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Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 1999, for FPL Group, Inc. (the holding company) 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 regulated utility serving approximately 3.8 million customer accounts in Florida, and FPL Energy, an unregulated subsidiary engaged in independent power projects. The company is subject to regulation by the Florida Public Service Commission (FPSC) and the Federal Energy Regulatory Commission (FERC).

Key Financial Metrics

Note: FPL (regulated utility) contributed $6,057 million in operating revenues and $576 million in net income available to FPL Group in 1999.

Material Changes vs. Prior Period

• Revenue Decline: Consolidated operating revenues decreased 3.3% to $6,438 million. This was primarily driven by a $350 million annual revenue reduction in FPL's retail base operations effective April 1999, resulting from a new regulatory agreement with the FPSC.
• Net Income Growth: Despite lower revenues, net income increased 5.0% to $697 million. This growth was supported by gains from the divestiture of cable investments ($162 million pre-tax gain) and improved results from FPL Energy, partially offset by a $176 million pre-tax impairment loss on Maine assets and a $42 million litigation settlement charge.
• Capital Expenditures Surge: Total capital expenditures and investments more than doubled to $2,479 million, driven by FPL Energy's $1.5 billion acquisition of Central Maine Power Company's non-nuclear assets and construction of a Texas power plant.
• Debt Increase: Long-term debt increased by $1.1 billion to $3,478 million, reflecting new issuances to finance FPL Energy's expansion and the Maine acquisition.

Guidance, Outlook, and Risks

Management Commentary and Outlook

• Regulatory Agreement: A three-year agreement (1999-2002) with the FPSC lowered FPL's authorized regulatory Return on Equity (ROE) range to 10%-12% (from 11%-13%) and established a revenue-sharing mechanism. Revenues exceeding specific thresholds will be refunded to customers.
• Capital Plan: FPL projects capital expenditures of approximately $3.1 billion for the 2000-2002 period, including $1.3 billion in 2000, to meet customer growth and expand generation capacity.
• Generation Expansion: FPL intends to repower units at Fort Myers and Sanford and add new gas-fired turbines, aiming to increase net generating capability by over 4,000 MW by 2009.
• FPL Energy Growth: FPL Energy plans to build five new plants adding approximately 2,100 MW of capacity by 2003 and is expanding its regional presence.

Risks and Contingencies

• Legal Proceedings:
  • Qualifying Facilities Litigation: FPL faces counterclaims of approximately $2 billion from owners of two qualifying facilities (Okeelanta and Osceola) regarding power purchase agreements. FPL believes it has meritorious defenses.
  • Cedar Bay Dispute: A jury awarded Cedar Bay Generating Company $13 million for alleged breach of implied duty of good faith. FPL has appealed and expects to recover the amount through the capacity clause.
  • EPA Action: The EPA has sued Georgia Power (in which FPL owns a 76% interest) regarding Clean Air Act violations at Scherer Unit No. 4, seeking injunctive relief and civil penalties.
• Regulatory Risk: Potential deregulation in Florida could shift rates from cost-based to market-based, potentially requiring write-offs of regulatory assets. No specific deregulation proposal is currently under consideration in Florida.
• Market Risk: FPL Energy faces risks from competitive wholesale markets, fuel price volatility, and transmission constraints.

Investor Verification Checklist

• Regulatory Agreement Impact: Verify the specific revenue thresholds and refund mechanisms under the 1999 FPSC agreement and their effect on future cash flows.
• Impairment Loss Details: Review the discounted cash flow analysis used to determine the $176 million impairment loss on the Maine fossil assets.
• Litigation Exposure: Assess the potential financial impact of the $2 billion counterclaim from qualifying facility owners and the EPA lawsuit regarding Scherer Unit No. 4.
• Capital Expenditure Execution: Monitor the $3.1 billion capital plan for 2000-2002, specifically the funding sources and progress of the Texas power plant and repowering projects.
• Debt Maturities: Review the schedule of debt maturities, noting approximately $595 million due through 2004, and the company's refinancing strategy.