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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
September 30, 2006
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Commission
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Exact name of registrants as specified in their
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IRS Employer
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FLORIDA POWER & LIGHT COMPANY 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 |
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State or other jurisdiction of incorporation or organization: Florida
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FPL Group, Inc. Yes X No |
Florida Power & Light Company Yes No X |
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FPL Group, Inc. |
Large Accelerated Filer X Accelerated Filer Non-Accelerated Filer |
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Florida Power & Light Company |
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer X |
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________________________________
TABLE OF CONTENTS
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Page No. |
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Forward-Looking Statements |
2 |
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PART I - FINANCIAL INFORMATION |
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Item 1. |
Financial Statements |
4 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
27 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
40 |
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Item 4. |
Controls and Procedures |
40 |
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PART II - OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
41 |
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Item 1A. |
Risk Factors |
41 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
42 |
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Item 5. |
Other Information |
42 |
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Item 6. |
Exhibits |
43 |
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Signatures |
45 |
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FPL Group, Inc., Florida Power & Light Company, FPL Group Capital Inc and FPL Energy, LLC each have subsidiaries and affiliates with names that include FPL, FPL Energy, FPLE and similar references. For convenience and simplicity, in this report the terms FPL Group, FPL, FPL Group Capital and FPL Energy are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on FPL Group, Inc.'s (FPL Group's) and/or Florida Power & Light Company's (FPL's) operations and financial results, and could cause FPL Group's and/or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.
These and other risk factors are included in this report in Part II, Item 1A. Risk Factors and in Part I, Item 1A. Risk Factors of FPL Group's and FPL's Annual Report on Form 10-K for the year ended December 31, 2005 (2005 Form 10-K). Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2005 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
Variable Interest Entities
- In April 2006, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) FIN 46(R)-6, "Determining the Variability to Be Considered in Applying FASB Interpretation No. 46(R)," which states that the variability to be considered when applying FASB Interpretation No. (FIN) 46 (revised) (FIN 46(R)) to determine whether an entity is a variable interest entity should be based on an analysis of the design of the entity which entails analyzing the nature of the risks in the entity and determining the purpose for which the entity was created and determining the variability the entity is designed to create and pass along to its interest holders. The role of a contract or arrangement in the design of the entity, regardless of its legal form or accounting classification, shall dictate whether that interest should be treated as creating or absorbing variability for the entity. The effective date of FSP FIN 46(R)-6 was July 1, 2006 and was applied prospectively. The adoption of FSP FIN 46(R)-6 did not have a significant impact on the financial statements of FPL Group or FPL.
Accounting for Uncertainty in Income Taxes
- In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109." The interpretation prescribes a more-likely-than-not recognition threshold and establishes measurement requirements for financial statement reporting of an entity's income tax positions. The interpretation is effective for fiscal years beginning after December 15, 2006. The impact, if any, of applying the provisions of FIN 48 will be reported as a cumulative effect adjustment in the first quarter of 2007. FPL Group and FPL are currently evaluating the impact of FIN 48.
Accounting for Planned Major Maintenance Activities -
In September 2006, the FASB issued FSP AUG AIR-1, "Accounting for Planned Major Maintenance Activities," which eliminates the accrue-in-advance method for recognizing costs associated with planned major maintenance activities. FPL Group and FPL currently utilize the accrue-in-advance method to account for certain planned major maintenance costs. FPL will continue to apply the accrue-in-advance method in accordance with regulatory treatment, and will record the resulting accrual as a regulatory liability on the balance sheet. Upon adoption of FSP AUG AIR-1, FPL Energy will utilize the deferral method to account for certain planned major maintenance costs. FPL Group and FPL will be required to adopt FSP AUG AIR-1 beginning January 1, 2007 and apply it retrospectively. FPL Group is currently evaluating the impact of adopting FSP AUG AIR-1.
Fair Value Measurements -
In September 2006, the FASB issued Statement of Financial Accounting Standards No. (FAS) 157, "Fair Value Measurements," which clarifies how to measure fair value and requires enhanced fair value measurement disclosures. The standard emphasizes that fair value is a market-based measurement, not an entity-specific measurement and sets out a fair value hierarchy with the highest priority being quoted prices in active markets for identical assets or liabilities. FPL Group and FPL will be required to adopt FAS 157 on January 1, 2008. FPL Group and FPL are currently evaluating the impact of FAS 157.
Accounting for Pensions and Other Postretirement Plans -
In September 2006, the FASB issued FAS 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires the reporting of previously unrecognized actuarial gains and losses and prior service costs on the balance sheet as part of other comprehensive income. FPL Group and FPL will be required to adopt FAS 158 at December 31, 2006, which is expected to result in a significant net increase in total assets with a corresponding increase in other comprehensive income and deferred taxes, and for FPL's portion an increase in regulatory assets and liabilities. The standard also requires FPL Group and FPL to measure plan assets and liabilities as of their year end no later than December 31, 2008. FPL Group and FPL are continuing to evaluate additional impacts of FAS 158.
Employee Benefit Plans and Other Postretirement Plan
- FPL Group sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. FPL Group also has a supplemental executive retirement plan (SERP). See Supplemental Retirement Plan below. In addition to pension benefits, FPL Group sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements.
The following table provides the components of net periodic benefit (income) cost for the plans:
Pension Benefits
Other Benefits
Pension Benefits
Other Benefits
Three Months
Nine Months
2006
2005
2006
2005
2006
2005
2006
2005
(millions)
Service cost
$
13
$
13
$
1
$
2
$
38
$
39
$
4
$
6
Interest cost
22
22
6
6
66
65
18
19
Expected return on plan assets
(53
)
(53
)
(1
)
(1
)
(160
)
(158
)
(3
)
(3
)
Amortization of transition obligation
-
-
1
1
-
-
3
3
Amortization of prior service benefit
(1
)
(1
)
-
-
(3
)
(3
)
-
-
Amortization of (gains) losses
(4
)
(4
)
-
1
(11
)
(12
)
-
3
Other
-
-
-
-
-
-
2
-
Net periodic benefit (income) cost at FPL Group
$
(23
)
$
(23
)
$
7
$
9
$
(70
)
$
(69
)
$
24
$
28
Net periodic benefit (income) cost at FPL
$
(19
)
$
(18
)
$
7
$
8
$
(57
)
$
(55
)
$
22
$
24
Ended September 30,
Ended September 30,
Supplemental Retirement Plan
- FPL Group has a SERP which includes a non-qualified supplemental defined pension benefit component that provides benefits to a select group of management and highly compensated employees. The cost of this SERP component is included in the determination of net periodic benefit income for pension benefits in the preceding table and amounted to approximately $1 million and $1 million for FPL Group for the three months ended September 30, 2006 and 2005, respectively, and approximately $2 million and $2 million for the nine months ended September 30, 2006 and 2005, respectively.
Derivative instruments, when required to be marked to market under FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value.
FPL Group's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:
FPL Group
FPL
September 30,
December 31,
September 30,
December 31,
2006
2005
2006
2005
(millions)
Current derivative assets
$
279
$
1,074
$
13
$
828
Other assets
158
62
4
-
Current derivative liabilities
(1,036
)
(463
)
(665
)
-
Other liabilities
(219
)
(387
)
(70
)
-
Total mark-to-market derivative instrument
assets (liabilities)
$
(818
)
$
286
$
(718
)
$
828
FPL Group and FPL use derivative instruments (primarily swaps, options and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate risk associated with long-term debt. In addition, FPL Group uses derivatives to optimize the value of power generation assets. At FPL, substantially all changes in the fair value of derivatives are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses are passed through the fuel and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause). For FPL Group's non-rate regulated operations, predominantly FPL Energy, LLC (FPL Energy), essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized net in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied. While the majority of FPL Energy's derivative transactions are entered into for the purposes described above, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk. Additionally, for hedges of commodity price risks, physical delivery for forecasted commodity transactions must be probable. FPL Group believes that where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has not occurred. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis. Generally, the hedging instrument's effectiveness is assessed utilizing regression analysis at the inception of the hedge and on at least a quarterly basis throughout its life.
At September 30, 2006, FPL Group had cash flow hedges with expiration dates through December 2011 for energy contract derivative instruments, and interest rate cash flow hedges with expiration dates through November 2019. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. The ineffective portion of net unrealized gains (losses) on these hedges flows through earnings in the current period and amounted to $12 million and ($15) million for the three months ended September 30, 2006 and 2005, respectively, and $23 million and ($25) million for the nine months ended September 30, 2006 and 2005, respectively. Settlement gains and losses are included within the line items in the statements of income to which they relate.
FPL Group's unrealized mark-to-market gains (losses) on derivative transactions reflected in the condensed consolidated statements of income for consolidated subsidiaries and equity method investees are as follows:
Three Months Ended
Nine Months Ended
2006
2005
2006
2005
(millions)
Consolidated subsidiaries
$
116
$
(113
)
$
142
$
(240
)
Equity method investees
$
(5
)
$
10
$
(20
)
$
7
September 30,
September 30,
FPL Group's effective income tax rate for the three months ended September 30, 2006 and 2005 was approximately 30.5% and 31.1%, respectively. The reduction from the federal statutory rate mainly reflects the benefit of production tax credits (PTCs) of approximately $35 million and $30 million, respectively, related to FPL Energy's wind projects. The corresponding rates and amounts for the nine months ended September 30, 2006 and 2005 were approximately 27.4% and 25.2%, respectively, and approximately $116 million and $93 million, respectively. In addition, FPL Group's effective income tax rate for the three and nine months ended September 30, 2006 reflects a $13 million state tax benefit, reflecting FPL Energy's growth throughout the United States, recorded at Corporate and Other in the third quarter of 2006 and certain federal income tax deductions and credits recorded in 2006 by FPL. FPL Group's effective income tax rate for the nine months ended September 30, 2006 also reflects an approximately $7 million deferred tax expense resulting from a change in tax law in Texas.
FPL Group recognizes PTCs as wind energy is generated and sold based on a per kilowatt-hour (kwh) rate prescribed in applicable federal and state statutes, which may differ significantly from amounts computed, on a quarterly basis, using an overall effective income tax rate anticipated for the full year. FPL Group utilizes this method of recognizing PTCs for specific reasons including that PTCs are an integral part of the financial viability of most wind projects and a fundamental component of such wind projects' results of operations.
On October 24, 2006, FPL Group and Constellation Energy Group, Inc. (Constellation Energy) mutually agreed to terminate their previously-announced proposed merger as a result of continued uncertainty over regulatory and judicial matters in Maryland. No termination fee is payable under the termination agreement unless Constellation Energy agrees with another party to a comparable transaction on or prior to September 30, 2007, in which case a fee will be payable to FPL Group by Constellation Energy. FPL Group recorded approximately $11 million of merger-related costs in the third quarter of 2006, primarily as a result of the write-off of previously capitalized transaction costs.
FPL Group's comprehensive income is as follows:
Three Months Ended
2006
2005
(millions)
Net income of FPL Group
$
524
$
339
Net unrealized gains (losses) on commodity cash flow hedges:
Effective portion of net unrealized gains (losses)
(net of $60 tax expense and $83 tax benefit, respectively)
87
(121
)
Reclassification from other comprehensive income (OCI) to net income
(net of $5 and $10 tax expense, respectively)
8
15
Net unrealized gains (losses) on interest rate cash flow hedges:
Effective portion of net unrealized gains (losses)
(net of $5 tax benefit and $2 tax expense, respectively)
(8
)
3
Reclassification from OCI to net income
(net of $0.5 tax expense in 2006)
1
-
Net unrealized gains (losses) on available for sale securities
(net of $8 tax expense in 2006)
13
-
SERP liability adjustment
(net of $1 tax expense in 2005)
-
3
Comprehensive income of FPL Group
$
625
$
239
September 30,
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Nine Months Ended
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2006 |
2005 |
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(millions) |
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|
|
|
|
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Net income of FPL Group |
$ |
1,010 |
$ |
679 |
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|
Net unrealized gains (losses) on commodity cash flow hedges: |
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Effective portion of net unrealized gains (losses) |
||||||
|
(net of $98 tax expense and $138 tax benefit, respectively) |
143 |
(203 |
) |
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Reclassification from OCI to net income |
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|
(net of $19 and $21 tax expense, respectively) |
28 |
31 |
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Net unrealized gains (losses) on interest rate cash flow hedges: |
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Effective portion of net unrealized gains (losses) |
||||||
|
(net of $0.6 tax benefit and $2 tax expense, respectively) |
(1 |
) |
3 |
|||
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Reclassification from OCI to net income |
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(net of $1 and $1 tax expense, respectively) |
2 |
2 |
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Net unrealized gains (losses) on available for sale securities |
||||||
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(net of $6 tax expense and $2 tax benefit, respectively) |
10 |
(3 |
) |
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SERP liability adjustment |
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(net of $0.5 and $1 tax expense, respectively) |
1 |
3 |
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Comprehensive income of FPL Group |
$ |
1,193 |
|
$ |
512 |
|
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Approximately $40 million of losses included in FPL Group's accumulated other comprehensive loss at September 30, 2006 will be reclassified into earnings within the next twelve months as either the hedged fuel is consumed, electricity is sold or interest payments are made. Such amount assumes no change in fuel prices, power prices or interest rates. Accumulated other comprehensive loss is separately displayed on the condensed consolidated balance sheets of FPL Group.
FPL was impacted by four hurricanes in 2005 and three hurricanes in 2004, which did major damage in parts of FPL's service territory. Storm restoration costs incurred by FPL during 2005 and 2004 exceeded the amount in the storm and property insurance reserve. At September 30, 2006, FPL's storm reserve deficiency totaled approximately $940 million. In May 2006, the Florida Public Service Commission (FPSC) approved the issuance of approximately $708 million of bonds pursuant to the securitization provisions of Section 366.8260 of the Florida Statutes for the net-of-tax recovery by FPL of the estimated storm reserve deficiency at July 31, 2006, or approximately $934 million, including interest, and for a storm and property insurance reserve of $200 million. The unrecovered 2004 storm restoration costs will continue to be recovered through a previously approved storm damage surcharge until the bonds are issued. FPL is working with the FPSC staff and its financial advisors to complete the issuance of the bonds.
