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Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 2001, for FPL Group, Inc. and its principal subsidiary, Florida Power & Light Company (FPL). FPL Group is a public utility holding company incorporated in Florida. Its primary operations are conducted through FPL, a rate-regulated utility serving approximately 3.9 million customer accounts in Florida, and FPL Energy, an unregulated subsidiary engaged in independent power generation projects across the United States. The filing also includes information on FPL FiberNet, a telecommunications subsidiary.

Key Financial Metrics

Segment Performance: FPL (regulated utility) contributed $679 million to net income, while FPL Energy (unregulated) contributed $113 million. Corporate and Other operations recorded a loss of $11 million.

Material Changes vs. Prior Period

• Revenue Growth: Operating revenues increased 19.7% to $8.475 billion, driven by a 2.3% increase in retail customer accounts, higher electricity usage per customer, and significant volatility in fuel prices which increased clause revenues.
• Profitability: Net income rose 11% to $781 million. Excluding merger-related expenses ($30 million in 2001 vs. $67 million in 2000) and FAS 133 unrealized gains ($8 million), adjusted net income increased 6.3%.
• Capital Investment: Capital expenditures and investments surged to $3.262 billion, up from $1.896 billion in 2000. This includes $1.154 billion for FPL and $1.977 billion for FPL Energy's expansion of independent power projects.
• Debt Levels: Long-term debt increased by approximately $882 million to $4.858 billion to fund capital expansion and reduce commercial paper balances.
• Merger Termination: The proposed merger with Entergy Corporation was mutually terminated on April 1, 2001, resulting in $30 million of merger-related expenses in 2001.

Guidance, Outlook, and Risks

• Rate Agreement: On March 22, 2002, the Florida Public Service Commission (FPSC) approved a new rate agreement effective April 15, 2002. This agreement includes an additional $250 million annual reduction in retail base revenues and a $200 million reduction in fuel clause recoveries for the remainder of 2002. It also lowers the authorized regulatory Return on Equity (ROE) range.
• Capital Plan: FPL projects capital expenditures of approximately $4.4 billion for the 2002-2004 period, including $1.3 billion in 2002. FPL Energy expects 2002 capital expenditures to approximate $2.7 billion.
• Regulatory Risks: The company faces potential deregulation in Florida, which could require the write-off of regulatory assets and liabilities. The Energy 2020 Study Commission has proposed removing barriers to entry for merchant plants.
• Legal Proceedings:
  • Environmental: The EPA has sued Georgia Power (in which FPL owns a 76% interest in Scherer Unit No. 4) for alleged Clean Air Act violations, seeking penalties and injunctive relief.
  • Executive Compensation: Shareholder lawsuits allege corporate waste regarding Long Term Incentive Plan (LTIP) payments made to officers upon the termination of the Entergy merger.
  • Fiber Optic Easements: Litigation challenges FPL's use of easements for fiber-optic cable for non-electric purposes.
• Market Risk: FPL Energy faces risks from oversupply in wholesale markets and lower demand due to a weakening economy. Approximately 86% of FPL Energy's capacity was under contract in 2001.

Investor Verification Checklist

• Rate Case Impact: Verify the financial impact of the new $250 million annual revenue reduction approved in March 2002 on future earnings guidance.
• Merger Litigation: Monitor the status of shareholder lawsuits regarding LTIP payments and the potential for clawbacks or damages.
• Environmental Liability: Assess the potential financial exposure from the EPA lawsuit regarding Scherer Unit No. 4 and the status of the DOE's failure to dispose of spent nuclear fuel.
• Capital Expenditure Execution: Confirm the ability to fund the projected $4.4 billion capital plan (2002-2004) given the new rate reductions and debt maturities.
• Wholesale Market Exposure: Review the renewal status of FPL Energy's power sales agreements, as 80% of 2002 capacity is under contract but competitive pressures may affect pricing upon renewal.