the court, eight current and former senior executive officers of FPL Group and an insurance carrier will pay to FPL Group a total of $22.25 million, representing a portion of the compensation that the executives received in December 2000 in connection with the shareholder-approved, but unconsummated, merger with Entergy. In addition, FPL Group agreed to implement several changes to Its corporate governance policies and procedures, including limiting the number of boards of directors on which a director of FPL Group may serve; affirming the right of the non-management directors of FPL Group to retain, at the company's expense, legal and other advisors of their choice; requiring the replacement every five years of at least a majority of the members of the Audit, Compensation, and Governance & Nominating Committees of the Board; and prohibiting the payment by FPL Group in any fiscal year of more than $200,000 for property, goods or services to any company of which an independent director is an executive officer or employee unless such payment is reviewed by a majority of the other independent directors. Notice of the proposed settlement was mailed to all shareholders of record as of September 25, 2004; the court hearing on the proposed settlement has been set for November 12, 2004. If the settlement is approved, a portion of the net amount of the payment received by FPL Group would be allocated to FPL. The binding arbitration agreement previously entered into between FPL Group and the eight senior officers in order to resolve an issue relating to the calculation of payments made would be obviated by court approval of the Stipulation and Agreement of Settlement described above.

36

With respect to the Notice of Violation from Rhode Island Department of Environmental Management (RIDEM),;in August 2004, FPLE Rhode Island State Energy, L.P. (RISE) met with RIDEM, discussed the relevant technical issues associated with.

the alleged violations and submitted a proposed settlement agreement. RIDEM has not yet responded to the proposed settlement agreement.

d a Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (c)

FPL Group, Inc. Purchases of Securities Maximum Number of Total Number of Shares that May Yet be Total Number of Average Price Shares Purchased as Part of a Purchased Under the Period Shares Purchased "

Paid Per Share Publicly Announced Program:

Program @' -

- i(thousands) 7/1104-7131/04 1,124 64.18 3,598 8/1104-8/31/04 310 S

68.12 3,598 911/04-9/30/04 1,940 68.32 3,598 Total 3.374 66.92

'X Represents shares of common stock purchased by FPL Group from employees to pay taxes related to the vesting of restricted stock granted to employees.

IbI In February 1997, FPL Group's board of directors auftorzed Ute repurchase of up to 10 million shares of common stock over an unspecified perod as part of a publicly annourced program.

Item 5. Other Information (i)

Reference Is made to Item 1. Business - FPL Operations - Retail Ratemaking in the 2003 Form 10-K for FPL Group and FPL.

In October 2004, the Florida Supreme Court affirmed the FPSC's approval of the 2002-2005 rate agreement, which had been appealed by the South Florida Hospital and Healthcare Association and certain hospitals, in April 2002. The appellants have until November 5, 2004 to request a rehearing.

(ii)

Reference is made to Item 1. Business - FPL Operations - Nuclear Operations in the 2003 Form 10-K for FPL Group and FPL.

Due to the impact of Hurricanes Frances and Jeanne in September 2004, St. Lucie Unit No. 2's scheduled nuclear refueling outage was delayed and is now scheduled to begin in January 2005.

(iii)

Reference is made to Item 1. Business - FPL Operations - Fuel in the 2003 Form 10-K for FPL Group and FPL and Part 11, Item 5. Other Information in the Quarterly Report on Form 10-0 for the period ended June 30, 2004 for FPL Group and FPL.

NRC approval for the additional storage racks at Turkey Point Units Nos. 3 and 4 Is expected in late 2004.

(iv)

Reference is made to Item 1. Business - FPL Operations - Employees in the 2003 Form 10-K for FPL Group and FPL.

The International Brotherhood of Electrical Workers (IBEW) voted to extend the collective bargaining agreement with FPL until October 31, 2005. Meanwhile, FPL and the IBEW are discussing a proposal for a successor agreement.

(v)

Reference is made to Item 1. Business - FPL Energy Operations - Portfolio by Category - Wind Assets In the 2003 Form 10-K for FPL Group.

In October 2004, Congress passed, and the President signed into law, an extension of the production tax credit program through the end of 2005.

FPL Energy announced that it will build, own and operate two new wind projects; a 106.5 mw wind farm In Oklahoma and a 114 mw wind farm in Texas. In addition, FPL Energy is currently repowering a wind farm in California which will add 20.5 mw. Including these wind additions, FPL Energy expects to add 250 mw to 750 mw of new wind projects by the end of 2005.

(vi)

Reference is made to Item 2. Properties - Transmission and Distribution in the 2003 Form 10-K for FPL Group and FPL.