In its May 2006 decision, the FPSC applied a different standard for recovery of 2005 storm costs than was used for the 2004 storm costs. Accordingly, the FPSC made certain adjustments and disallowances to amounts sought to be recovered by FPL. In addition, the FPSC allowed FPL to recover interest on 2005 storm restoration costs. These adjustments and disallowances, net of interest, were recorded in the second quarter of 2006 and reduced FPL Group's and FPL's net income for the nine months ended September 30, 2006 by approximately $28 million, reduced FPL Group's and FPL's storm reserve deficiency by approximately $35 million and reduced FPL Group's and FPL's property, plant and equipment by approximately $11 million.
Earnings Per Share
- The reconciliation of FPL Group's basic and diluted earnings per share of common stock is shown below:
Three Months Ended
Nine Months Ended
2006
2005
2006
2005
(millions, except per share amounts)
Numerator - net income
$
524
$
339
$
1,010
$
679
Denominator:
Weighted-average number of common shares
outstanding - basic
394.9
383.8
392.8
378.7
Restricted stock, performance share awards,
options, warrants and equity units
2.7
6.0
3.0
5.6
Weighted-average number of common shares
outstanding - assuming dilution
397.6
389.8
395.8
384.3
Earnings per share of common stock:
Basic
$
1.33
$
0.88
$
2.57
$
1.79
Assuming dilution
$
1.32
$
0.87
$
2.55
$
1.77
_____________________
(a)
Performance share awards are included in diluted weighted-average number of common shares outstanding based upon what would be issued if the end of the reporting period were the end of the term of the award. Restricted stock, performance share awards, options, warrants and equity units (known as Corporate Units) are included in diluted weighted-average number of common shares outstanding by applying the treasury stock method.
September 30,
September 30,
Common shares issuable upon the exercise of stock options which were not included in the denominator above due to their antidilutive effect were approximately 0.3 million for each of the three and nine months ended September 30, 2006 and less than 0.1 million for each of the three and nine months ended September 30, 2005.
In February 2006, FPL Group issued approximately 8.7 million shares of common stock upon settlement of the stock purchase contracts issued in connection with its 8% Corporate Units. See Note 9.
Stock-Based Compensation
- Effective January 1, 2006, FPL Group adopted FAS 123(R), "Share-Based Payment," using the modified prospective application transition method. Accordingly, the condensed consolidated balance sheet as of December 31, 2005, the condensed consolidated statements of income for the three and nine months ended September 30, 2005 and the condensed consolidated statements of cash flows for the nine months ended September 30, 2005 do not reflect any restated amounts. Because FPL Group adopted the fair value recognition provisions of FAS 123, "Accounting for Stock-Based Compensation," in 2004, the adoption of FAS 123(R) did not have a significant effect on FPL Group's financial statements.
Net income for the three and nine months ended September 30, 2006 includes approximately $8 million and $26 million, respectively, of compensation costs and $3 million and $10 million, respectively, of income tax benefits related to stock-based compensation arrangements. Net income for the three and nine months ended September 30, 2005 includes approximately $7 million and $22 million, respectively, of compensation costs and $3 million and $8 million, respectively, of income tax benefits related to stock-based compensation arrangements. As of September 30, 2006, there were approximately $48 million of unrecognized compensation costs related to nonvested/nonexercisable share-based compensation arrangements. These costs are expected to be recognized over a weighted-average period of 1.7 years. For awards granted subsequent to December 31, 2005, compensation costs for awards with graded vesting are recognized on a straight-line basis over the requisite service period for the entire award. For awards granted prior to that date, compensation costs for awards with graded vesting are recognized using the graded vesting attribution method.
At September 30, 2006, approximately 26.6 million shares of common stock were authorized and 18.5 million were available for awards (including outstanding awards) to officers, employees and non-employee directors of FPL Group and its subsidiaries under FPL Group's amended and restated long-term incentive plan (LTIP) and amended and restated non-employee directors stock plan. FPL Group satisfies restricted stock and performance share awards by issuing new shares of its common stock or by purchasing shares of its common stock in the open market. FPL Group satisfies stock option exercises by issuing new shares of its common stock.
Restricted Stock and Performance Share Awards
- Restricted stock typically vests within three years after the date of grant and is subject to, among other things, restrictions on transferability prior to vesting. The fair value of restricted stock is measured based upon the closing market price of FPL Group common stock as of the date of grant. Performance share awards are typically payable at the end of a three-year performance period if the specified performance criteria are met. The fair value of performance share awards is estimated based upon the closing market price of FPL Group common stock as of the date of grant less the present value of expected dividends, multiplied by an estimated performance multiple determined on the basis of historical experience, which is subsequently trued up at vesting based on actual performance.
The activity in restricted stock and performance share awards for the three months ended September 30, 2006 was as follows:
Weighted-Average
Restricted Stock:
Nonvested balance, July 1, 2006
1,142,407
$
37.92
Granted
17,350
$
41.55
Vested
(19,219
)
$
36.01
Forfeited
(9,000
)
$
42.66
Nonvested balance, September 30, 2006
1,131,538
$
37.97
Performance Share Awards:
Nonvested balance, July 1, 2006
1,142,793
$
33.56
Granted
-
$
-
Vested
-
$
-
Forfeited
(5,730
)
$
34.82
Nonvested balance, September 30, 2006
1,137,063
$
33.55
Shares
Grant Date
Fair Value
The activity in restricted stock and performance share awards for the nine months ended September 30, 2006 was as follows:
Weighted-Average
Restricted Stock:
Nonvested balance, January 1, 2006
1,022,545
$
35.54
Granted
381,289
$
41.75
Vested
(251,030
)
$
33.56
Forfeited
(21,266
)
$
41.36
Nonvested balance, September 30, 2006
1,131,538
$
37.97
Performance Share Awards:
Nonvested balance, January 1, 2006
1,145,502
$
29.88
Granted
581,978
$
34.08
Vested
(574,947
)
$
26.73
Forfeited
(15,470
)
$
34.00
Nonvested balance, September 30, 2006
1,137,063
$
33.55
Shares
Grant Date
Fair Value
The weighted-average grant date fair value of restricted stock granted for the three and nine months ended September 30, 2005 was $43.78 and $38.54, respectively. The weighted-average grant date fair value of performance share awards granted for the three and nine months ended September 30, 2005 was $39.27 and $34.12, respectively.
The total fair value of restricted stock and performance share awards vested was $1 million and $1 million for the three months ended September 30, 2006 and 2005, respectively, and $34 million and $16 million for the nine months ended September 30, 2006 and 2005, respectively.
Options - Options typically vest within three years after the date of grant and have a maximum term of ten years. The exercise price of each option granted equals the closing market price of FPL Group common stock on the date of grant. The fair value of the options is estimated on the date of the grant using the Black-Scholes option-pricing model and based on the following assumptions:
Option activity for the three months ended September 30, 2006 was as follows:
Weighted-
Weighted-
Balance, July 1, 2006
7,301,904
$
30.03
Granted
-
$
-
Exercised
(325,502
)
$
28.23
Forfeited
-
$
-
Expired
(29,000
)
$
27.87
Balance, September 30, 2006
6,947,402
$
30.12
6.0
$
103
Shares
Underlying
Options
Average
Exercise
Price
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
(millions)
Option activity for the nine months ended September 30, 2006 was as follows:
Weighted-
Weighted-
Balance, January 1, 2006
7,228,617
$
29.42
Granted
334,500
$
41.76
Exercised
(575,720
)
$
28.24
Forfeited
(10,995
)
$
28.38
Expired
(29,000
)
$
27.87
Balance, September 30, 2006
6,947,402
$
30.12
6.0
$
103
Exercisable, September 30, 2006
6,175,570
$
29.15
5.7
$
98
Shares
Underlying
Options
Average
Exercise
Price
Average
Remaining
Contractual
Term
(years)
Aggregate
Intrinsic
Value
(millions)
The weighted-average grant date fair value of options granted was $7.46 and $6.30 for the nine months ended September 30, 2006 and 2005, respectively. There were no options granted during the three months ended September 30, 2006 or 2005.
The total intrinsic value of stock options exercised was approximately $5 million and $11 million for the three months ended September 30, 2006 and 2005, respectively, and approximately $8 million and $25 million for the nine months ended September 30, 2006 and 2005, respectively.
Cash received from option exercises was approximately $9 million and $21 million for the three months ended September 30, 2006 and 2005, respectively, and approximately $16 million and $54 million for the nine months ended September 30, 2006 and 2005, respectively. The tax benefits realized from options exercised were approximately $1 million and $4 million for the three months ended September 30, 2006 and 2005, respectively, and approximately $2 million and $9 million for the nine months ended September 30, 2006 and 2005, respectively.
In June 2002, FPL Group sold 10.12 million 8% Corporate Units. In connection with the 8% Corporate Units financing, FPL Group Capital Inc (FPL Group Capital) issued $506 million principal amount of 5% debentures due February 16, 2008, which were absolutely, irrevocably and unconditionally guaranteed by FPL Group. During 2005, FPL Group Capital remarketed these debentures and the annual interest rate was reset to 5.551%. Each 8% Corporate Unit initially consisted of a $50 FPL Group Capital debenture and a purchase contract pursuant to which the holder was required to purchase $50 of FPL Group common shares on or before February 16, 2006, and FPL Group made payments of 3% of the unit's $50 stated value until the shares were purchased. In February 2006, FPL Group paid approximately $48 million net to cancel approximately 4.2 million of its 8% Corporate Units. Also in February 2006, FPL Group issued approximately 8.7 million shares of common stock in return for approximately $296 million in proceeds upon settlement of the stock purchase contracts issued in connection with the remainder of the 8% Corporate Units.
In January 2006, FPL issued $400 million principal amount of 5.65% first mortgage bonds maturing in February 2037. The proceeds were used to repay a portion of FPL's short-term borrowings and for other corporate purposes. Also during the three months ended March 31, 2006, FPL borrowed $300 million in notes payable under an uncommitted credit facility. These notes matured in April and May 2006.
In April 2006, FPL issued $300 million principal amount of 6.20% first mortgage bonds maturing in June 2036 in a private placement transaction. The proceeds were used to repay a portion of FPL's short-term borrowings and for other corporate purposes.
In May 2006, FPL borrowed $250 million under a new revolving five-year term loan facility. The loan bears interest at a variable rate and the principal is due in May 2008. The proceeds from the loan were used for general corporate purposes. Under the terms of the term loan facility, FPL is required to maintain a minimum ratio of funded debt to total capitalization.
In June 2006, FPL Group Capital borrowed $400 million under three separate two-year term loan facilities. Each of the loans bears interest at a variable rate and the principal is due in June 2008. The proceeds from the loans were used for general corporate purposes. Pursuant to its guarantee agreement with FPL Group Capital, FPL Group guarantees the payment of these term loans and is required to maintain a minimum ratio of funded debt to total capitalization under the terms of the term loan facilities.
Also in June 2006, Bison Wind, LLC (Bison Wind), an FPL Energy subsidiary, issued $186 million of 6.665% limited-recourse senior secured notes maturing in January 2031. In addition, Bison Wind Portfolio, LLC (Bison Wind Portfolio), another subsidiary of FPL Energy, issued $20 million of 7.51% limited-recourse senior secured notes maturing in July 2021. Principal and interest on each series of notes are payable semi-annually. Substantially all of the proceeds from these note issuances were distributed to FPL Energy in return for a portion of the capital contributions that it made to certain of its direct and indirect subsidiaries for the investment by such subsidiaries in the development, acquisition and construction of two wind power projects located in North Dakota and Oklahoma. The Bison Wind notes are secured by liens on the wind projects' assets and the Bison Wind Portfolio notes are secured by certain other assets. FPL Group Capital has guaranteed certain payments with respect to PTCs generated by the projects, and certain contingent payment and indemnification obligations related to the projects, but did not guarantee payments on either series of the notes. Pursuant to its guarantee agreement with FPL Group Capital, FPL Group guarantees these FPL Group Capital payment guarantees.
In August 2006, FPL Group Capital sold $600 million principal amount of 5 5/8% debentures maturing in September 2011. The proceeds were used for general corporate purposes. FPL Group guarantees the payment of these debentures.
In September 2006, FPL Group Capital sold $350 million principal amount of Series A Enhanced Junior Subordinated Debentures (Series A Debentures) due 2066 and $350 million principal amount of Series B Enhanced Junior Subordinated Debentures (Series B Debentures) due 2066. The Series A Debentures bear interest at 6.60% per year. The Series B Debentures initially bear interest at 6.35% per year and, beginning October 1, 2016, will bear interest at the three-month London InterBank Offered Rate (LIBOR) plus 206.75 basis points, reset quarterly. The proceeds from both series of debentures were added to FPL Group Capital's general funds, which FPL Group Capital used to repay a portion of commercial paper issued to fund investments by FPL Group Capital in independent power projects and to repay outstanding long-term debt obligations. FPL Group guarantees the payment of both series of debentures.
Commitments
- FPL Group and its subsidiaries have made commitments in connection with a portion of their projected capital expenditures. Capital expenditures at FPL include, among other things, the cost for construction or acquisition of additional facilities and equipment to meet customer demand, as well as capital improvements to and maintenance of existing facilities. At FPL Energy, capital expenditures include, among other things, the cost, including capitalized interest, for construction of wind projects and the procurement of nuclear fuel. FPL FiberNet, LLC's (FPL FiberNet's) capital expenditures primarily include costs to meet customer specific requirements and sustain its fiber-optic network. At September 30, 2006, planned capital expenditures for the remainder of 2006 through 2010 were estimated as follows:
2006
2007
2008
2009
2010
Total
FPL:
(millions)
Generation:
New
$
50
$
365
$
540
$
645
$
500
$
2,100
Existing
190
555
395
410
285
1,835
Transmission and distribution
165
885
790
840
850
3,530
Nuclear fuel
10
120
85
125
135
475
General and other
65
155
165
160
165
710
Total
$
480
$
2,080
$
1,975
$
2,180
$
1,935
$
8,650
FPL Energy:
Wind
$
110
$
1,120
$
10
$
5
$
5
$
1,250
Nuclear
55
155
155
120
165
650
Gas
60
50
30
15
15
170
Other
10
50
40
10
10
120
Total
$
235
$
1,375
$
235
$
150
$
195
$
2,190
FPL FiberNet
$
3
$
13
$
11
$
11
$
11
$
49
_____________________
(a)
Includes allowance for funds used during construction (AFUDC) of approximately $12 million, $33 million, $51 million, $72 million and $71 million in 2006, 2007, 2008, 2009 and 2010, respectively.
