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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission
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Exact name of registrants as specified in their
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IRS Employer
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Juno Beach, Florida 33408 (561) 694-4000 |
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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 |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
24 |
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
38 |
Item 4. |
Controls and Procedures |
38 |
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PART II - OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
39 |
Item 1A. |
Risk Factors |
39 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
39 |
Item 5. |
Other Information |
40 |
Item 6. |
Exhibits |
40 |
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Signatures |
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42 |
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, future events or performance, climate change strategy or growth strategies (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, aim, believe, could, estimated, may, plan, potential, projection, target, outlook, predict, intend) 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) and/or Florida Power & Light Company's (FPL) 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.
2
These and other risk factors are included 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, 2007 (2007 Form 10-K) and Part II, Item 1A. Risk Factors in this combined Form 10-Q, and investors should refer to those sections of the 2007 Form 10-K and this combined Form 10-Q. 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.
Website Access to U.S. Securities and Exchange Commission (SEC) Filings.
FPL Group and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on FPL Group's internet website, www.fplgroup.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information on FPL Group's website (or any of its subsidiaries' websites) is not incorporated by reference in this combined Form 10-Q.
3
4
5
6
7
8
9
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2007 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.
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), which includes a non-qualified supplemental defined benefit pension 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 following table and was not material to FPL Group's financial statements for the three and nine months ended September 30, 2008 and 2007. 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:
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Pension Benefits |
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Other Benefits |
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Pension Benefits |
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Other Benefits |
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2008 |
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2007 |
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2008 |
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2007 |
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2008 |
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2007 |
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2008 |
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2007 |
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(millions) |
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Service cost |
$ |
13 |
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$ |
13 |
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$ |
1 |
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$ |
1 |
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$ |
40 |
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$ |
38 |
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$ |
4 |
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$ |
4 |
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Interest cost |
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26 |
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23 |
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6 |
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6 |
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77 |
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70 |
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19 |
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18 |
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Expected return on plan assets |
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(60 |
) |
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(55 |
) |
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- |
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- |
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(180 |
) |
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(165 |
) |
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(3 |
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(2 |
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Amortization of transition obligation |
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- |
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- |
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1 |
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1 |
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- |
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- |
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3 |
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3 |
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Amortization of prior service benefit |
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(1 |
) |
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(1 |
) |
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- |
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- |
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(3 |
) |
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(3 |
) |
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- |
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- |
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Amortization of gains |
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(7 |
) |
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(5 |
) |
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- |
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- |
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(21 |
) |
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(14 |
) |
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- |
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- |
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Net periodic benefit (income) cost at FPL Group |
$ |
(29 |
) |
$ |
(25 |
) |
$ |
8 |
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$ |
8 |
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$ |
(87 |
) |
$ |
(74 |
) |
$ |
23 |
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$ |
23 |
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Net periodic benefit (income) cost at FPL |
$ |
(21 |
) |
$ |
(19 |
) |
$ |
6 |
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$ |
6 |
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$ |
(63 |
) |
$ |
(57 |
) |
$ |
18 |
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$ |
19 |
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FPL Group adopted the measurement date provisions of Statement of Financial Accounting Standards No. (FAS) 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans," which requires that FPL Group measure plan assets and liabilities as of its year end no later than December 31, 2008 with any resulting adjustments to plan assets, benefit obligations, and accumulated other comprehensive income or loss (AOCI) recorded to retained earnings. FPL Group previously used a measurement date of September 30 for its pension and other benefits plans. In lieu of remeasuring plan assets and obligations as of January 1, 2008, FPL Group elected to calculate the net periodic benefit (income) cost for the fifteen-month period from September 30, 2007 to December 31, 2008 using the September 30, 2007 measurement date. FPL Group adopted the measurement date provisions during the three months ended March 31, 2008, and recorded an adjustment to increase 2008 beginning retained earnings by approximately $13 million representing three-fifteenths of net periodic benefit (income) cost for the fifteen-month period from September 30, 2007 to December 31, 2008. Included in the adjustment to retained earnings was approximately $1 million related to the reduction in AOCI and approximately $3 million related to the reduction in net regulatory liabilities.
Derivative instruments, when required to be marked to market under FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value.
