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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 2008, for FPL Group, Inc. and its primary subsidiary, Florida Power & Light Company (FPL). FPL Group operates through two main reportable segments: FPL, a rate-regulated electric utility serving Florida, and FPL Energy, a competitive energy business focused on wind, solar, and nuclear generation. The filing reflects operations during a period of significant volatility in global credit and capital markets.

Key Financial Metrics (Nine Months Ended Sept 30, 2008)

Material Changes vs. Prior Period

• Consolidated Net Income: Increased by $144 million (13%) to $1,232 million compared to $1,088 million in the prior year period. This growth was driven primarily by FPL Energy.
• FPL Energy Performance: Net income surged $182 million to $650 million. The increase was largely attributable to $76 million in net unrealized mark-to-market gains from non-qualifying hedges (compared to $28 million in losses in 2007) and favorable market conditions in NEPOOL, ERCOT, and PJM regions.
• FPL Utility Performance: Net income decreased $25 million to $638 million. Declines were caused by lower retail customer usage (due to weather and economic slowdown) and higher depreciation and O&M expenses, partially offset by a base rate increase from the Turkey Point Unit No. 5.
• Liquidity Position: Cash and cash equivalents increased significantly by $1,302 million to $1,592 million, reflecting strong operating cash flows and a net increase in short-term debt to manage liquidity in volatile markets.

Guidance, Outlook, and Risks

• Capital Expenditure Reductions: Due to the economic and credit environment, FPL Group reduced planned capital expenditures by approximately $475 million for 2008 and $1.7 billion for 2009. This includes deferrals of new wind development at FPL Energy and system growth projects at FPL.
• Market Risk: The company faces significant exposure to commodity price volatility. FPL Energy recorded substantial unrealized gains on derivative instruments, which are subject to reversal as contracts settle. Management notes that disruptions in financial markets could increase the cost of capital and limit access to funding.
• Regulatory and Legal: FPL is subject to ongoing regulatory reviews regarding storm restoration costs and nuclear cost recovery. Legal proceedings include an EPA action regarding the Scherer Unit No. 4 (in which FPL holds a 76% interest) and a substation fault investigation by FERC and FRCC, though management does not currently expect a material adverse financial impact.
• Outlook: FPL Energy plans to add 1,100 MW of wind generation in 2009, subject to public policy support (specifically the extension of Production Tax Credits) and access to capital. FPL expects retail base revenues to increase in 2009 due to rate changes associated with new West County Energy Center units.

Investor Verification Checklist

• Derivative Valuation: Verify the sustainability of FPL Energy's earnings, which were heavily influenced by $76 million in unrealized mark-to-market gains on non-qualifying hedges.
• Capital Market Access: Monitor the company's ability to refinance short-term debt and maintain investment-grade credit ratings amidst global credit market volatility.
• Regulatory Approvals: Track the status of the Florida Public Service Commission (FPSC) rulings on pre-construction costs for new nuclear units and the recovery of storm restoration costs.
• Customer Usage Trends: Assess the long-term impact of the economic slowdown and housing crisis on FPL's retail customer base and usage per customer.
• PTC Dependency: Evaluate the risk to FPL Energy's growth strategy if federal Production Tax Credits (PTCs) for wind projects are not extended beyond 2009.