(b)
Includes generating structures, transmission interconnection and integration, licensing and AFUDC.
(c)
Includes estimated capital costs associated with FPL's Storm Secure
SM
Plan, an initiative to enhance its electrical grid as a result of heightened hurricane activity and in response to concerns expressed by the community, state leaders and regulators, and costs associated with an FPSC-approved storm preparedness plan (collectively, Storm Secure Plan). These capital costs are subject to change over time based on productivity enhancements and prioritization.
(d)
Capital expenditures for new wind projects are estimated through 2007, when eligibility for PTCs for new wind projects is scheduled to expire.
(e)
Includes nuclear fuel.
In addition to estimated capital expenditures listed above, FPL and FPL Energy have long-term contracts related to purchased power and/or fuel (see Contracts below). At September 30, 2006, FPL Energy had approximately $2.0 billion in firm commitments, primarily for the purchase of wind turbines and towers, natural gas transportation, purchase and storage, firm transmission service, nuclear fuel and a portion of its projected capital expenditures. In October 2006, FPL Energy entered into contracts totaling approximately $183 million in connection with its 2007 projected wind development. In addition, FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most payment obligations under FPL Group Capital's debt.
FPL Group and FPL each account for payment guarantees and related contracts, for which it or a subsidiary is the guarantor, under FIN 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others," which requires that the fair value of guarantees provided to unconsolidated entities entered into after December 31, 2002, be recorded on the balance sheet. At September 30, 2006, subsidiaries of FPL Group, other than FPL, have guaranteed debt service payments relating to agreements that existed at December 31, 2002. The term of the guarantees is equal to the term of the related debt, with remaining terms ranging from 1 year to 12 years. The maximum potential amount of future payments that could be required under these guarantees at September 30, 2006 was approximately $14 million. At September 30, 2006, FPL Group did not have any liabilities recorded for these guarantees. In certain instances, FPL Group can seek recourse from third parties for 50% of any amount paid under the guarantees. Guarantees provided to unconsolidated entities entered into subsequent to December 31, 2002, and the related fair value, were not material as of September 30, 2006.
FPL Energy has guaranteed certain performance obligations of a power plant owned by a wholly-owned subsidiary as part of a power purchase agreement that expires in 2027. Under this agreement, the subsidiary could incur market-based liquidated damages for failure to meet contractual minimum outputs. In addition, certain subsidiaries of FPL Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result in the FPL Energy subsidiary becoming liable for specified liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these guarantees is not material.
Contracts
- FPL Group has entered into a long-term agreement for the purchase of wind, combustion and steam turbines, as well as parts, repairs and on-site services through 2021. The related commitments as of September 30, 2006 are included in FPL Energy's and Corporate and Other's minimum payments shown in the table below and in FPL Energy's estimated capital expenditures shown in the table above.
FPL has entered into long-term purchased power and fuel contracts. FPL is obligated under take-or-pay purchased power contracts with JEA and with subsidiaries of The Southern Company (Southern subsidiaries) to pay for approximately 1,300 megawatts (mw) of power annually through mid-2015 and 381 mw annually thereafter through 2021, and one of the Southern subsidiaries' contracts is subject to minimum quantities. FPL also has various firm pay-for-performance contracts to purchase approximately 700 mw of generating capacity from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2009 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. FPL has various agreements with several electricity suppliers to purchase an aggregate of up to approximately 1,600 mw of generating capacity with expiration dates ranging from 2007 through 2012. In general, the agreements require FPL to make capacity payments and supply the fuel consumed by the plants under the contracts. FPL has contracts with expiration dates through 2028 for the purchase of natural gas, coal and oil, transportation of natural gas and coal, and storage of natural gas.
FPL Energy has entered into several contracts for the purchase of wind turbines and towers in support of substantially all of its planned new wind generation. In addition, FPL Energy has contracts primarily for the purchase, transportation and storage of natural gas and firm transmission service with expiration dates ranging from 2007 through 2033. FPL Energy also has several contracts for the purchase, conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from late-2006 to 2014.
The required capacity and minimum payments under these contracts as of September 30, 2006 were estimated as follows:
2006
2007
2008
2009
2010
Thereafter
FPL:
(millions)
Capacity payments:
JEA and Southern subsidiaries
$
50
$
195
$
200
$
205
$
205
$
1,180
Qualifying facilities
$
75
$
315
$
325
$
320
$
295
$
3,470
Other electricity suppliers
$
15
$
60
$
50
$
50
$
10
$
10
Minimum payments, at projected prices:
Southern subsidiaries
$
20
$
80
$
85
$
95
$
40
$
-
Natural gas, including transportation and storage
$
460
$
1,190
$
235
$
260
$
260
$
2,405
Coal
$
15
$
45
$
30
$
10
$
5
$
5
Oil
$
160
$
-
$
-
$
-
$
-
$
-
FPL Energy
$
365
$
605
$
55
$
55
$
50
$
705
Corporate and Other
$
30
$
-
$
-
$
-
$
-
$
-
_____________________
(a)
Capacity payments under these contracts, the majority of which are recoverable through the capacity clause, totaled approximately $166 million and $170 million for the three months ended September 30, 2006 and 2005, respectively, and approximately $466 million and $477 million for the nine months ended September 30, 2006 and 2005, respectively.
(b)
Energy payments under these contracts, which are recoverable through the fuel clause, totaled approximately $123 million and $98 million for the three months ended September 30, 2006 and 2005, respectively, and approximately $322 million and $277 million for the nine months ended September 30, 2006 and 2005, respectively.
(c)
Recoverable through the fuel clause.
Insurance
- Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan. In accordance with this Act, FPL Group maintains $300 million of private liability insurance per site, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $604 million ($402 million for FPL), plus any applicable taxes, per incident at any nuclear reactor in the United States, payable at a rate not to exceed $90 million ($60 million for FPL) per incident per year. FPL Group and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook Station (Seabrook), Duane Arnold Energy Center (Duane Arnold) and St. Lucie Unit No. 2, which approximates $12 million, $30 million and $15 million, plus any applicable taxes, per incident, respectively.
FPL Group participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage per occurrence per site for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL Group also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service for an extended period of time because of an accident. In the event of an accident at one of FPL Group's or another participating insured's nuclear plants, FPL Group could be assessed up to $132 million ($88 million for FPL), plus any applicable taxes, in retrospective premiums. FPL Group and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook, Duane Arnold and St. Lucie Unit No. 2, which approximates $2 million, $5 million and $3 million, plus any applicable taxes, respectively.
Due to the high cost and limited coverage available from third-party insurers, FPL has essentially no insurance coverage on its transmission and distribution property and FPL Group has no insurance coverage for FPL FiberNet's fiber-optic cable located throughout Florida. Under the terms of the agreement regarding FPL's retail base rates approved by the FPSC (2005 rate agreement), FPL may recover prudently incurred storm restoration costs either through securitization pursuant to Section 366.8260 of the Florida Statutes or through surcharges. See Note 7.
In the event of a loss, the amount of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered from customers in the case of FPL, would be borne by FPL Group and FPL and could have a material adverse effect on FPL Group's and FPL's financial condition and results of operations.
Litigation
- In 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA), brought an action against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Clean Air Act. In May 2001, the EPA amended its complaint. The amended complaint alleges, among other things, that Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining proper permitting, and without complying with performance and technology standards as required by the Clean Air Act. It also alleges that unspecified major modifications have been made at Scherer Unit No. 4 that require its compliance with the aforementioned Clean Air Act provisions. The EPA seeks injunctive relief requiring the installation of best available control technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after June 1, 1975 through January 30, 1997 and $27,500 per day for each violation thereafter. The EPA further revised its civil penalty rule in February 2004, such that the maximum penalty is $32,500 per day for each violation after March 15, 2004. Georgia Power Company has answered the amended complaint, asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses. In June 2001, a federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery in several Clean Air Act cases that was filed with a Multi-District Litigation (MDL) panel. In August 2001, the MDL panel denied the motion for consolidation. In September 2001, the EPA moved that the federal district court reopen this case for purposes of discovery. Georgia Power Company opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals ruled on the Tennessee Valley Authority's (TVA) appeal of an EPA administrative compliance order relating to legal issues that are also central to this case. In August 2002, the federal district court denied without prejudice the EPA's motion to reopen. In June 2003, the Eleventh Circuit issued its order dismissing the TVA's appeal because it found the provision of the Clean Air Act allowing the EPA to issue binding administrative compliance orders was unconstitutional, and hence found that the TVA order was a non-final order that courts of appeal do not have jurisdiction to review. In September 2003, the Eleventh Circuit denied the EPA's motion for rehearing. In May 2004, the U.S. Supreme Court denied the EPA's petition for review of the Eleventh Circuit order. The EPA has not yet moved to reopen the Georgia Power Company case.
In 2001, Florida Municipal Power Agency (FMPA) filed with the U.S. Court of Appeals for the District of Columbia (DC Circuit) a petition for review asking the DC Circuit to reverse and remand orders of the Federal Energy Regulatory Commission (FERC) denying FMPA's request for credits for transmission facilities owned by FMPA members. The transmission credits sought by FMPA would offset the transmission charges that FPL bills FMPA for network transmission service to FMPA's member cities. FMPA member cities have been taking network transmission service under FPL's open access transmission tariff since 1996. In the orders appealed by FMPA, the FERC ruled that FMPA would be entitled to credits for any FMPA facilities that were "integrated" with the FPL transmission system. Based on the evidence submitted, the FERC concluded that none of the FMPA facilities met the integration test and, therefore, FMPA was not entitled to credits against FPL's charges for transmission service. In January 2003, the DC Circuit upheld the FERC's order denying FMPA credits for its facilities; in March 2003, the DC Circuit denied FMPA's rehearing request of the DC Circuit's decision; and in October 2003, the U.S. Supreme Court denied FMPA's petition for review of the DC Circuit's decision.
FMPA also has requested that the FERC decide the same crediting issue in a separate FERC proceeding. That proceeding dates back to a filing by FPL in 1993 of a comprehensive restructuring of its then-existing tariff structure. All issues in that case were settled in September 2000 except for three issues reserved by FMPA: (i) the crediting issue, (ii) treatment of behind-the-meter generation and load ratio pricing for network integration transmission service, and (iii) exclusions from FPL's transmission rates of the costs of FPL's facilities that failed to meet the same integration test that was applied to FMPA's facilities with respect to the crediting issue. In December 2003, the FERC issued an order addressing the three reserved issues. With respect to the crediting issue, the FERC stated that it had previously determined that FMPA was not entitled to credits for its facilities in the related proceeding discussed above and saw no persuasive reason to revisit that determination in this proceeding. Regarding the issue of behind-the-meter generation, the FERC stated that it had addressed the issue of load ratio pricing for network integration transmission service and the related issue of behind-the-meter generation in Order Nos. 888 and 888-A, and saw no persuasive reason to revisit that determination in this proceeding. With respect to the third issue, the FERC directed FPL to make a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same integration test applied to the FMPA facilities.
In January 2004, FMPA requested a "conditional rehearing on the Commission's failure to order rate credits solely in the event that Commission does not adequately reduce FPL's rate base to achieve comparability," and challenging the FERC's determination not to revisit the issue of behind-the-meter generation and load ratio pricing for network integration transmission service. In March 2004, the FERC issued an order denying FMPA's rehearing request. In April 2004, FMPA petitioned the DC Circuit for review of the FERC's December 2003 order and March 2004 order. FMPA filed its initial brief in that proceeding in October 2004. FMPA's arguments are limited to the issue of behind-the-meter generation and load ratio pricing for network integration transmission service in instances when, according to FMPA, FPL cannot provide transmission service because of "physical transmission limitations." In June 2005, the DC Circuit remanded the case to the FERC for further consideration. The DC Circuit concluded that the FERC failed to explain in its orders why network customers should be charged by the transmission provider for network service that the provider is physically constrained from offering and why physical impossibility should not be recognized as an exception to the general rule against permitting partial load ratio pricing for network customers. The DC Circuit noted that it was not reaching a determination on whether charging on a full load basis in fact is unjust and unreasonable under the circumstances, that it was not defining what constitutes physical impossibility, and that it was not determining whether FMPA made a showing of impossibility. In December 2005, the FERC issued an order on remand answering the DC Circuit's question by finding that FPL is entitled to load ratio share pricing, notwithstanding constraints on a third-party's system. In January 2006, FMPA filed a rehearing request of this order with the FERC. In July 2006, the FERC denied FMPA's request for rehearing. FMPA submitted a petition for review of the FERC's December 2005 and July 2006 orders at the DC Circuit. In August 2006, the FERC requested a stay of the proceedings at the DC Circuit pending resolution of FPL's rehearing request discussed below.