10
FPL Group's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:
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FPL Group |
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FPL |
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September 30, |
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December 31, |
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September 30, |
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December 31, |
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2008 |
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2007 |
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2008 |
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2007 |
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(millions) |
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Current derivative assets (a) |
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$ |
251 |
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$ |
182 |
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$ |
3 |
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$ |
83 |
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Noncurrent other assets |
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121 |
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99 |
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3 |
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- |
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Current derivative liabilities (b) |
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(559 |
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(289 |
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(434 |
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(182 |
) |
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Noncurrent derivative liabilities (c) |
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(374 |
) |
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(351 |
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(93 |
) (d) |
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(5 |
) (d) |
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Total mark-to-market derivative instrument |
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assets (liabilities) |
|
$ |
(561 |
) |
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$ |
(359 |
) |
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$ |
(521 |
) |
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$ |
(104 |
) |
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_____________________ |
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(a) |
At September 30, 2008 and December 31, 2007, FPL Group's balances reflect the netting of $6 million and $4 million (none at FPL), respectively, in margin cash collateral received from counterparties. |
(b) |
At September 30, 2008 and December 31, 2007, FPL Group's balances reflect the netting of $38 million and $43 million ($3 million and $16 million at FPL), respectively, in margin cash collateral provided to counterparties. |
(c) |
At September 30, 2008 and December 31, 2007, FPL Group's balances reflect the netting of $9 million and $1 million (none at FPL), respectively, in margin cash collateral provided to counterparties. |
(d) |
Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets. |
At September 30, 2008 and December 31, 2007, FPL Group had approximately $55 million and $18 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets. These amounts are included in other current liabilities in the condensed consolidated balance sheets. Additionally, at September 30, 2008 and December 31, 2007, FPL Group had approximately $64 million and $57 million ($4 million and $11 million at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities. These amounts are included in other current assets in the condensed consolidated balance sheets.
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, through FPL Energy, LLC (FPL Energy), uses derivatives to optimize the value of power generation assets. FPL Energy provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, in certain markets and engages in energy trading activities to take advantage of expected future favorable price movements. At FPL, substantially all changes in fair value are deferred as a regulatory asset or liability until the contracts are settled, and, 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, 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 on a net basis 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 most of FPL Energy's derivative transactions are entered into for the purpose of managing commodity price risk, 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 at inception and it must be highly effective in offsetting the hedged risk. Additionally, for hedges of commodity price risk, 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 been deemed not to have occurred for financial reporting purposes. 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, 2008, FPL Group had cash flow hedges with expiration dates through December 2012 for energy contract derivative instruments, and interest rate cash flow hedges with expiration dates through January 2022. 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 (OCI) 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 is reported in earnings in the current period and amounted to $11 million and $5 million for the three months ended September 30, 2008 and 2007, respectively, and $(2) million and $1 million for the nine months ended September 30, 2008 and 2007, respectively. Settlement gains and losses are included within the line items in the statements of income to which they relate.
11
FPL Group's net 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:
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Three Months Ended
|
|
Nine Months Ended
|
|
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2008 |
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2007 |
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2008 |
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2007 |
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(millions) |
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Consolidated subsidiaries |
$ |
505 |
|
$ |
66 |
|
$ |
170 |
|
$ |
(51 |
) |
Equity method investees |
$ |
2 |
|
$ |
1 |
|
$ |
(1 |
) |
$ |
1 |
|
Effective January 1, 2008, FPL Group and FPL adopted FAS 157, "Fair Value Measurements," which clarifies how to measure fair value and requires expanded 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 intended to disclose information about the relative reliability of fair value measurements, with the highest priority being quoted prices in active markets for identical assets or liabilities. FAS 157 was effective January 1, 2008 for financial assets and liabilities and any other fair value measurements made on a recurring basis. The effects of adopting the recognition provisions of FAS 157 were not material to FPL Group or FPL. For all other fair value measurements, FAS 157 will be effective January 1, 2009. FPL Group and FPL are continuing to evaluate the impact of FAS 157 as it applies to non-financial assets and liabilities that are not remeasured at fair value on a recurring basis.
FPL Group and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured on a recurring basis. Certain derivatives and financial instruments are valued using option pricing models and take into consideration multiple inputs including commodity prices, volatility factors and discount rates, as well as counterparty credit ratings and credit enhancements. Additionally, when observable market data is not sufficient, valuation models are developed that incorporate FPL Group's and FPL's proprietary views of market factors and conditions. FPL Group's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
The following table sets forth FPL Group's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level.
