NEE

Business Context and Reporting Period

This Form 10-K covers the fiscal year ended December 31, 1997, 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, with FPL serving as the primary operating subsidiary providing electric generation, transmission, and distribution services to approximately 3.6 million customer accounts across 27,650 square miles in Florida. Other operations include independent power projects managed through FPL Energy and agricultural operations via Turner Foods Corporation.

Key Financial Metrics

FPL Subsidiary Specifics: FPL operating revenues were $6,132 million, with net income available to FPL Group of $608 million. FPL's retail regulatory Return on Equity (ROE) was 12.3% in 1997, within the authorized range of 11% to 13%.

Material Changes vs. Prior Period

• Profitability Growth: Net income increased 6.7% and EPS increased 7.2% compared to 1996. This improvement was driven by better operating results in non-regulated businesses (specifically ESI Energy's independent power projects) and continued growth in FPL's customer base.
• Revenue Drivers: Operating revenues rose 5.5% year-over-year. This was attributed to a 2.3% increase in total energy sales (driven by warmer weather and customer growth) and the consolidation of several independent power projects previously accounted for as equity investments.
• Expense Trends: Other operations and maintenance (O&M) expenses increased to $1,231 million (from $1,189 million in 1996), primarily due to costs associated with the conservation clause. However, excluding these pass-through costs, O&M expenses declined slightly due to lower nuclear refueling and payroll costs.
• Debt Reduction: FPL Group reduced its debt and preferred stock balances by approximately $1.0 billion over the three-year period ending 1997, though interest charges increased slightly in 1997 due to debt assumed from ESI's portfolio restructuring.
• Capital Expenditures: FPL's capital expenditures were $551 million in 1997, an increase from $474 million in 1996, largely due to the replacement of steam generators at St. Lucie Unit No. 1.

Guidance, Outlook, Risks, and Contingencies

Outlook and Guidance

• Capital Plan: FPL expects capital expenditures of approximately $1.8 billion for the 1998-2000 period, including $620 million in 1998.
• Acquisitions: FPL Group announced plans to acquire Central Maine Power Company's non-nuclear generation assets (expected to close in late 1998) and has committed $1.1 billion for energy-related acquisitions in 1998.
• Dividends: The Board reviews dividend rates annually; quarterly dividends were maintained at $0.48 per share throughout 1997.

Risks and Contingencies

• Regulatory Risk: In December 1997, a large customer petitioned the Florida Public Service Commission (FPSC) to reduce FPL's base rates and authorized ROE. The outcome is uncertain and could materially affect financial statements.
• Deregulation: The company faces potential risks from industry-wide deregulation, which could shift pricing from cost-based to market-based, potentially requiring write-offs of regulatory assets.
• Legal Proceedings:
  • Qualifying Facilities Litigation: FPL is involved in a dispute with owners of two qualifying facilities (Okeelanta and Osceola) who filed for bankruptcy and counterclaimed for approximately $2 billion in capacity payments. FPL believes it has meritorious defenses.
  • FMPA Antitrust Suit: The Florida Municipal Power Agency (FMPA) seeks $140 million in damages (plus treble damages) alleging antitrust violations regarding transmission service. The case is stayed pending a FERC ruling.
  • Johnson Enterprises: A contractor sued for breach of contract; a jury awarded approximately $6 million, which is currently under appeal.
• Nuclear Waste: The Department of Energy (DOE) has failed to meet statutory deadlines for spent nuclear fuel disposal. FPL is litigating to suspend payments to the Nuclear Waste Fund.
• Orimulsion Fuel: Regulatory approval to burn Orimulsion at the Manatee power plant is pending following a remand by the Florida Power Plant Siting Board.

Investor Verification Checklist

• Rate Case Status: Verify the current status of the December 1997 FPSC petition requesting a reduction in FPL's base rates and ROE.
• Legal Exposure: Assess the potential financial impact of the $2 billion counterclaim from the qualifying facilities litigation and the FMPA antitrust suit.
• Acquisition Integration: Monitor the regulatory approval and closing timeline for the Central Maine Power Company asset acquisition.
• Regulatory Asset Recoverability: Review the company's assessment of regulatory asset recoverability in the event of future deregulation in Florida.
• Nuclear Decommissioning: Confirm the adequacy of the $1.5 billion estimated decommissioning liability and the status of DOE's spent fuel disposal obligations.