In May 2004, FPL made a compliance filing of a proposed rate schedule that does not include those facilities of FPL that fail to meet the same integration test that was applied to the FMPA facilities. Pursuant to this filing, 1.63% of FPL's transmission facilities do not satisfy the integration standard and FPL's current network transmission rate would be reduced by $0.02 per kilowatt (kw) per month. In June 2004, FMPA filed a protest to FPL's compliance filing, which protest would exclude approximately 30% of FPL's transmission facilities and reduce FPL's current network transmission rate by approximately $0.41 per kw per month. In January 2005, the FERC issued an order on FPL's compliance filing. In the order, the FERC accepted FPL's standards for analyzing the transmission system and agreed that FPL's "Georgia Ties" and "Turkey Point Lines" are part of FPL's integrated grid. The FERC required FPL to make an additional compliance filing removing the cost of all radial transmission lines from transmission rates, rather than only radial lines that serve one customer, analyzing the FPL transmission system to remove the cost of any transmission facilities that provide only "unneeded redundancy," and calculating rate adjustments using 1993 data rather than 1998 data. FPL made this compliance filing in April 2005, reducing FPL's rate $0.04 per kw per month. In May 2005, FMPA protested FPL's compliance filing, claiming that FPL had not followed the FERC's mandate and argued that FPL's rates should be reduced by an additional $0.20 per kw per month,
In December 2005, the FERC issued an order accepting FPL's April 2005 compliance filing in part, rejecting it in part, and directing the submission of a further compliance filing. The FERC accepted FPL's compliance filing wherein FPL proposed a reduction in its rate base created by the exclusion of certain radial lines valued at $29 million net plant. However, the FERC concluded that it is not clear whether FPL failed to test its non-radial facilities in a manner comparable to the way it tested FMPA's facilities. The December 2005 order directed FPL to make a further compliance filing within 60 days to explain the meaning of "unserved load" as it applies to Florida Reliability Coordinating Council (FRCC) standards, and to remove from rates any facility where the unserved load occurred only as a result of the contingency facility. The FERC stated that FRCC and North American Electric Reliability Council (NERC) standards allow for the controlled loss of load on radial facilities and that FPL tested FMPA facilities for loss of local load as well as load at other load centers. FPL filed a rehearing request in January 2006, contending that the FERC misapplied FRCC/NERC planning criteria for radial facilities to network systems and misinterpreted the test FPL applied to FMPA facilities. FPL also filed a request to delay the compliance filing pending FERC action on FPL's rehearing request, and in January 2006, the FERC granted that request. In July 2006, the FERC denied FPL's request for rehearing and ordered FPL to make its compliance filing within 60 days. FPL filed a request for rehearing of the FERC's July 2006 order. In September 2006, FPL made the required compliance filing, removing an additional $5.6 million in transmission facilities from rates, which resulted in a refund liability of approximately $3 million to FMPA and approximately $1 million to Seminole at September 30, 2006.
In 1995 and 1996, FPL Group, through an indirect subsidiary, purchased from Adelphia Communications Corporation (Adelphia) 1,091,524 shares of Adelphia common stock and 20,000 shares of Adelphia preferred stock (convertible into 2,358,490 shares of Adelphia common stock) for an aggregate price of approximately $35,900,000. On January 29, 1999, Adelphia repurchased all of these shares for $149,213,130 in cash. On June 24, 2004, Adelphia, Adelphia Cablevision, L.L.C. and the Official Committee of Unsecured Creditors of Adelphia filed a complaint against FPL Group and its indirect subsidiary in the U.S. Bankruptcy Court, Southern District of New York. The complaint alleges that the repurchase of these shares by Adelphia was a fraudulent transfer, in that at the time of the transaction Adelphia (i) was insolvent or was rendered insolvent, (ii) did not receive reasonably equivalent value in exchange for the cash it paid, and (iii) was engaged or about to engage in a business or transaction for which any property remaining with Adelphia had unreasonably small capital. The complaint seeks the recovery for the benefit of Adelphia's bankruptcy estate of the cash paid for the repurchased shares, plus interest. FPL Group has filed an answer to the complaint. FPL Group believes that the complaint is without merit because, among other reasons, Adelphia will be unable to demonstrate that (i) Adelphia's repurchase of shares from FPL Group, which repurchase was at the market value for those shares, was not for reasonably equivalent value, (ii) Adelphia was insolvent at the time of the repurchase, or (iii) the repurchase left Adelphia with unreasonably small capital. The case is in discovery and has been reset for trial in March 2008.
In 2003, Scott and Rebecca Finestone brought an action on behalf of themselves and their son Zachary Finestone in the U.S. District Court for the Southern District of Florida alleging that their son has developed cancer (neuroblastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The complaint, as subsequently amended, includes counts against FPL for strict liability for allegedly engaging in an ultra-hazardous activity and for alleged negligence in operating the plant in a manner that allowed emissions of the foregoing materials and failing to limit its release of nuclear fission products as prescribed by federal and state laws and regulations. The plaintiffs seek damages in excess of $1 million. In January 2006, the court granted FPL's motion for final summary judgment and dismissed the case. On February 8, 2006, the plaintiffs filed a notice of appeal of the court's decision granting final summary judgment for FPL. Plaintiff's appeal of this matter is pending before the U.S. Court of Appeals for the 11
th
Circuit.
In 2003, Tish Blake and John Lowe, as personal representatives of the Estate of Ashton Lowe, on behalf of the estate and themselves, as surviving parents, brought an action in the U.S. District Court for the Southern District of Florida alleging that their son developed cancer (medulo-blastoma) as a result of the release and/or dissipation into the air, water, soil and underground areas of radioactive and non-radioactive hazardous materials, including strontium 90, and the release of other toxic materials from FPL's St. Lucie nuclear power plant. The allegations, counts and damages demanded in the complaint, as subsequently amended, are virtually identical to those contained in the Finestone lawsuit described above. In January 2006, the court granted FPL's motion for final summary judgment and dismissed the case. On February 8, 2006, the plaintiffs filed a notice of appeal of the court's decision granting final summary judgment for FPL. Plaintiff's appeal of this matter is pending before the U.S. Court of Appeals for the 11
th
Circuit.
In 2003, Pedro C. and Emilia Roig brought an action on behalf of themselves and their son, Pedro Anthony Roig, in the Circuit Court of the 11
th
Judicial Circuit in and for Miami-Dade County, Florida (the state court), which was removed in October 2003 to the U.S. District Court for the Southern District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies and FPL, alleging that their son has suffered toxic neurological effects from mercury poisoning. The sources of mercury exposure are alleged to be vaccines containing a preservative called thimerosal that were allegedly manufactured and distributed by the drug companies, mercury amalgam dental fillings, and emissions from FPL power plants in southeast Florida. The complaint includes counts against all defendants for civil battery and against FPL for alleged negligence in operating the plants such that the son was exposed to mercury and other heavy metals emissions. The damages demanded from FPL are for injuries and losses allegedly suffered by the son as a result of his exposure to the plants' mercury emissions and the parents' alleged pain and suffering, medical expenses, loss of wages, and loss of their son's services and companionship. No amount of damages is specified. The U.S. District Court remanded the action back to the state court. The drug manufacturing and distribution companies have moved to dismiss the action. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until the state court rules on those motions.
In 2003, Edward and Janis Shiflett brought an action on behalf of themselves and their son, Phillip Benjamin Shiflett, in the Circuit Court of the 18
th
Judicial Circuit in and for Brevard County, Florida (the state court), which was removed in January 2004 to the U.S. District Court for the Middle District of Florida, against Aventis Pasteur and a number of other named and unnamed drug manufacturing and distribution companies, FPL and the Orlando Utilities Commission, alleging that their son has suffered toxic neurological effects from mercury poisoning. The allegations, counts and damages demanded in the complaint with respect to FPL are virtually identical to those contained in the Roig lawsuit described above. FPL's motion to dismiss the complaint was denied. The U.S. District Court subsequently remanded the action back to the state court. The drug manufacturing and distribution companies have moved to dismiss the action. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until the state court rules on those motions.
In October 2004, TXU Portfolio Management Company (TXU) served FPL Energy Pecos Wind I, LP, FPL Energy Pecos Wind I GP, LLC, FPL Energy Pecos Wind II, LP, FPL Energy Pecos Wind II GP, LLC and Indian Mesa Wind Farm, LP (FPL Energy Affiliates) as defendants in a civil action filed in the District Court in Dallas County, Texas. The petition alleges that the FPL Energy Affiliates had a contractual obligation to produce and sell to TXU a minimum quantity of energy each year and that the FPL Energy Affiliates failed to meet this obligation. The plaintiff has asserted claims for breach of contract and declaratory judgment and seeks damages which approximate $26 million to $28 million. The FPL Energy Affiliates filed their answer and counterclaim in November 2004, denying the allegations. The counterclaim, as now amended, asserts claims for conversion, breach of fiduciary duty, breach of warranty, conspiracy, breach of contract and fraud and seeks termination of the contract and damages. At the end of 2005, TXU amended its complaint to add FPL Group, FPL Energy, FPL Group Capital and ESI Energy, LLC (ESI Energy), as defendants. Motions to dismiss those entities as defendants were filed, and FPL Group, FPL Group Capital and ESI Energy have been dismissed. The case is in discovery and has been reset for trial in April 2007.
In September 2006, Indonesia's state-owned oil company filed an action against Karaha Bodas Company, LLC (KBC), an entity in which FPL Energy owns an equity interest, in the Grand Court of the Cayman Islands for fraud and injunctive relief prohibiting KBC from disposing of, dealing with or diminishing the value of any of KBC's assets up to the value of $316 million, the approximate amount of damages being sought, pending resolution of the fraud claim. FPL Energy's portion of the damages being sought is approximately $142 million. KBC sought and received from a New York federal district court an anti-suit injunction against the plaintiff. The district court entered its order prohibiting the plaintiff from taking any affirmative action on its request for injunction and also prohibiting KBC from distributing the judgment funds (see Subsequent Event below) to its owners until further order by the New York federal district court.
In addition to those legal proceedings discussed above, FPL Group and its subsidiaries, including FPL, are involved in a number of other legal proceedings and claims in the ordinary course of their businesses. In addition, generating plants in which FPL Group or FPL have an ownership interest are involved in legal proceedings and claims, the liabilities from which, if any, would be shared by FPL Group or FPL.
FPL Group and FPL believe that they, or their affiliates, have meritorious defenses to all the pending litigation and proceedings discussed above under the heading Litigation and are vigorously defending the lawsuits. While management is unable to predict with certainty the outcome of the legal proceedings and claims discussed or described herein, based on current knowledge it is not expected that their ultimate resolution, individually or collectively, will have a material adverse effect on the financial statements of FPL Group or FPL.
Subsequent Event
- In October 2006, KBC received approximately $260 million as a result of a court judgment against Indonesia's state-owned oil company to recover KBC's investment in a project suspended indefinitely by the Indonesian government in 1998 and for lost profits. All appeals with respect to the judgment have been exhausted. FPL Energy's portion of the final judgment, or approximately $90 million pretax, will be included in equity in earnings of equity method investees in FPL Group's consolidated statement of income for the fourth quarter of 2006.