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As of September 30, 2008 |
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Quoted Prices
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(millions) |
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Assets: |
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Cash equivalents: |
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|
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FPL Group |
|
$ |
864 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
864 |
|
|||||
FPL |
|
$ |
528 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
528 |
|
|||||
Other current assets: |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FPL Group |
|
$ |
- |
|
|
|
$ |
54 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
54 |
|
|||||
Special use funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FPL Group |
|
$ |
686 |
|
|
|
$ |
2,509 |
(b) |
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
3,195 |
|
|||||
FPL |
|
$ |
121 |
|
|
|
$ |
2,192 |
(b) |
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
2,313 |
|
|||||
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FPL Group |
|
$ |
12 |
|
|
|
$ |
97 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
109 |
|
|||||
FPL |
|
$ |
2 |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
|
$ |
- |
|
|
$ |
2 |
|
|||||
Net derivative assets (liabilities): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
FPL Group |
|
$ |
(41 |
) |
|
|
$ |
(816 |
) |
|
|
$ |
255 |
|
|
|
$ |
41 |
|
|
$ |
(561 |
) (c) |
|||||
FPL |
|
$ |
(3 |
) |
|
|
$ |
(524 |
) |
|
|
$ |
3 |
|
|
|
$ |
3 |
|
|
$ |
(521 |
) (c) |
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|
|
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|
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|
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(a) |
Includes amounts for margin cash collateral and net option premium payments and receipts. |
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(b) |
At FPL Group, approximately $925 million ($845 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by FPL Group or FPL. The remaining investments are primarily comprised of fixed income securities including municipal, mortgage-backed, corporate and governmental bonds. |
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(c) |
See Note 2 for a reconciliation of net derivatives to FPL Group's and FPL's condensed consolidated balance sheets. |
12
The following table sets forth a reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs.
|
Three Months Ended
|
|
||||||
|
|
|
||||||
|
FPL Group |
|
FPL |
|
||||
|
|
|
|
|
||||
|
(millions) |
|
||||||
|
|
|
|
|
|
|
||
Fair value of derivatives based on significant unobservable inputs |
|
|
|
|
|
|
||
at June 30, 2008 |
$ |
(571 |
) |
$ |
(7 |
) |
||
Unrealized gains (losses): |
|
|
|
|
|
|
||
Included in earnings (a) |
|
545 |
|
|
- |
|
||
Included in regulatory assets and liabilities |
|
6 |
|
|
6 |
|
||
Settlements |
|
277 |
|
|
4 |
|
||
Net transfers out |
|
(2 |
) |
|
- |
|
||
|
|
|
|
|
|
|
||
Fair value of derivatives based on significant unobservable inputs |
|
|
|
|
|
|
||
at September 30, 2008 |
$ |
255 |
|
$ |
3 |
|
||
|
|
|
|
|
|
|
||
_____________________ |
||||||||
(a) |
At FPL Group, $545 million of gains are reflected in operating revenues in the condensed consolidated statements of income. |
|
Nine Months Ended
|
|
||||||
|
|
|
||||||
|
FPL Group |
|
FPL |
|
||||
|
|
|
|
|
||||
|
(millions) |
|
||||||
|
|
|
|
|
|
|
||
Fair value of derivatives based on significant unobservable inputs |
|
|
|
|
|
|
||
at January 1, 2008 |
$ |
(127 |
) |
$ |
(10 |
) |
||
Unrealized gains (losses): |
|
|
|
|
|
|
||
Included in earnings (a) |
|
(78 |
) |
|
- |
|
||
Included in regulatory assets and liabilities |
|
8 |
|
|
8 |
|
||
Settlements |
|
272 |
|
|
5 |
|
||
Net transfers in |
|
180 |
|
|
- |
|
||
|
|
|
|
|
|
|
||
Fair value of derivatives based on significant unobservable inputs |
|
|
|
|
|
|
||
at September 30, 2008 |
$ |
255 |
|
$ |
3 |
|
||
|
|
|
|
|
|
|
||
_____________________ |
||||||||
(a) |
At FPL Group, $78 million of losses are reflected in operating revenues in the condensed consolidated statements of income. |
Effective January 1, 2008, a subsidiary of FPL Group Capital adopted FAS 159, "The Fair Value Option for Financial Assets and Financial Liabilities," for its investments in debt securities. The fair values of these debt securities at September 30, 2008 and December 31, 2007 were approximately $103 million and $111 million, respectively, and are primarily included in other investments in FPL Group's condensed consolidated balance sheets. The impact of adopting FAS 159 was not material to FPL Group.
FPL Group's effective income tax rate for the three months ended September 30, 2008 and 2007 was approximately 31.8% and 29.9%, respectively. The reduction from the federal statutory rate mainly reflects the benefit of wind production tax credits (PTCs) of approximately $94 million and $43 million, respectively, related to FPL Energy's wind projects. PTCs can significantly affect FPL Group's effective income tax rate depending on the amount of pretax income and wind generation. The corresponding rates and amounts for the nine months ended September 30, 2008 and 2007 were approximately 21.7% and 24.9%, respectively, and approximately $193 million and $146 million, respectively.