FPL's service territory was affected by Hurricane Charley in mid-August 2004, Hurricane Frances in early September 2004 and by Hurricane Jeanne in late September 2004. Damage to FPL property was primarily to the transmission and distribution systems. See Note 8 - Storm Reserve Deficiency.

37

Item 6. Exhibits Exhibit Number Descrintion 4(a)

One Hundred Sixth Supplemental Indenture and Mortgage, dated as of September 1, 2004, between Florida Power & Light Company and Deutsche Bank Trust Company Americas, Trustee 4(b)

Supplemental Officer's Certificate of FPL Group Capital, dated October 27, 2004, to the Officer's Certificate creating the Series A Debentures due February 16, 2007 12(a)

Computation of Ratios 12(b)

Computation of Ratios 31 (a)

Rule 13a-1 4(a)/1i5d-1 4(a) Certification of Chief Executive Officer of FPL Group 31 (b)

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of FPL Group 31 (c)

Rule 13a-1 4(a)/1i5d-1 4(a) Certification of Chief Executive Officer of FPL 31(d)

Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of FPL 32(a)

Section 1350 Certification of FPL Group 32(b)

Section 1350 Certification of FPL FPL Group x

EEL x

x x

x xx xx x

x FPL Group and FPL agree to furnish to the SEC upon request any instrument with respect to long-term debt that FPL Group and FPL have not filed as an exhibit pursuant to the exemption provided by Item 601 (b)(4)(iii)(A) of Regulation S-K.

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.

FPL GROUP, INC.

FLORIDA POWER & LIGHT COMPANY (Registrants)

Date: November2,2004 K. MICHAEL DAVIS K. Michael Davis Controller and Chief Accounting Officer of FPL Group, Inc.

Vice President, Accounting, Controller and Chief Accounting Officer of Florida Power & Light Company (Principal Accounting Officer of the Registrants) 38

Exhibit 12(a)

FPL GROUP, INC. AND SUBSIDIARIES

.COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS '

Earnings, as defined:

Net income Preferred stock dividends of a consolidated subsidiary '

Income taxes Fixed charges included in the determination of net income, as below Amortization of capitalized interest Distributed Income of equity method investees Less: Equity In earnings of equity method investees Total earnings, as defined Fixed charges, as defined:

Interest charges Rental interest factor Fixed charges Included In the determination of net Income Capitalized Interest Dividend requirements on preferred stock of a consolidated subsidiary before income taxes '

Nine Months Ended September 30, 2004 (millions of dollars) 715 266 379 6

39 78

$ 1,327 368 11 379 38 Total fixed charges, as defined 417.

Ratio of earnings to fixed charges and ratio of earnings to combined fixed charges and preferred stock dividends A) 3.18 A'

FPL Group. Inc. has no preference equity securities outstanding; therefore, the ratio of earnings to fixed charges is the same as the ratio of earnings to combined fixed charges and preferred stock dividends.

0' A portion of Florida Power & Light Company's preferred stock is owned by FPL Group. Inc. and is eliminated in consolidation. Accordingly, those didends are not Included herein.

39

Exhibit 12(b)

FLORIDA POWER & LIGHT COMPANY COMPUTATION OF RATIOS Nine Months Ended September 30, 2004 (millions of dollars)

RATIO OF EARNINGS TO FIXED CHARGES Earnings, as defined:

Net Income S

586 Income taxes 318 Fixed charges, as below 148 Total earnings, as defined

$ 1,052 Fixed charges, as defined:

Interest charges -

S 135.

Rental interest factor 5

Capitalized interest 8

Total fixed charges, as defined 148 Ratio of earnings to fixed charges 7.11 RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS Earnings, as defined:

Net income 586 Income taxes 318 Fixed charges, as below 148 Total earnings, as defined

$ 1,052 Fixed charges, as defined:

Interest charges S

135 Rental interest factor 5

Capitalized interest a

Total fixed charges, as defined 148 Non-tax deductible preferred stock dividends 1

Ratio of income before income taxes to net income 1.54 Preferred stock dividends before income taxes 2

Combined fixed charges and preferred stock dividends 150 Ratio of earnings to combined fixed charges and preferred stock dividends 7.01 40

Exhibit 31(a)

Rule 1 3a-1 4(a)/1 5d-1 4(a) Certification I, Lewis Hay, III, Chief Executive Officer of FPL Group, Inc. (FPL Group), certify that:

1.