FPL Group's reportable segments include FPL, a rate-regulated utility, and FPL Energy, a competitive energy business. Corporate and Other represents other business activities, other segments that are not separately reportable and eliminating entries. FPL Group's segment information is as follows:
Three Months Ended September 30,
2006
2005
FPL
Corporate
FPL
Corporate
(millions)
Operating revenues
$
3,513
$
1,143
$
38
$
4,694
$
2,891
$
592
$
21
$
3,504
Operating expenses
$
2,948
$
830
$
49
$
3,827
$
2,340
$
583
$
22
$
2,945
Net income (loss)
(b)
$
328
$
215
$
(19
)
$
524
$
311
$
44
$
(16
)
$
339
FPL
Energy
(a)
& Other
Total
FPL
Energy
(a)
& Other
Total
|
Nine Months Ended September 30, |
||||||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||||
|
|
2006 |
|
2005 |
|||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
|
FPL
|
|
Corporate
|
|
|
|
|
|
FPL
|
|
Corporate
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
(millions) |
||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Operating revenues |
$ |
9,096 |
$ |
2,866 |
$ |
125 |
$ |
12,087 |
$ |
7,230 |
$ |
1,384 |
$ |
68 |
$ |
8,682 |
||||||||||||||
|
Operating expenses |
$ |
7,946 |
$ |
2,218 |
$ |
150 |
$ |
10,314 |
$ |
6,136 |
$ |
1,366 |
$ |
68 |
$ |
7,570 |
||||||||||||||
|
Net income (loss) (b) |
$ |
632 |
$ |
458 |
$ |
(80 |
) |
$ |
1,010 |
$ |
624 |
$ |
102 |
$ |
(47 |
) |
$ |
679 |
||||||||||||
|
September 30, 2006 |
December 31, 2005 |
||||||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||||
|
|
FPL
|
Corporate
|
|
|
FPL
|
Corporate
|
|
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(millions) |
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Total assets |
$ |
23,150 |
$ |
11,230 |
$ |
489 |
$ |
34,869 |
$ |
22,726 |
$ |
9,408 |
$ |
870 |
$ |
33,004 |
|||||||||||||
|
_____________________ |
|||||||||||||||||||||||||||||
|
(a) |
FPL Energy's interest charges are based on a deemed capital structure of 50% debt for operating projects and 100% debt for projects under construction. Residual non-utility interest charges are included in Corporate and Other. |
||||||||||||||||||||||||||||
|
(b) |
See Note 4 for a discussion of FPL Energy's tax benefits related to PTCs recognized based on its tax sharing agreement with FPL Group. |
||||||||||||||||||||||||||||
FPL Group Capital, a 100% owned subsidiary of FPL Group, provides funding for and holds ownership interest in FPL Group's operating subsidiaries other than FPL. Most of FPL Group Capital's debt, including its debentures, and payment guarantees are fully and unconditionally guaranteed by FPL Group. Condensed consolidating financial information is as follows:
|
|
Three Months Ended September 30, |
|
||||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||||
|
|
2006 |
|
2005 |
|
||||||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||||||
|
|
|
|
FPL
|
|
|
|
|
|
|
|
FPL
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
(millions) |
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Operating revenues |
$ |
- |
$ |
1,182 |
$ |
3,512 |
$ |
4,694 |
$ |
- |
$ |
616 |
$ |
2,888 |
$ |
3,504 |
||||||||||
|
Operating expenses |
(11 |
) |
(869 |
) |
(2,947 |
) |
(3,827 |
) |
- |
(608 |
) |
(2,337 |
) |
(2,945 |
) |
|||||||||||
|
Interest charges |
(5 |
) |
(111 |
) |
(63 |
) |
(179 |
) |
(6 |
) |
(92 |
) |
(52 |
) |
(150 |
) |
||||||||||
|
Other income (deductions) - net |
524 |
59 |
(518 |
) |
65 |
346 |
88 |
(351 |
) |
83 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Income (loss) before income taxes |
508 |
261 |
(16 |
) |
753 |
340 |
4 |
148 |
492 |
|||||||||||||||||
|
Income tax expense (benefit) |
(16 |
) |
66 |
179 |
229 |
1 |
(30 |
) |
182 |
153 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Net income (loss) |
$ |
524 |
$ |
195 |
$ |
(195 |
) |
$ |
524 |
$ |
339 |
$ |
34 |
$ |
(34 |
) |
$ |
339 |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||
|
2006 |
2005 |
||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
FPL
|
|
|
|
|
|
|
|
FPL
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(millions) |
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
- |
$ |
2,995 |
$ |
9,092 |
$ |
12,087 |
$ |
- |
$ |
1,455 |
$ |
7,227 |
$ |
8,682 |
|||||||||
|
Operating expenses |
(21 |
) |
(2,350 |
) |
(7,943 |
) |
(10,314 |
) |
- |
(1,437 |
) |
(6,133 |
) |
(7,570 |
) |
||||||||||
|
Interest charges |
(16 |
) |
(314 |
) |
(196 |
) |
(526 |
) |
(19 |
) |
(269 |
) |
(140 |
) |
(428 |
) |
|||||||||
|
Other income (deductions) - net |
1,034 |
128 |
(1,019 |
) |
143 |
697 |
211 |
(684 |
) |
224 |
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
997 |
459 |
(66 |
) |
1,390 |
678 |
(40 |
) |
270 |
908 |
|||||||||||||||
|
Income tax expense (benefit) |
(13 |
) |
60 |
333 |
380 |
(1 |
) |
(111 |
) |
341 |
229 |
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
1,010 |
$ |
399 |
$ |
(399 |
) |
$ |
1,010 |
$ |
679 |
$ |
71 |
$ |
(71 |
) |
$ |
679 |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________ |
|||||||||||||||||||||||||
|
(a) |
Represents FPL and consolidating adjustments. |
||||||||||||||||||||||||
Condensed Consolidating Balance Sheets
September 30, 2006
December 31, 2005
FPL
FPL
FPL Group
FPL
FPL
FPL Group
(millions)
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service and other property
$
-
$
10,409
$
25,291
$
35,700
$
-
$
8,945
$
24,406
$
33,351
Less accumulated depreciation and amortization
-
(1,664
)
(9,787
)
(11,451
)
-
(1,359
)
(9,529
)
(10,888
)
Total property, plant and equipment - net
-
8,745
15,504
24,249
-
7,586
14,877
22,463
CURRENT ASSETS
Cash and cash equivalents
-
94
65
159
7
467
56
530
Receivables
613
798
451
1,862
5
584
841
1,430
Other
-
695
2,118
2,813
63
518
2,446
3,027
Total current assets
613
1,587
2,634
4,834
75
1,569
3,343
4,987
OTHER ASSETS
Investment in subsidiaries
9,524
-
(9,524
)
-
8,647
-
(8,647
)
-
Other
154
1,715
3,917
5,786
140
1,339
4,075
5,554
Total other assets
9,678
1,715
(5,607
)
5,786
8,787
1,339
(4,572
)
5,554
TOTAL ASSETS
$
10,291
$
12,047
$
12,531
$
34,869
$
8,862
$
10,494
$
13,648
$
33,004
CAPITALIZATION
Common shareholders' equity
$
9,580
$
2,155
$
(2,155
)
$
9,580
$
8,499
$
1,911
$
(1,911
)
$
8,499
Long-term debt
-
5,418
4,213
9,631
-
4,768
3,271
8,039
Total capitalization
9,580
7,573
2,058
19,211
8,499
6,679
1,360
16,538
CURRENT LIABILITIES
Debt due within one year
-
1,692
578
2,270
-
1,269
1,294
2,563
Accounts payable
3
298
764
1,065
17
365
863
1,245
Other
466
803
1,559
2,828
85
803
2,571
3,459
Total current liabilities
469
2,793
2,901
6,163
102
2,437
4,728
7,267
OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations
-
354
1,533
1,887
-
211
1,474
1,685
Accumulated deferred income taxes
(26
)
844
2,421
3,239
(5
)
464
2,556
3,015
Regulatory liabilities
-
-
2,983
2,983
-
-
2,971
2,971
Other
268
483
635
1,386
266
703
559
1,528
Total other liabilities and deferred credits
242
1,681
7,572
9,495
261
1,378
7,560
9,199
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES
$
10,291
$
12,047
$
12,531
$
34,869
$
8,862
$
10,494
$
13,648
$
33,004
_____________________
(a)
Represents FPL and consolidating adjustments.
Group
(Guarantor)
Group
Capital
Other
(a)
Consoli-
dated
Group
(Guarantor)
Group
Capital
Other
(a)
Consoli-
dated
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) appearing in the 2005 Form 10-K for FPL Group and FPL. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year.
Presented below is a summary of earnings contributions by reportable segment:
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||
|
2006 |
2005 |
Increase
|
2006 |
2005 |
Increase
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
(millions) |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPL |
$ |
328 |
$ |
311 |
$ |
17 |
$ |
632 |
$ |
624 |
$ |
8 |
|||||||
|
FPL Energy |
215 |
44 |
171 |
458 |
102 |
356 |
|||||||||||||
|
Corporate and Other |
(19 |
) |
(16 |
) |
(3 |
) |
(80 |
) |
(47 |
) |
(33 |
) |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
524 |
$ |
339 |
$ |
185 |
$ |
1,010 |
$ |
679 |
$ |
331 |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the three and nine months ended September 30, 2006, FPL Energy recorded after-tax net unrealized mark-to-market gains on non-qualifying hedge activity of approximately $74 million and $77 million, respectively. During the three and nine months ended September 30, 2005, FPL Energy recorded after-tax net unrealized mark-to-market losses on non-qualifying hedge activity of approximately $56 million and $139 million, respectively. Unrealized mark-to-market gains/losses are affected by fluctuations in forward power and fuel prices. As a general rule, a gain (loss) in the non-qualifying hedge category is offset by decreases (increases) in the fair value of physical asset positions in the portfolio or contracts, which are not marked to market under generally accepted accounting principles. In addition, Corporate and Other's results for the three and nine months ended September 30, 2006 reflect after-tax costs related to the termination of the proposed merger between FPL Group and Constellation Energy of approximately $7 million and $13 million, respectively. See Note 5 for information about the terminated merger and Note 11 for segment information.
FPL Group's management uses earnings excluding certain items (adjusted earnings), which were the unrealized mark-to-market effect of non-qualifying hedges and merger-related expenses, internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and for FPL Group's employee incentive compensation plans. FPL Group also uses adjusted earnings when communicating its earnings outlook to analysts and investors. FPL Group's management believes adjusted earnings provide a more meaningful representation of the company's fundamental earnings power. Although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing.
FPL Group's effective income tax rate for the three and nine months ended September 30, 2006 reflects a $13 million state tax benefit recorded at Corporate and Other in the third quarter of 2006 and certain federal income tax deductions and credits recorded in 2006 by FPL.
FPL Group's effective income tax rate for the nine months ended September 30, 2006 also reflects an approximately $7 million deferred tax expense resulting from a change in tax law in Texas. PTCs also affect FPL Group's effective income tax rate depending on the amount of pretax income and wind generation. PTCs are recognized as wind energy is generated and sold based on a per kwh rate prescribed in applicable federal and state statutes, and amounted to approximately $35 million and $116 million for the three and nine months ended September 30, 2006, respectively, and $30 million and $93 million for the comparable periods in 2005. See Note 4.
FPL
- FPL's net income for the three months ended September 30, 2006 was $328 million compared to $311 million for the same period in 2005. For the nine months ended September 30, 2006, FPL's net income was $632 million compared to $624 million for the same period in 2005. The increase for the three months ended September 30, 2006 was primarily due to lower depreciation expense and higher AFUDC, partly offset by lower retail base revenues. The increase for the nine months ended September 30, 2006 was primarily due to lower depreciation expense and customer growth partly offset by the storm cost disallowance by the FPSC recorded in the 2006 second quarter, higher operations and maintenance (O&M) and interest expenses and lower AFUDC. In the second quarter of 2006, FPL recorded approximately $8 million of pretax interest income on the 2005 storm restoration costs approved for recovery, as permitted by the FPSC. The disallowed storm costs, net of the interest income, reduced FPL Group's and FPL's net income for the nine months ended September 30, 2006 by approximately $28 million. See Note 7.
FPL's operating revenues consisted of the following:
Three Months Ended
Nine Months Ended
2006
2005
2006
2005
(millions)
Retail base
$
1,076
$
1,139
$
2,809
$
2,830
Fuel cost recovery
1,924
1,278
4,963
3,212
Other cost recovery clauses and pass-through costs
461
417
1,197
1,034
Other, primarily gas, transmission and wholesale sales
and customer-related fees
52
57
127
154
Total
$
3,513
$
2,891
$
9,096
$
7,230
September 30,
September 30,
For the three months ended September 30, 2006, customer usage decreased 5.9% primarily due to warmer weather experienced in the prior year and the elasticity effect on customers of higher electricity prices this year reflecting the increase in FPL's retail fuel clause recovery factor as discussed below. This usage decrease, as well as other factors, decreased retail base revenues by approximately $67 million. A 1.8% increase in the average number of retail customer accounts increased retail base revenues by approximately $21 million. In addition, under the 2005 rate agreement, FPL was authorized by the FPSC to collect, through a separate charge on a customer's bill, the portion (approximately 1.5%) of gross receipts taxes that was previously embedded in base rates. This resulted in an approximately $17 million reduction in retail base revenues with a corresponding increase in revenues from other cost recovery clauses and pass-through costs.
Customer usage decreased 1.0% for the nine months ended September 30, 2006 reflecting warmer weather in the prior year as well as a decline due to the elasticity effect on customers of the higher electricity prices experienced this year. This usage decrease, as well as other factors, decreased retail base revenues by approximately $34 million. A 2.0% increase in the average number of retail customer accounts increased retail base revenues by approximately $55 million. The reduction in retail base revenues and the corresponding increase in revenues from other cost recovery clauses and pass-through costs, resulting from the removal of gross receipts taxes from base rates, amounted to approximately $42 million for the nine months ended September 30, 2006.
Revenues from fuel and other cost recovery clauses and pass-through costs, such as franchise fees, revenue taxes and storm cost recoveries, do not significantly affect net income; however, underrecovery or overrecovery of such costs can significantly affect FPL Group's and FPL's operating cash flows. Fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel, purchased power and interchange expense, as well as by changes in energy sales. Fluctuations in other cost recovery clauses and pass-through costs revenues are primarily driven by changes in capacity charges, franchise fee costs and storm reserve deficiency amortization, and the impact of changes in O&M and depreciation expense on the underlying cost recovery clause, as well as changes in energy sales. Capacity charges and franchise fee costs are included in fuel, purchased power and interchange and taxes other than income taxes, respectively, in the condensed consolidated statements of income.
In February 2005, FPL began recovering the 2004 storm restoration cost deficiency from retail customers. For the three months ended September 30, 2006 and 2005, the amount billed to customers related to these storm restoration cost recoveries amounted to approximately $44 million and $56 million, respectively, and is included in other cost recovery clauses and pass-through costs. The corresponding amounts for the nine months ended September 30, 2006 and 2005 were $114 million and $119 million, respectively. The expense for the amortization of the storm reserve deficiency is shown as a separate line on the condensed consolidated statements of income. In May 2006, the FPSC approved the issuance of bonds to recover FPL's unrecovered 2004 and 2005 storm restoration costs, as well as establish a storm and property insurance reserve of $200 million. See Note 7. The decrease in other revenues is primarily due to the FPSC-approved sale, effective January 1, 2006, of FPL's retail gas business to a subsidiary of FPL Group Capital, which also reduced FPL's fuel expenses by approximately $15 million and $42 million for the three and nine months ended September 30, 2006.
The major components of FPL's fuel, purchased power and interchange expense are as follows:
Three Months Ended
Nine Months Ended
2006
2005
2006
2005
(millions)
Fuel and energy charges during the period
$
1,704
$
1,826
$
4,383
$
3,828
Recovery of costs incurred in a prior period
186
35
557
105
Net over (under) recovery of costs during the period
39
(575
)
42
(695
)
Other, primarily capacity charges
net of any capacity deferral
151
174
387
448
Total
$
2,080
$
1,460
$
5,369
$
3,686
September 30,
September 30,
Effective January 2006, FPL's fuel clause recovery factor was increased in response to higher expected fuel prices in 2006, as well as the recovery of a portion of underrecovered fuel costs from 2005. The increase in the fuel factor was the primary contributor to the $592 million decrease in deferred clause and franchise expenses (current and noncurrent, collectively) on FPL Group's and FPL's condensed consolidated balance sheets at September 30, 2006, and positively affected FPL Group's and FPL's cash flows from operations for the nine months ended September 30, 2006. The decrease in fuel and energy charges for the three months ended September 30, 2006 reflects approximately $69 million due to lower energy sales, approximately $38 million attributable to lower prices and approximately $15 million related to the sale of FPL's retail gas business. The increase in fuel and energy charges for the nine months ended September 30, 2006 reflects higher fuel and energy prices of approximately $540 million and approximately $57 million attributable to higher energy sales partly offset by approximately $42 million related to the sale of FPL's retail gas business. The recovery of costs incurred in a prior period for the three and nine months ended September 30, 2006 and 2005 represents the collection of underrecovered fuel costs the FPSC permitted FPL to collect beginning in 2006 and 2005, respectively. The net overrecovery (underrecovery) of costs during the period represents fuel clause collections from customers which were higher (lower) than fuel and energy costs incurred.
