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Business Context and Reporting Period

This Form 10-Q is a combined quarterly report for FPL Group, Inc. and its primary subsidiary, Florida Power & Light Company (FPL), for the period ended September 30, 2004. FPL Group operates as a holding company with two primary reportable segments: FPL, a rate-regulated electric utility serving Florida, and FPL Energy, a non-rate regulated energy generation subsidiary. The reporting period was significantly impacted by three major hurricanes (Charley, Frances, and Jeanne) that struck FPL's service territory in the third quarter, causing widespread power outages and property damage.

Key Financial Metrics (Nine Months Ended Sept 30, 2004)

Material Changes vs. Prior Period

• Revenue Growth: Consolidated operating revenues increased 10.3% to $7,933 million from $7,195 million in the prior year, driven by higher fuel costs passed through to customers and increased customer accounts.
• Net Income Decline: Consolidated net income decreased 4.0% to $715 million from $745 million. FPL's net income available to FPL Group dropped to $585 million from $611 million, primarily due to hurricane impacts and milder weather reducing usage.
• Hurricane Impact: The three hurricanes resulted in approximately $36 million in lost revenues for the quarter and a $361 million deficiency in FPL's storm reserve. This deficiency was recorded as a regulatory asset pending recovery from customers.
• Segment Performance: FPL Energy net income increased to $183 million from $156 million, benefiting from new project additions and improved market conditions in the ERCOT region, partially offset by higher interest expenses.
• Accounting Changes: The company adopted FASB Interpretation No. 46 (FIN 46R) regarding Variable Interest Entities, though no additional entities required consolidation in this period.

Guidance, Outlook, and Risks

• Outlook: Management estimates the hurricanes will reduce FPL Group's earnings per share by an additional 1 cent in the fourth quarter of 2004. FPL Energy expects to add 250 MW to 750 MW of new wind projects by the end of 2005 following the extension of production tax credits.
• Regulatory Recovery: FPL intends to seek recovery of the $361 million storm reserve deficiency through rates, subject to Florida Public Service Commission (FPSC) review for prudence. A $73 million federal tax refund related to casualty losses is expected in Q4 2004.
• Legal Contingencies: A settlement agreement regarding shareholder derivative lawsuits concerning executive compensation is pending court approval, involving a $22.25 million payment to FPL Group by former executives. Other litigation includes environmental claims and disputes over transmission credits with the Florida Municipal Power Agency (FMPA).
• Risk Factors: Key risks include regulatory actions affecting rate structures, environmental compliance costs, nuclear fuel storage issues, and exposure to commodity price volatility in FPL Energy's merchant portfolio.

Investor Verification Checklist

• Storm Reserve Recovery: Verify the FPSC's approval timeline and methodology for recovering the $361 million storm reserve deficiency.
• Hurricane Cost Estimates: Confirm final restoration costs and insurance recoveries, as current figures are accruals subject to change.
• Executive Settlement: Monitor the court hearing scheduled for November 12, 2004, regarding the $22.25 million settlement of shareholder lawsuits.
• FPL Energy Contract Coverage: Review the percentage of FPL Energy's capacity under long-term contracts versus merchant exposure, particularly for the 2005 period.
• Capital Expenditures: Track the execution of the $6.57 billion planned capital expenditure program through 2008, specifically regarding nuclear fuel and transmission upgrades.