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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2007, for FPL Group, Inc. and its principal subsidiary, Florida Power & Light Company (FPL). FPL Group operates through two primary reportable segments: FPL, a rate-regulated electric utility serving Florida, and FPL Energy, a competitive energy business engaged in power generation and trading. The filing includes unaudited condensed consolidated financial statements.

Key Financial Metrics (Nine Months Ended Sept 30, 2007)

Material Changes vs. Prior Period

• Revenue Decline: Consolidated operating revenues decreased 4.2% to $11.579 billion (from $12.087 billion in 2006). FPL revenues declined due to lower retail customer usage (weather-related) and reduced fuel cost recovery revenues following rate adjustments.
• Net Income Growth: Despite lower revenues, consolidated net income increased 7.4% to $1.088 billion (from $1.013 billion in 2006). This was driven by improved market conditions for FPL Energy and the absence of $28 million in disallowed storm costs that impacted the prior year.
• Segment Performance:
  • FPL: Net income rose 4.9% to $663 million, aided by a base rate increase from the Turkey Point Unit No. 5 commercial operation, offset by higher O&M and interest expenses.
  • FPL Energy: Net income increased 1.3% to $468 million, driven by new investments and improved market conditions, though partially offset by a $105 million decrease in unrealized mark-to-market gains compared to the prior year.
• Acquisition: On September 28, 2007, FPL Energy acquired the Point Beach Nuclear Power Plant (1,023 MW) for approximately $935 million in net assets.

Guidance, Outlook, and Risks

• Capital Commitments: FPL Group has estimated capital expenditures of approximately $9.18 billion for FPL and $4.57 billion for FPL Energy through 2011. Additional planned investments include up to $1.5 billion in solar thermal facilities and a $500 million smart network initiative.
• Regulatory Matters:
  • Storm Recovery: FPL issued $652 million in storm-recovery bonds in May 2007 to recover costs from 2004 and 2005 hurricanes. A $200 million storm reserve has been reestablished.
  • Coal Units: The Florida Public Service Commission (FPSC) denied FPL's petition for two ultra super critical coal units in June 2007. FPL is seeking to defer $35 million in preconstruction costs; a decision is expected in late November 2007.
• Market Risk: FPL Group uses derivative instruments to manage commodity and interest rate risks. Unrealized mark-to-market activity on non-qualifying hedges resulted in a net after-tax loss of approximately $28 million for the nine months ended September 30, 2007, compared to a gain of $77 million in the prior year.
• Legal Proceedings: Significant litigation includes the EPA action regarding Scherer Unit No. 4 (stayed), the Adelphia fraudulent transfer claim (trial scheduled for Jan 2009), and various environmental suits regarding nuclear plant emissions (appeals pending).

Investor Verification Checklist

• Storm Reserve Adequacy: Verify the sufficiency of the reestablished $200 million storm reserve against potential future hurricane risks in Florida.
• Regulatory Approval on Coal Costs: Monitor the FPSC decision in late November 2007 regarding the deferral of $35 million in preconstruction costs for denied coal units.
• Derivative Valuation: Review the impact of fluctuating forward power and natural gas prices on FPL Energy's unrealized mark-to-market gains/losses, which significantly impact reported earnings.
• Point Beach Integration: Assess the operational and financial integration of the newly acquired Point Beach Nuclear Power Plant.
• Capital Expenditure Execution: Track the execution of the $13.75 billion in planned capital expenditures through 2011, particularly the $2.745 billion allocated to new wind projects.