FPL's O&M expenses for the three months ended September 30, 2006 were essentially the same as the prior year and for the nine months ended September 30, 2006 increased primarily due to higher distribution costs reflecting implementation of the Storm Secure Plan and higher fleet vehicle costs, as well as increased staffing costs at FPL's nuclear plants. For the nine-month period, this was partially offset by an approximately $11 million reversal in the second quarter of 2006 of previously accrued nuclear outage reserve costs, which is more fully discussed below. Management expects to see a continued upward trend in O&M expenses in 2006 in the areas of transmission, distribution, including costs associated with the Storm Secure Plan, fossil generation and customer service, as well as continued increases in employee benefit costs. See Management's Discussion - Liquidity and Capital Resources - Other for additional discussion of FPL's Storm Secure Plan.
In mid-June 2006, St. Lucie Unit No. 2 completed its scheduled refueling outage, which included the inspection of its reactor vessel head for cracks and corrosion. No cracking was detected and no repairs to the reactor vessel head were made during this outage. FPL intends to replace the reactor vessel head at St. Lucie Unit No. 2 during its fall 2007 scheduled refueling outage and has replaced within the last two years the reactor vessel heads at FPL's other three nuclear units. The estimated cost of performing inspections and any necessary repairs to St. Lucie Unit No. 2's and the other units' reactor vessel head(s) until replacement is being recognized as expense on a levelized basis over a five-year period that began in 2002, as authorized by the FPSC, and amounted to a credit of approximately $1 million and an expense of approximately $6 million for the three months ended September 30, 2006 and 2005, respectively, and an expense of approximately $2 million and $9 million for the nine months ended September 30, 2006 and 2005, respectively. As of September 30, 2006, there is a credit of approximately $1 million remaining to be amortized through December 31, 2006 for the reactor vessel head inspection costs, resulting primarily from a true-up of the St. Lucie Unit No. 2 inspection costs since no repairs were required. As of September 30, 2006, FPL's portion of the estimated remaining cost to replace St. Lucie Unit No. 2's reactor vessel head, including AFUDC, is approximately $47 million and is included in FPL's estimated capital expenditures. See Note 10 - Commitments.
FPL intends to replace, along with the reactor vessel head, St. Lucie Unit No. 2's steam generators during its fall 2007 scheduled refueling outage. Currently, 23.0% and 27.8% of the tubes in the two steam generators have been plugged in order to prevent the tubes from leaking during plant operations. It had been anticipated that during the spring 2006 outage, the 30%
Depreciation and amortization expense for the three and nine months ended September 30, 2006 decreased $49 million and $119 million, respectively, benefiting from lower depreciation rates and the elimination of the decommissioning accrual approved as part of the 2005 rate agreement. This reduction in rates applied to substantially all power plant assets including Turkey Point Units Nos. 3 and 4 and St. Lucie Units Nos. 1 and 2, which have received 20-year license extensions. This was partially offset by FPL's continued investment in transmission and distribution expansion to support customer growth and demand. For the nine months ended September 30, 2006, the benefit from the lower depreciation rates was also partially offset by increased depreciation from the addition of two new generating units at FPL's existing Martin and Manatee power plant sites, which became operational on June 30, 2005, and increased nuclear depreciation related to plant additions. FPL expects to place an additional approximately 1,150 mw generating unit into service at its Turkey Point site by mid-2007.
Taxes other than income taxes for the three and nine months ended September 30, 2006 increased primarily due to higher franchise fee and revenue taxes, which are pass-through costs, as a result of increases in fuel and other cost recovery clause revenues.
Interest charges increased for the three and nine months ended September 30, 2006 primarily due to higher average debt balances used to fund increased investment in generation, transmission and distribution expansion, and to pay for unrecovered fuel and storm restoration costs. For the three months ended September 30, 2006, the increase in AFUDC is primarily due to AFUDC recorded on the 1,150 mw Turkey Point site expected to be in service in mid-2007. The decline in AFUDC for the nine months ended September 30, 2006 is primarily attributable to the placement of the additional Martin and Manatee units in service on June 30, 2005 partially offset by increased AFUDC on the 1,150 mw Turkey Point site.
The increase in other - net for the three and nine months ended September 30, 2006 was primarily due to additional interest recorded on storm restoration costs which have yet to be recovered.
FPL's effective income tax rates for the three months and nine months ended September 30, 2006 were below the prior year periods primarily due to certain federal income tax deductions and credits recorded this year.
FPL Energy
- FPL Energy's net income for the three months ended September 30, 2006 and 2005 was $215 million and $44 million, respectively. FPL Energy's net income for the nine months ended September 30, 2006 and 2005 was $458 million and $102 million, respectively. The primary drivers, on an after-tax basis, of these increases were as follows:
Three Months Ended
Nine Months Ended
(millions)
New investment
$
27
$
75
Existing assets
10
86
Asset optimization and trading
13
21
Restructuring activities
-
(17
)
Interest expense and other
(9
)
(25
)
Change in unrealized mark-to-market non-qualifying hedge activity
130
216
Total increase
$
171
$
356
_____________________
(a)
Does not include allocation of interest expense or corporate general and administrative expenses. Does include PTCs on wind projects. See Note 4.
(b)
For discussion of derivative instruments, see Note 3.
September 30, 2006
September 30, 2006
The increase in FPL Energy's results from new investment reflects the addition of over 1,345 mw of wind and nuclear generation during or after the three months ended September 30, 2005 and over 1,675 mw of nuclear, wind and solar generation during or after the nine months ended September 30, 2005. The existing portfolio in the three month period ended September 30, 2006 benefited from improved market conditions in the New England Power Pool (NEPOOL), PJM Interconnection, L.L.C. (PJM) and Western Electric Coordinating Council (WECC) regions while the nine month period benefited from improved market conditions in the NEPOOL, Electric Reliability Council of Texas (ERCOT) and PJM regions. In addition, for the three months ended September 30, 2006, the existing portfolio experienced a lower wind resource while results for the nine months ended September 30, 2006 benefited from a higher wind resource. FPL Energy also recognized increased gains in both periods from its asset optimization and trading activities, including load following services (which require the supplier of energy to vary the quantity delivered based on the load demand needs of the customer). Restructuring activities in the nine month period ended September 30, 2006 reflect the absence of gains recorded in 2005 from asset sales and from a contract restructuring. Interest expense and other includes higher interest expense due to higher debt balances as a result of growth in the business as well as an increase in average interest rates of approximately 35 basis points and 49 basis points for the three and nine months ended September 30, 2006, respectively. During the three and nine months ended September 30, 2006, FPL Energy recorded approximately $74 million and $77 million, respectively, of after-tax net unrealized mark-to-market gains on non-qualifying hedge activity compared to after-tax net losses of approximately $56 million and $139 million in the same periods in 2005.
FPL Energy's operating revenues for the three and nine months ended September 30, 2006 increased $551 million and $1,482 million, respectively. The three-month period benefited primarily from gains on unrealized mark-to-market non-qualifying hedge activity in 2006 as compared to losses in the 2005 period, project additions and favorable market conditions in the NEPOOL, PJM and WECC regions. The nine month period benefited primarily from gains on unrealized mark-to-market non-qualifying hedge activity in 2006 as compared to losses in the 2005 period, favorable market conditions in the NEPOOL, ERCOT and PJM regions, project additions and the absence of a refueling outage at Seabrook. In addition, a lower wind resource reduced operating revenues during the three months ended September 30, 2006 while a higher wind resource increased operating revenues during the nine months ended September 30, 2006. Also, operating revenues in the third quarter of 2006 include approximately $11 million related to the settlement of certain operational performance issues with wind turbine equipment suppliers. FPL Energy's operating expenses for the three and nine months ended September 30, 2006 increased $247 million and $852 million, respectively, primarily due to unrealized mark-to-market non-qualifying hedge losses in 2006 compared to gains in 2005, project additions and, for the nine months ended September 30, 2006, increased fuel costs as a result of market conditions. During the three months ended September 30, 2006, the increase in operating expenses from the factors discussed above was partially offset by lower fuel costs as a result of market conditions.
The $17 million and $22 million decrease in equity in earnings of equity method investees for the three and nine months ended September 30, 2006 is primarily due to unrealized mark-to-market losses from non-qualifying hedge activity in 2006 compared to gains in 2005, partially offset, for the nine months ended September 30, 2006, by the receipt in the second quarter of 2006 of a portion of funds from a judgment relating to a development project that was suspended indefinitely by the Indonesian government in 1998. For the nine-month period, the favorable effect on operating results from a prior contract restructuring was offset by the absence of an approximately $13 million gain on a contract restructuring recorded in 2005. In October 2006, FPL Energy recorded approximately $90 million pretax of equity in earnings of equity method investees as a result of a court judgment to recover its investment and lost profits in the Indonesian development project. See Note 10 - Subsequent Event.
FPL Energy's interest expense for the three and nine months ended September 30, 2006 increased $13 million and $32 million, respectively, reflecting higher average debt balances to support growth in the business and an increase in average interest rates. Gains on disposal of equity method investees and leveraged leases - net in FPL Group's condensed consolidated statements of income for the nine months ended September 30, 2005 includes pretax gains on the sale of joint venture projects; other - net includes a benefit associated with obtaining an additional partnership interest in a coal plant in California. PTCs from FPL Energy's wind projects are reflected in FPL Energy's earnings. PTCs are recognized as wind energy is generated and sold based on a per kwh rate prescribed in applicable federal and state statutes, and amounted to approximately $35 million and $116 million for the three and nine months ended September 30, 2006, respectively, and $30 million and $93 million for the comparable periods in 2005.
In January 2006, FPL Energy completed the acquisition of a 70% interest, or approximately 415 mw, in Duane Arnold, a nuclear power plant located near Cedar Rapids, Iowa, from Interstate Power and Light Company (IP&L). FPL Energy purchased the 70% interest, including nuclear fuel, inventory and other items, for a net purchase price of approximately $350 million. FPL Energy is selling its share of the output of Duane Arnold to IP&L at a price of approximately $46 per megawatt-hour (mwh) in 2006, escalating annually to approximately $61 per mwh in 2013, under a long-term contract expiring in 2014. FPL Energy is responsible for management and operation of the plant, as well as for the ultimate decommissioning of the facility, the cost of which will be shared on a pro-rata basis by the joint owners. FPL Energy received approximately $188 million of decommissioning funds at closing which is included in nuclear decommissioning reserve funds on FPL Group's condensed consolidated balance sheet at September 30, 2006. FPL Energy expects to file for a license extension for the plant in 2009, which, if approved, will enable the plant to continue to operate for an additional 20 years beyond its current license expiration of 2014.
FPL Energy expects its future portfolio capacity growth to come primarily from wind development benefiting from the extension of the production tax credit program through 2007 for new wind facilities, as well as from asset acquisitions. In addition to the acquisition of Duane Arnold discussed above, in 2006 FPL Energy purchased additional ownership interests, or approximately 47 mw, in wind projects in California and Minnesota and, through the third quarter of 2006, began commercial operation of a total of approximately 623 mw of wind projects in Texas and North Dakota. FPL Energy has approximately 760 mw of new wind development projects that have either been completed or are expected to reach commercial operation by the end of 2006. FPL Energy expects to add a total of at least 1,500 mw of new wind generation in 2006 and 2007.
In March 2006, a settlement agreement was submitted to the FERC that would establish a new forward capacity market (FCM) in the NEPOOL region. The parties to the settlement agreement include wholesale power generators in New England, including FPL Energy, and four of the six New England states. Under the FCM proposal, capacity payments to generators would be established competitively through an annual auction, the first of which would be conducted in the first quarter of 2008 to purchase capacity for the twelve months starting June 1, 2010. The settlement agreement also provides for a transition period starting December 1, 2006 through May 31, 2010, during which capacity suppliers would receive fixed capacity payments, subject to penalties for forced outages during peak demand periods. In June 2006, the FERC approved the settlement agreement. The settlement agreement, as approved by the FERC, is expected to result in increased gross margins for FPL Energy's assets in the NEPOOL region during the transition period.
Corporate and Other
- Corporate and Other is primarily comprised of interest expense, FPL FiberNet and other business activities, as well as corporate interest income and expenses. Corporate and Other allocates interest charges to FPL Energy based on a deemed capital structure at FPL Energy of 50% debt for operating projects and 100% debt for projects under construction. Corporate and Other's net loss for the three and nine months ended September 30, 2006 was $19 million and $80 million, respectively, compared to a net loss of $16 million and $47 million for the comparable periods in 2005. Results for the three and nine months ended September 30, 2006 reflect approximately $7 million and $13 million, respectively, of after-tax costs associated with the termination of the proposed merger between FPL Group and Constellation Energy. See Note 5. In the third quarter of 2006, FPL Group recorded approximately $13 million of state tax benefits reflecting FPL Energy's growth throughout the United States
FPL Group and its subsidiaries, including FPL, require funds to support and grow their businesses. These funds are used for working capital, capital expenditures and investments in or acquisitions of assets and businesses, to pay maturing debt obligations and, from time to time, to redeem outstanding debt and/or repurchase common stock. It is anticipated that these requirements will be satisfied through a combination of internally generated funds and the issuance, from time to time, of debt and equity securities, consistent with FPL Group's and FPL's objective of maintaining, on a long-term basis, a capital structure that will support a strong investment grade credit rating. Credit ratings can affect FPL Group's, FPL's and FPL Group Capital's ability to obtain short- and long-term financing, the cost of such financing and the execution of their respective financing strategies.
Cash Flow
- The changes in cash and cash equivalents are summarized as follows:
FPL Group
FPL
Nine Months Ended September 30,
2006
2005
2006
2005
(millions)
Net cash provided by operating activities
$
1,420
$
2,516
$
1,193
$
2,232
Net cash used in investing activities
(2,906
)
(1,865
)
(1,405
)
(1,313
)
Net cash provided by (used in) financing activities
1,115
226
221
(39
)
Net increase (decrease) in cash and cash equivalents
$
(371
)
$
877
$
9
$
880
FPL Group's cash flows for the nine months ended September 30, 2006 benefited from net issuances of debt, the issuance of common stock and the recovery from customers of previously incurred fuel and storm costs at FPL, which were offset by an increase in FPL's customer receivables and the return of cash collateral (margin cash deposits) primarily to FPL counterparties. The funds generated were used to pay for capital expenditures at FPL, additional investments at FPL Energy, common stock dividends, storm-related costs at FPL and to carry an increase in fossil fuel inventory.
