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Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2009, filed jointly by FPL Group, Inc. (a large accelerated filer) and its wholly-owned subsidiary, Florida Power & Light Company (FPL). FPL Group operates through two primary reportable segments: FPL, a rate-regulated electric utility serving Florida, and NextEra Energy Resources, a competitive energy business focused on wind and solar generation. The filing includes unaudited condensed consolidated financial statements and management's discussion and analysis.

Key Financial Metrics

Liquidity: As of March 31, 2009, FPL Group's total net available liquidity was approximately $5.3 billion, with FPL's portion at $1.7 billion. This includes $6.5 billion in bank revolving lines of credit.

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenues increased 7.9% to $3.705 billion, driven by NextEra Energy Resources' performance and unrealized mark-to-market gains on non-qualifying hedges ($90 million gain in 2009 vs. $205 million loss in 2008).
• Profitability: Net income rose 46% to $364 million. FPL's net income increased 17.6% to $127 million, while NextEra Energy Resources' net income surged 53.7% to $252 million.
• Segment Performance:
  • FPL: Higher earnings were driven by a $153 million settlement receivable from the U.S. Government regarding nuclear waste disposal, lower operations and maintenance (O&M) expenses, and higher equity component of AFUDC. These were partially offset by a 4.4% decrease in retail customer usage due to economic slowdowns.
  • NextEra Energy Resources: Earnings increased due to new wind investments, tax benefits (wind production tax credits and investment tax credits), and favorable mark-to-market hedge activity. Results were partially offset by lower wind generation and unfavorable market conditions in the ERCOT region.
• Debt and Financing: Long-term debt increased by $1.266 billion to $15.099 billion. The company issued $1.508 billion in long-term debt during the quarter, including $500 million in FPL first mortgage bonds and $375 million in junior subordinated debentures.
• Cash Flow: Operating cash flow decreased to $1.043 billion (from $1.317 billion) primarily due to changes in margin cash collateral and accounts payable. Investing cash outflows were $1.096 billion, reflecting capital expenditures and independent power investments.

Guidance, Outlook, and Risks

• Rate Case: FPL filed a petition with the Florida Public Service Commission (FPSC) in March 2009 requesting permanent base rate increases effective January 2010 and 2011. If approved, these increases would add approximately $1 billion in annual retail base revenues in 2010. A final decision is expected by the end of 2009.
• Capital Projects: FPL is constructing three natural gas-fired units at West County Energy Center (expected in-service late 2009 to mid-2011) and is pursuing modernization of Cape Canaveral and Riviera power plants. NextEra Energy Resources plans to add over 1,000 MW of wind generation in 2009.
• Regulatory and Legal Risks:
  • FERC Investigation: FPL is under investigation by the FERC regarding a February 2008 system loss. FPL expects the FERC may assert up to 25 violations, with potential penalties of up to $1 million per day.
  • Environmental: Ongoing litigation regarding Clean Air Act violations at the Scherer Unit No. 4 (in which FPL holds a 76% interest) remains stayed but unresolved.
  • Market Risk: The company faces significant exposure to commodity price volatility, managed through derivatives. A hypothetical 10% decrease in interest rates would increase the fair value of net liabilities by approximately $758 million.
• Unusual Items: The quarter included a $16 million net income benefit from the U.S. Government nuclear waste settlement. Additionally, NextEra Energy Resources recorded $31 million in after-tax other-than-temporary impairment (OTTI) losses on securities held in nuclear decommissioning funds.

Investor Verification Checklist

• Rate Case Outcome: Monitor the FPSC's final decision on FPL's base rate increase petition, which could significantly impact future revenue streams.
• Customer Usage Trends: Verify if the decline in retail customer usage (4.4% decrease) is a temporary economic effect or a structural shift in demand.
• Derivative Exposure: Review the $1.3 billion net derivative liability position and the potential collateral requirements if credit ratings are downgraded.
• Capital Expenditure Execution: Track the in-service dates for the West County Energy Center units and the modernization of Cape Canaveral/Riviera plants to ensure they align with revenue recovery timelines.
• Regulatory Penalties: Assess the potential financial impact of the FERC investigation into the February 2008 outage, specifically the number of violations asserted and the duration of the alleged non-compliance.