I have reviewed the Form 10-0 for the quarterly period ended September 30, 2004 of FPL Group (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,.in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information Included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material Information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed In this report any change -in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's Internal control over financial reporting; and

5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses In the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 2, 2004 LEWIS HAY, III Lewis Hay, Ill Chairman of the Board, President and Chief Executive Officer 41

Exhibit 31(b)

Rule 13a-14(a)/15d-14(a) Certification I, Moray P. Dewhurst, Chief Financial Officer of FPL Group, Inc. (FPL Group), certify that:

1.

I have reviewed the Form 10-Q for the quarterly period ended September 30, 2004 of FPL Group (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which. such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included In this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter In the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial Information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 2, 2004 MORAY P. DEWHURST Moray P. Dewhurst Vice President, Finance and Chief Financial Officer 42

Exhibit 31(c)

Rule 1 3a-1 4(a)115d-! 4(a) Certification I, Lewis Hay, III, Chief Executive Officer of Florida Power & Light Company (FPL), certify that:

1.

I have reviewed the Form 10-0 for the quarterly period ended September 30, 2004 of FPL (the registrant);

2.

Based on 'my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make' the statements made, In light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements,"and 'other financial Information Included In this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented In this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as'defined in'Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to'ensure that material Information relating to the, registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has' materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying 'officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of Internal control over financial reporting which are reasonably likely 'to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 2, 2004 LEWIS HAY;,Ill Lewis Hay, IlIl Chairman of the Board and Chief Executive Officer 43

Exhibit 31(d)

Rule 1 3a-1 4(a)/1 5d-1 4(a) Certification I, Moray P. Dewhurst, Chief Financial Officer of Florida Power & Light Company (FPL), certify that:

1.

I have reviewed the Form 1 0-Q for the quarterly period ended September 30, 2004 of FPL (the registrant);

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined-in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b)

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)

Disclosed in this report any change in the registrant's internal, control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 2, 2004 MORAY P. DEWHURST Moray P. Dewhurst Senior Vice President, Finance and Chief Financial Officer 44

Exhibit 32(a)

Section 1350 Certification We, Lewis Hay,1I1, Chief Executive Officer of FPL Group,,Inc. (FPL Group) and Moray P. Dewhurst, Chief Financial Officer of FPL Group, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report on Form 10-0 of FPL Group for the quarterly period ended September 30, 2004 (Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The Information contained in the Report fairly presents, In all material respects, the financial condition and results of operations of FPL Group.

Dated: November2,2004 LEWIS HAY, III Lewis Hay, Ill Chairman of the Board, President

-and Chief Executive Officer MORAY P. DEWHURST MorayP. Dewhurst Vice President, Finance and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to FPL Group and will be retained by FPL Group and furnished to the Securities and Exchange Commission or its stabl upon request.

The foregoing certification is being furiished as an exhibit to the Report pursuant to Item 601 (b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act' of 2002 and,/accordingly, is not being filed with the Securities and Exchange Commission as par of the Report and is not to be Incorporated by reference into any filing of FPL Group under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).

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Exhibit 32(b)

Section 1350 Certification We, Lewis Hay, Ill, Chief Executive Officer of Florida Power & Light Company (FPL) and Moray P. Dewhurst, Chief Financial Officer of FPL, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Quarterly Report on Form 10-0 of FPL for the quarterly period ended September 30, 2004 (Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and-(2) The information contained in the Report fairly presents, in all material respects, the financial condition anrd results of operations of FPL.

Dated: November 2, 2004 LEWIS HAY, III Lewis Hay, IlIl Chairman of the Board and Chief Executive Officer MORAY P. DEWHURST Moray P. Dewhurst Senior Vice President, Finance and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to FPL and will be retained by FPL and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the. Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of FPL under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).

EXHIBIT 3

EXHIBIT 3 FLORIDA POWER & LIGHT COMPANY Internal Cash Flow Excluding Retained Earnings Actual 12 Months Ended

$ Millions September 30, 2004 Projected 12 Months Ended September 30, 2005 Depreciation and Amortization 874 900 Deferred Income Taxes and Investment Tax Credits 474 450 internal Cash Flow excluding Retained Earnings applied toward Requirements Average Quarterly Cash Flow excluding Retained Earnings 1,347 1,350 337 338 Percentage Ownership of Operating Nuclear Units Turkey Point No. 3 Turkey Point No. 4 St. Lucie No. 1 St. Lucie No. 2 100 %

100 %

100 %

85.10449 % (1)

Maximum Total Contingent Liability 41 41 (1) FPL sold 6.08951% of St Lucie No. 2 to the Orlando Utilities Commission In January 1981 and 8.806% to the Florida Municipal Power Agency In May 1983.

C ertified by:

loray P. Dewhurst Chief Financial Officer