FPL Group's cash flows from operating activities for the nine months ended September 30, 2006 reflect the recovery by FPL of fuel and storm costs deferred in prior years as a result of an increase in the fuel clause recovery factor effective January 2006 and the implementation of a storm damage surcharge applied to retail customer bills that began February 2005. The recovery of these deferred costs was offset
by
storm-related payments at FPL, an increase in customer receivables at FPL reflecting the higher fuel factor and a seasonal increase in customer usage, the return of margin cash deposits primarily to FPL's counterparties due to declining energy contract prices and an increase in fossil fuel inventory. The increase in fossil fuel inventory is primarily due to the accumulation of oil inventory at FPL reflecting the burning of more natural gas due to relatively lower natural gas prices and the addition, at an FPL Energy plant, of oil and gas inventory which was purchased pursuant to the termination of a fuel management contract.
FPL Group's cash flows from operating activities for the nine months ended September 30, 2005 reflect the receipt of cash collateral primarily from FPL's counterparties related to energy contracts (margin cash deposits), underrecovered fuel costs at FPL caused primarily by higher than anticipated fuel costs, the payment of 2004 and 2005 storm restoration costs and recoveries from customers of a portion of the 2004 storm restoration costs.
FPL Group
FPL
September 30,
December 31,
September 30,
December 31,
Weighted-average annual interest rate
6.1
%
5.9
%
5.3
%
5.2
%
Weighted-average life (years)
13.5
9.3
18.3
15.1
Annual average of floating rate debt to total debt
40
%
35
%
43
%
40
%
____________________
(a)
Calculations include interest rate swaps.
2006
2005
2006
2005
Guarantees and Letters of Credit
- FPL Group and FPL obtain letters of credit and issue guarantees to facilitate commercial transactions with third parties and financings. At September 30, 2006, FPL Group had standby letters of credit of approximately $759 million ($206 million for FPL) and approximately $6,154 million notional amount of guarantees ($356 million for FPL), of which approximately $5,152 million ($532 million for FPL) have expirations within the next five years. Approximately $406 million of the standby letters of credit at September 30, 2006 were issued under FPL's and FPL Group Capital's credit facilities. See Available Liquidity below. These letters of credit and guarantees support the buying and selling of wholesale energy commodities, debt-related reserves, nuclear decommissioning activities and other contractual agreements. FPL Group and FPL believe it is unlikely that they would be required to perform or otherwise incur any liabilities associated with these letters of credit and guarantees. At September 30, 2006, FPL Group and FPL did not have any liabilities recorded for these letters of credit and guarantees. In addition, FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most of its debt, including all of its debentures and commercial paper issuances, as well as most of its payment guarantees, and FPL Group Capital has guaranteed certain debt and other obligations of FPL Energy and its subsidiaries. See Note 10 - Commitments.
In addition to the above, FPL Energy has guaranteed certain performance obligations of a power plant owned by a wholly-owned subsidiary as part of a power purchase agreement that expires in 2027. Under this agreement, the subsidiary could incur market-based liquidated damages for failure to meet contractual minimum outputs. In addition, certain subsidiaries of FPL Energy have contracts that require certain projects to meet annual minimum generation amounts. Failure to meet the annual minimum generation amounts would result in the FPL Energy subsidiary becoming liable for specified liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these guarantees is not material.
Maturity Date
FPL Group
Corporate
FPL
FPL Group
(in millions)
Bank revolving lines of credit
$
2,000
(b)
$
2,500
$
-
$
4,500
(b)
November 2010
November 2010
Less letters of credit
190
216
406
1,810
2,284
-
4,094
Revolving term loan facility
250
-
-
250
May 2011
Less borrowings
250
-
-
250
May 2008
-
-
-
-
Cash and cash equivalents
65
94
-
159
Net available liquidity
$
1,875
$
2,378
$
-
$
4,253
____________________
(a)
Provide for the issuance of letters of credit up to $4.5 billion and are available to support the companies' commercial paper programs and to provide additional liquidity in the event of a loss to the companies' or their subsidiaries' operating facilities (including, in the case of FPL, a transmission and distribution property loss), as well as for general corporate purposes.
(b)
Excludes $300 million in senior secured revolving credit facilities of an entity consolidated by FPL under FIN 46(R) (the VIE) that leases nuclear fuel to FPL which credit facilities are available only to the VIE.
FPL
Capital
and Other
Group
FPL
Capital
FPL Group (which guarantees the payment of FPL Group Capital's credit facilities pursuant to a 1998 guarantee agreement) is required to maintain a minimum ratio of funded debt to total capitalization under the terms of FPL Group Capital's credit facility. FPL is required to maintain a minimum ratio of funded debt to total capitalization under the terms of FPL's credit facility. At September 30, 2006, each of FPL Group and FPL was in compliance with its respective ratio.
Also, FPL Group Capital and FPL have each established an uncommitted credit facility with a bank to be used for general corporate purposes. The bank may at its discretion, upon the request of FPL Group Capital or FPL, make a short-term loan or loans to FPL Group Capital or FPL in an aggregate amount determined by the bank, which is subject to change at any time. The terms of the specific borrowings under the uncommitted credit facilities, including maturity, are set at the time borrowing requests are made by FPL Group Capital or FPL. At September 30, 2006, there were no amounts outstanding for either FPL Group Capital or FPL under the uncommitted credit facilities.
During the second quarter of 2006, FPL entered into a $250 million revolving five-year term loan facility, which is included in the table above, and FPL Group Capital entered into three separate two-year term loan facilities aggregating $400 million and each expiring in June 2008. Both FPL and FPL Group Capital borrowed the full amount under the term loan facilities during the second quarter of 2006. Under the terms of the term loan facilities, each of FPL and FPL Group is required to maintain a minimum ratio of funded debt to total capitalization. At September 30, 2006, each of FPL and FPL Group was in compliance with its respective ratio. Pursuant to its guarantee agreement with FPL Group Capital, FPL Group guarantees the payment of FPL Group Capital's term loans.
In addition to the bank lines of credit discussed above, the consolidated VIE that leases nuclear fuel to FPL has established a $100 million senior secured revolving credit facility, which expires in June 2009, and a $200 million senior secured revolving credit facility, which expires in May 2007. Both credit facilities provide backup support for the VIE's commercial paper program. FPL has provided an unconditional guarantee of the payment obligations of the VIE under the credit facilities, which is included in the guarantee discussion under Guarantees and Letters of Credit above. At September 30, 2006, the VIE had no outstanding borrowings under the revolving credit facilities and had approximately $192 million of commercial paper outstanding.
Shelf Registration
- On September 5, 2006, FPL Group, FPL Group Capital, FPL and certain affiliated trusts filed a shelf registration statement for an unspecified amount of securities with the Securities and Exchange Commission (SEC). The amount of securities issuable by the companies is established from time to time by their respective board of directors. Securities that may be issued under the registration statement, which became effective upon filing, include, depending on the registrant, senior debt securities, subordinated debt securities, first mortgage bonds, preferred trust securities and guarantees related to certain of those securities. As of September 30, 2006, FPL Group and FPL Group Capital had $700 million (issuable by either or both of them up to such aggregate amount) of board-authorized available capacity, and FPL had $700 million of board-authorized available capacity.
Replacement Capital Covenant
- On September 19, 2006, FPL Group and FPL Group Capital executed a replacement capital covenant (RCC) in connection with FPL Group Capital's offering of $350 million principal amount of Series A Enhanced Junior Subordinated Debentures due 2066 and $350 million principal amount of Series B Enhanced Junior Subordinated Debentures due 2066 (collectively, enhanced junior subordinated debentures). The RCC is for the benefit of persons that buy, hold or sell a specified series of long-term indebtedness (covered debt) of FPL Group Capital (other than the enhanced junior subordinated debentures) or, in certain cases, of FPL Group. FPL Group Capital Trust I's 5 7/8% Preferred Trust Securities have been initially designated as the covered debt under the RCC. The RCC provides that FPL Group Capital may redeem, and FPL Group or FPL Group Capital may purchase, any enhanced junior subordinated debentures on or before October 1, 2036, only to the extent that the redemption or purchase price exceeds a specified amount of proceeds from the sale of qualifying securities, subject to certain limitations described in the RCC. Qualifying securities are securities that have equity-like characteristics that are the same as, or more equity-like than, the enhanced junior subordinated debentures at the time of redemption or purchase, which are sold within 180 days prior to the date of the redemption or repurchase of the enhanced junior subordinated debentures.
Credit Ratings
- Securities of FPL Group and its subsidiaries are currently rated by Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services (S&P) and Fitch Ratings (Fitch). At November 2, 2006, Moody's, S&P and Fitch had assigned the following credit ratings to FPL Group, FPL and FPL Group Capital:
Moody's
(a)
S&P
(a)
Fitch
(a)
FPL Group:
Corporate credit rating
A2
A
A
FPL:
Corporate credit rating
A1
A/A-1
A
First mortgage bonds
Aa3
A
AA-
Pollution control, solid waste disposal and
industrial development revenue bonds
Aa3/VMIG-1
A
A+
Commercial paper
P-1
A-1
F-1
FPL Group Capital:
Corporate credit rating
N/A
A/A-1
A
Debentures
A2
A-
A
Junior Subordinated Debentures
A3
BBB+
A-
Commercial paper
P-1
A-1
F-1
____________________
(a)
A security rating is not a recommendation to buy, sell or hold securities and should be evaluated independently of any other rating. The rating is subject to revision or withdrawal at any time by the assigning rating organization.
(b)
The outlook indicated by each of Moody's, S&P and Fitch is stable.
Other
- FPL was impacted by four hurricanes in 2005 and three hurricanes in 2004, which did major damage in parts of FPL's service territory. Storm restoration costs incurred by FPL during 2005 and 2004 exceeded the amount in the storm and property insurance reserve. At September 30, 2006, FPL's storm reserve deficiency totaled approximately $940 million. In May 2006, the FPSC approved the issuance of approximately $708 million of bonds pursuant to the securitization provisions of Section 366.8260 of the Florida Statutes for the net-of-tax recovery by FPL of the estimated storm reserve deficiency at July 31, 2006, or approximately $934 million, including interest, and for a storm and property insurance reserve of $200 million. The unrecovered 2004 storm restoration costs will continue to be recovered through a previously approved storm damage surcharge until the bonds are issued. FPL is working with the FPSC staff and its financial advisors to complete the issuance of the bonds. See Note 7.
In January 2006, FPL introduced an initiative to enhance its electrical grid as a result of heightened hurricane activity and in response to concerns express by the community, state leaders and regulators. The estimated capital expenditures of this initiative, as well as the FPSC's approved storm preparedness plan (collectively, Storm Secure Plan) for the remainder of 2006 through 2010 are included in FPL's projected capital expenditures under Contractual Obligations and Planned Capital Expenditures above, and are subject to change over time based on productivity enhancements and prioritization. See Note 10 - Commitments. See Management's Discussion - Results of Operations for further discussion regarding the impact of Storm Secure Plan costs on O&M expense.
|
Accumulated Other Comprehensive Income (Loss) |
||||||||||||||||||||||
|
|
|
|
||||||||||||||||||||
|
Nine Months Ended September 30, |
||||||||||||||||||||||
|
|
|
|||||||||||||||||||||
|
2006 |
2005 |
|||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||
|
Net Unrealized
|
|
|
Net Unrealized
|
|
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
(millions) |
||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
Balances at December 31 of prior year |
$ |
(215 |
) |
$ |
22 |
$ |
(193 |
) |
$ |
(67 |
) |
$ |
21 |
$ |
(46 |
) |
||||||
|
Net unrealized gains (losses) on commodity cash flow hedges: |
||||||||||||||||||||||
|
Effective portion of net unrealized gains (losses) |
||||||||||||||||||||||
|
(net of $98 tax expense and $138 tax benefit, respectively) |
143 |
- |
143 |
(203 |
) |
- |
(203 |
) |
||||||||||||||
|
Reclassification from OCI to net income |
||||||||||||||||||||||
|
(net of $19 and $21 tax expense, respectively) |
28 |
- |
28 |
31 |
- |
31 |
||||||||||||||||
|
Net unrealized gains (losses) on interest rate cash flow hedges: |
||||||||||||||||||||||
|
Effective portion of net unrealized gains (losses) |
||||||||||||||||||||||
|
(net of $0.6 tax benefit and $2 tax expense, respectively) |
(1 |
) |
- |
(1 |
) |
3 |
- |
3 |
||||||||||||||
|
Reclassification from OCI to net income |
||||||||||||||||||||||
|
(net of $1 and $1 tax expense, respectively) |
2 |
- |
2 |
2 |
- |
2 |
||||||||||||||||
|
Net unrealized gains (losses) on available for sale securities |
||||||||||||||||||||||
|
(net of $6 tax expense and $2 tax benefit, respectively) |
- |
10 |
10 |
- |
(3 |
) |
(3 |
) |
||||||||||||||
|
SERP liability adjustment |
||||||||||||||||||||||
|
(net of $0.5 and $1 tax expense, respectively) |
- |
1 |
1 |
- |
3 |
3 |
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30 |
$ |
(43 |
) |
$ |
33 |
$ |
(10 |
) |
$ |
(234 |
) |
$ |
21 |
$ |
(213 |
) |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Energy Marketing and Trading
- Certain of FPL Group's subsidiaries, including FPL and FPL Energy, use derivative instruments (primarily swaps, options and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as to optimize the value of power generation assets. To a lesser extent, FPL Group and FPL engage in limited energy trading activities to take advantage of expected future favorable price movements.
Derivative instruments, when required to be marked to market under FAS 133, as amended, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses are passed through the fuel clause or the capacity clause. For FPL Group's non-rate regulated operations, predominantly FPL Energy, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized net in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied. See Note 3.