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.
13
FPL Group's comprehensive income is as follows:
|
Three Months Ended
|
|
||||
|
|
|
||||
|
2008 |
|
2007 |
|
||
|
|
|
|
|
||
|
(millions) |
|
||||
|
|
|
|
|
|
|
Net income of FPL Group |
$ |
774 |
|
$ |
533 |
|
Net unrealized gains (losses) on commodity cash flow hedges: |
|
|
|
|
|
|
Effective portion of net unrealized gains |
|
|
|
|
|
|
(net of $167 and $16 tax expense, respectively) |
|
256 |
|
|
23 |
|
Reclassification from AOCI to net income |
|
|
|
|
|
|
(net of $39 and $0.5 tax expense, respectively) |
|
50 |
|
|
1 |
|
Net unrealized gains (losses) on interest rate cash flow hedges: |
|
|
|
|
|
|
Effective portion of net unrealized losses |
|
|
|
|
|
|
(net of $6 and $7 tax benefit, respectively) |
|
(8 |
) |
|
(12 |
) |
Reclassification from AOCI to net income |
|
|
|
|
|
|
(net of $3 tax expense and $0.6 tax benefit, respectively) |
|
4 |
|
|
(1 |
) |
Net unrealized gains (losses) on available for sale securities |
|
|
|
|
|
|
(net of $7 tax benefit and $3 tax expense, respectively) |
|
(11 |
) |
|
4 |
|
Defined benefit pension and other benefits plans |
|
|
|
|
|
|
(net of $0.8 and $0.4 tax benefit, respectively) |
|
(1 |
) |
|
(1 |
) |
|
|
|
|
|
|
|
Comprehensive income of FPL Group |
$ |
1,064 |
|
$ |
547 |
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
||||
|
|
|
||||
|
2008 |
|
2007 |
|
||
|
|
|
|
|
||
|
(millions) |
|
||||
|
|
|
|
|
|
|
Net income of FPL Group |
$ |
1,232 |
|
$ |
1,088 |
|
Net unrealized gains (losses) on commodity cash flow hedges: |
|
|
|
|
|
|
Effective portion of net unrealized losses |
|
|
|
|
|
|
(net of $38 and $18 tax benefit, respectively) |
|
(49 |
) |
|
(26 |
) |
Reclassification from AOCI to net income |
|
|
|
|
|
|
(net of $59 and $14 tax expense, respectively) |
|
80 |
|
|
20 |
|
Net unrealized gains (losses) on interest rate cash flow hedges: |
|
|
|
|
|
|
Effective portion of net unrealized losses |
|
|
|
|
|
|
(net of $5 and $4 tax benefit, respectively) |
|
(8 |
) |
|
(5 |
) |
Reclassification from AOCI to net income |
|
|
|
|
|
|
($4 tax expense and $2 tax benefit, respectively) |
|
6 |
|
|
(4 |
) |
Net unrealized gains (losses) on available for sale securities |
|
|
|
|
|
|
(net of $23 tax benefit and $11 tax expense, respectively) |
|
(36 |
) |
|
17 |
|
Defined benefit pension and other benefits plans |
|
|
|
|
|
|
(net of $2 and $1 tax benefit, respectively) |
|
(4 |
) |
|
(2 |
) |
|
|
|
|
|
|
|
Comprehensive income of FPL Group |
$ |
1,221 |
|
$ |
1,088 |
|
|
|
|
|
|
|
|
Approximately $22 million of after-tax losses included in FPL Group's AOCI at September 30, 2008 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. AOCI is separately displayed on the condensed consolidated balance sheets of FPL Group. FPL's comprehensive income is the same as reported net income.