The changes in the fair value of FPL Group's consolidated subsidiaries' energy contract derivative instruments for the three and nine months ended September 30, 2006 were as follows:
Hedges on Owned Assets
FPL Cost
FPL
(millions)
Three months ended September 30, 2006
Fair value of contracts outstanding at June 30, 2006
$
4
$
(157
)
$
(245
)
$
(248
)
$
(646
)
Reclassification to realized at settlement of contracts
3
44
13
210
270
Effective portion of changes in fair value recorded in OCI
-
-
147
-
147
Ineffective portion of changes in fair value recorded in earnings
-
12
-
-
12
Changes in fair value excluding reclassification to realized
(6
)
62
-
(839
)
(783
)
Fair value of contracts outstanding at September 30, 2006
1
(39
)
(85
)
(877
)
(1,000
)
Net option premium payments (receipts)
(1
)
16
-
159
174
Total mark-to-market energy contract net assets (liabilities) at September 30, 2006
$
-
$
(23
)
$
(85
)
$
(718
)
$
(826
)
Trading
Non-
Qualifying
OCI
Recovery
Clauses
Group
Total
|
Hedges on Owned Assets |
|||||||||||||||||
|
|
|
|
|
|
|
|
|||||||||||
|
|
|
|
FPL Cost
|
FPL
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
(millions) |
|||||||||||||||||
|
Nine months ended September 30, 2006 |
|||||||||||||||||
|
Fair value of contracts outstanding at December 31, 2005 |
$ |
2 |
$ |
(176 |
) |
$ |
(373 |
) |
$ |
757 |
$ |
210 |
|||||
|
Reclassification to realized at settlement of contracts |
18 |
80 |
46 |
64 |
208 |
||||||||||||
|
Effective portion of changes in fair value recorded in OCI |
- |
- |
242 |
- |
242 |
||||||||||||
|
Ineffective portion of changes in fair value recorded in earnings |
- |
23 |
- |
- |
23 |
||||||||||||
|
Changes in fair value excluding reclassification to realized |
(19 |
) |
34 |
- |
(1,698 |
) |
(1,683 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Fair value of contracts outstanding at September 30, 2006 |
1 |
(39 |
) |
(85 |
) |
(877 |
) |
(1,000 |
) |
||||||||
|
Net option premium payments (receipts) |
(1 |
) |
16 |
- |
159 |
174 |
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
Total mark-to-market energy contract net assets (liabilities) at September 30, 2006 |
$ |
- |
$ |
(23 |
) |
$ |
(85 |
) |
$ |
(718 |
) |
$ |
(826 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
FPL Group's total mark-to-market energy contract net assets (liabilities) at September 30, 2006 shown above are included in the condensed consolidated balance sheet as follows:
The sources of fair value estimates and maturity of energy contract derivative instruments at September 30, 2006 were as follows:
Maturity
2006
2007
2008
2009
2010
Thereafter
Total
Trading:
(millions)
Actively quoted (i.e., exchange trade) prices
$
(2
)
$
5
$
7
$
-
$
-
$
-
$
10
Prices provided by other external sources
(58
)
(67
)
(6
)
-
-
1
(130
)
Modeled
64
57
-
-
-
-
121
Total
4
(5
)
1
-
-
1
1
Owned Assets - Non-Qualifying:
Actively quoted (i.e., exchange trade) prices
(77
)
(144
)
(19
)
3
(4
)
(6
)
(247
)
Prices provided by other external sources
51
134
12
(1
)
1
(18
)
179
Modeled
14
16
4
-
(3
)
(2
)
29
Total
(12
)
6
(3
)
2
(6
)
(26
)
(39
)
Owned Assets - OCI:
Actively quoted (i.e., exchange trade) prices
(1
)
-
-
-
-
-
(1
)
Prices provided by other external sources
(7
)
(74
)
(12
)
10
8
2
(73
)
Modeled
(1
)
(5
)
(5
)
-
-
-
(11
)
Total
(9
)
(79
)
(17
)
10
8
2
(85
)
Owned Assets
-
FPL Cost Recovery Clauses:
Actively quoted (i.e., exchange trade) prices
(246
)
(489
)
-
-
-
-
(735
)
Prices provided by other external sources
(29
)
(120
)
-
-
-
-
(149
)
Modeled
4
3
-
-
-
-
7
Total
(271
)
(606
)
-
-
-
-
(877
)
Total sources of fair value
$
(288
)
$
(684
)
$
(19
)
$
12
$
2
$
(23
)
$
(1,000
)
The changes in the fair value of FPL Group's consolidated subsidiaries' energy contract derivative instruments for the three and nine months ended September 30, 2005 were as follows:
Hedges on Owned Assets
FPL Cost
FPL
(millions)
Three months ended September 30, 2005
Fair value of contracts outstanding at June 30, 2005
$
2
$
(94
)
$
(221
)
$
218
$
(95
)
Reclassification to realized at settlement of contracts
1
24
25
(156
)
(106
)
Effective portion of changes in fair value recorded in OCI
-
-
(204
)
-
(204
)
Ineffective portion of changes in fair value recorded in earnings
-
(15
)
-
-
(15
)
Changes in fair value excluding reclassification to realized
-
(141
)
-
1,496
1,355
Fair value of contracts outstanding at September 30, 2005
3
(226
)
(400
)
1,558
935
Net option premium payments (receipts)
-
(6
)
-
23
17
Total mark-to-market energy contract net assets (liabilities) at September 30, 2005
$
3
$
(232
)
$
(400
)
$
1,581
$
952
Trading
Non-
Qualifying
OCI
Recovery
Clauses
Group
Total
|
Hedges on Owned Assets |
|||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
FPL Cost
|
FPL
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
(millions) |
|||||||||||||||
|
Nine months ended September 30, 2005 |
|||||||||||||||
|
Fair value of contracts outstanding at December 31, 2004 |
$ |
4 |
$ |
(10 |
) |
$ |
(109 |
) |
$ |
(9 |
) |
$ |
(124 |
) |
|
|
Reclassification to realized at settlement of contracts |
(3 |
) |
(3 |
) |
49 |
(189 |
) |
(146 |
) |
||||||
|
Acquisition of Gexa contracts |
- |
38 |
- |
- |
38 |
||||||||||
|
Effective portion of changes in fair value recorded in OCI |
- |
- |
(340 |
) |
- |
(340 |
) |
||||||||
|
Ineffective portion of changes in fair value recorded in earnings |
- |
(25 |
) |
- |
- |
(25 |
) |
||||||||
|
Changes in fair value excluding reclassification to realized |
2 |
(226 |
) |
- |
1,756 |
1,532 |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at September 30, 2005 |
3 |
(226 |
) |
(400 |
) |
1,558 |
935 |
||||||||
|
Net option premium payments (receipts) |
- |
(6 |
) |
- |
23 |
17 |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mark-to-market energy contract net assets (liabilities) at September 30, 2005 |
$ |
3 |
$ |
(232 |
) |
$ |
(400 |
) |
$ |
1,581 |
$ |
952 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Risk Sensitivity
- Financial instruments and positions affecting the financial statements of FPL Group and FPL described below are held primarily for purposes other than trading. Market risk is measured as the potential loss in fair value resulting from hypothetical reasonably possible changes in commodity prices, interest rates or equity prices over the next year. Management has established risk management policies to monitor and manage market risks. FPL Group's Exposure Management Committee (EMC), which is comprised of certain members of senior management, is responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The EMC receives periodic updates on market positions and related exposures, credit exposures and overall risk management activities.
FPL Group and its subsidiaries are also exposed to credit risk through their energy marketing and trading operations. Credit risk is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfill its financial obligation. FPL Group manages counterparty credit risk for its subsidiaries with energy marketing and trading operations through established policies, including counterparty credit limits, and in some cases credit enhancements, such as cash prepayments, letters of credit, cash and other collateral and guarantees. Credit risk is also managed through the use of master netting agreements. FPL Group's credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis.
Commodity price risk
- FPL Group uses a value-at-risk (VaR) model to measure market risk in its trading and mark-to-market portfolios. The VaR is the estimated nominal loss of market value based on a one-day holding period at a 95% confidence level using historical simulation methodology. As of September 30, 2006 and December 31, 2005, the VaR figures were as follows:
Interest rate risk - FPL Group and FPL are exposed to risk resulting from changes in interest rates as a result of their respective issuances of debt, investments in nuclear decommissioning reserve funds and interest rate swaps. FPL Group and FPL manage their respective interest rate exposure by monitoring current interest rates, entering into interest rate swaps and adjusting their variable rate debt in relation to total capitalization.
The following are estimates of the fair value of FPL Group's and FPL's financial instruments:
September 30, 2006
December 31, 2005
Carrying
Estimated
Carrying
Estimated
(millions)
FPL Group:
Long-term debt, including current maturities
$
10,922
$
10,994
(a)
$
9,443
$
9,540
(a)
Fixed income securities:
Nuclear decommissioning reserve funds
$
1,428
$
1,428
(b)
$
1,290
$
1,290
(b)
Other investments
$
97
$
97
(b)
$
80
$
80
(b)
Interest rate swaps - net unrealized gain (loss)
$
6
$
6
(c)
$
(9
)
$
(9
)
(c)
FPL:
Long-term debt, including current maturities
$
4,213
$
4,211
(a)
$
3,406
$
3,416
(a)
Fixed income securities:
Nuclear decommissioning reserve funds
$
1,225
$
1,225
(b)
$
1,151
$
1,151
(b)
_____________________
(a)
Based on market prices provided by external sources.
(b)
Based on quoted market prices for these or similar issues.
(c)
Based on market prices modeled internally.
Amount
Fair Value
Amount
Fair Value
The nuclear decommissioning reserve funds of FPL Group consist of restricted funds set aside to cover the cost of decommissioning of FPL Group's and FPL's nuclear power plants. A portion of these funds is invested in fixed income debt securities carried at their market value. Adjustments to market value result in a corresponding adjustment to the related liability accounts based on current regulatory treatment for FPL. The market value adjustments of FPL Group's non-rate regulated operations result in a corresponding adjustment to OCI.
FPL Group and its subsidiaries use a combination of fixed rate and variable rate debt to manage interest rate exposure. Interest rate swaps are used to adjust and mitigate interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements. At September 30, 2006, the estimated fair value for FPL Group interest rate swaps was as follows:
Based upon a hypothetical 10% decrease in interest rates, which is a reasonable near-term market change, the net fair value of FPL Group's net liabilities would increase by approximately $406 million ($209 million for FPL) at September 30, 2006.
Equity price risk - Included in the nuclear decommissioning reserve funds of FPL Group are marketable equity securities carried at their market value of approximately $1,293 million and $1,113 million ($962 million and $933 million for FPL) at September 30, 2006 and December 31, 2005, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges, which is a reasonable near-term market change, would result in a $129 million ($96 million for FPL) reduction in fair value and corresponding adjustments to the related liability accounts based on current regulatory treatment for FPL, or adjustments to OCI for FPL Group's non-rate regulated operations, at September 30, 2006.
Credit risk - For all derivative and contractual transactions, FPL Group's energy marketing and trading operations, which includes FPL's energy marketing and trading division, are exposed to losses in the event of nonperformance by counterparties to these transactions. Relevant considerations when assessing FPL Group's energy marketing and trading operations' credit risk exposure include:
Based on FPL Group's policies and risk exposures related to credit, FPL Group and FPL do not anticipate a material adverse effect on their financial positions as a result of counterparty nonperformance. As of September 30, 2006, approximately 100% of both FPL Group's and FPL's energy marketing and trading counterparty credit risk exposure is associated with companies that have investment grade credit ratings.
See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity - Market Risk Sensitivity.
|
(a) |
Evaluation of Disclosure Controls and Procedures |
|
|
|
|
|
|
|
|
|
|
|
|
PART II
Reference is made to Item 3. Legal Proceedings in the 2005 Form 10-K for FPL Group and FPL and Part II, Item 1. Legal Proceedings in the Quarterly Report on Form 10-Q for each of the quarterly periods ended March 31, 2006 and June 30, 2006 for FPL Group and FPL.
In the FMPA proceedings, FMPA submitted a petition for review by the DC Circuit of the FERC's December 2005 and July 2006 orders entitling FPL to load ratio share pricing, notwithstanding constraints on a third-party's system, and denying FMPA's request for a rehearing. In August 2006, the FERC requested a stay of the proceedings at the DC Circuit pending resolution of FPL's August 2006 rehearing request of FERC's July 2006 order which denied FPL's request for rehearing of the FERC's December 2005 order. In September 2006, FPL made its required compliance filing, removing an additional $5.6 million in transmission facilities from rates, which resulted in a refund liability of approximately $3 million to FMPA and approximately $1 million to Seminole at September 30, 2006.
In the Adelphia lawsuit, the case is in discovery and has been reset for trial in March 2008.
In September 2006, Indonesia's state-owned oil company filed an action against KBC, an entity in which FPL Energy owns an equity interest, in the Grand Court of the Cayman Islands for fraud and injunctive relief prohibiting KBC from disposing of, dealing with or diminishing the value of any of KBC's assets up to the value of $316 million, the approximate amount of damages being sought, pending resolution of the fraud claim. FPL Energy's portion of the damages being sought is approximately $142 million. KBC sought and received from a New York federal district court an anti-suit injunction against the plaintiff. The district court entered its order prohibiting the plaintiff from taking any affirmative action on its request for injunction and also prohibiting KBC from distributing certain judgment funds to its owners until further order by the New York federal district court.
In addition to the risk factors discussed below and other information set forth in this report, the factors discussed in Part I, Item 1A. Risk Factors in FPL Group's and FPL's 2005 Form 10-K, which could materially affect FPL Group's and FPL's businesses, financial condition and/or future operating results should be carefully considered.
The operation and maintenance of power generation facilities, including nuclear facilities, involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.
The following table presents information regarding purchases made by FPL Group of its common stock:
Item 5. Other Information
|
(a) |
None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
FPL GROUP, INC.
FLORIDA POWER & LIGHT COMPANY
(Registrants)
Date: November 2, 2006
K. MICHAEL DAVIS
K. Michael Davis
Controller and Chief Accounting Officer of FPL Group, Inc. Vice President, Accounting, Controller and
Chief Accounting Officer of Florida Power & Light Company
(Principal Accounting Officer of the Registrants)