14
6. Common Stock
The reconciliation of FPL Group's basic and diluted earnings per share of common stock is shown below:
|
Three Months Ended
|
|
Nine Months Ended
|
|
||||||||
|
|
|
|
|
||||||||
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||
|
|
|
|
|
|
|
|
|
||||
|
(millions, except per share amounts) |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator - net income |
$ |
774 |
|
$ |
533 |
|
$ |
1,232 |
|
$ |
1,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - basic |
|
400.4 |
|
|
398.1 |
|
|
399.8 |
|
|
397.5 |
|
Restricted stock, performance share awards, |
|
|
|
|
|
|
|
|
|
|
|
|
options and warrants (a) |
|
2.6 |
|
|
2.8 |
|
|
2.7 |
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
outstanding - assuming dilution |
|
403.0 |
|
|
400.9 |
|
|
402.5 |
|
|
400.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share of common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
1.93 |
|
$ |
1.34 |
|
$ |
3.08 |
|
$ |
2.74 |
|
Assuming dilution |
$ |
1.92 |
|
$ |
1.33 |
|
$ |
3.06 |
|
$ |
2.72 |
|
_____________________ |
(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 and warrants are included in diluted weighted-average number of common shares outstanding by applying the treasury stock method. |
Restricted stock, performance share awards and common shares issuable upon the exercise of stock options which were not included in the denominator above due to their antidilutive effect were approximately 0.6 million and 0.1 million for the three months ended September 30, 2008 and 2007, respectively, and 0.5 million and none for the nine months ended September 30, 2008 and 2007, respectively.
In June 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) Emerging Issues Task Force (EITF) No. 03-6-1 (FSP EITF 03-6-1), "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities." FSP EITF 03-6-1 requires companies to treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as participating securities. Therefore, these participating securities must be included in the computation of earnings per share, pursuant to the two-class method described in FAS 128, "Earnings Per Share." FPL Group's unvested restricted stock awards are considered participating securities because they contain non-forfeitable rights to dividends. FPL Group and FPL will be required to adopt FSP EITF 03-6-1 on January 1, 2009 and present all prior-period earnings per share data on a retrospective basis. FPL Group is currently evaluating the impact of FSP EITF 03-6-1 on its earnings per share.
15
8. Commitments and Contingencies
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) capital expenditures primarily include costs to meet customer-specific requirements and sustain its fiber-optic network.
At September 30, 2008, planned capital expenditures for the remainder of 2008 through 2012 were estimated as follows:
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Total |
||||||
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FPL: |
(millions) |
||||||||||||||||
Generation: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New (b) (c) |
$ |
340 |
|
$ |
1,075 |
|
$ |
915 |
|
$ |
510 |
|
$ |
755 |
|
$ |
3,595 |
Existing |
|
205 |
|
|
655 |
|
|
665 |
|
|
645 |
|
|
455 |
|
|
2,625 |
Transmission and distribution |
|
190 |
|
|
595 |
|
|
845 |
|
|
925 |
|
|
1,165 |
|
|
3,720 |
Nuclear fuel |
|
15 |
|
|
165 |
|
|
200 |
|
|
175 |
|
|
195 |
|
|
750 |
General and other |
|
30 |
|
|
190 |
|
|
290 |
|
|
315 |
|
|
225 |
|
|
1,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
780 |
|
$ |
2,680 |
|
$ |
2,915 |
|
$ |
2,570 |
|
$ |
2,795 |
|
$ |
11,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FPL Energy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind (d) |
$ |
565 |
|
$ |
1,985 |
|
$ |
20 |
|
$ |
20 |
|
$ |
10 |
|
$ |
2,600 |
Nuclear (e) |
|
115 |
|
|
400 |
|
|
420 |
|
|
260 |
|
|
245 |
|
|
1,440 |
Gas |
|
45 |
|
|
145 |
|
|
70 |
|
|
70 |
|
|
80 |
|
|
410 |
Other |
|
30 |
|
|
50 |
|
|
30 |
|
|
30 |
|
|
25 |
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
755 |
|
$ |
2,580 |
|
$ |
540 |
|
$ |
380 |
|
$ |
360 |
|
$ |
4,615 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPL FiberNet |
$ |
5 |
|
$ |
55 |
|
$ |
25 |
|
$ |
20 |
|
$ |
20 |
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________ |
(a) |
Includes allowance for funds used during construction (AFUDC) of approximately $17 million and $51 million in 2008 and 2009, respectively, and carrying charges (equal to the pretax AFUDC rate) on construction costs recoverable through the nuclear cost recovery rule of approximately $2 million, $28 million, $56 million, $49 million and $48 million in 2008 - 2012, respectively, essentially all of which is included in new generation. |
(b) |
Includes land, generating structures, transmission interconnection and integration and licensing. |
(c) |
Excludes capital expenditures of approximately $781 million for the third natural gas-fired combined-cycle generating unit at West County Energy Center for the period from early 2009 (when final project approval is expected) through 2011 (expected completion date). Also excludes capital expenditures of approximately $1.6 billion for the modernization of the Cape Canaveral and Riviera power plants for the period from early-2010 (when approval by the Florida Power Plant Siting Board (Siting Board), comprised of the Florida governor and cabinet is expected) through 2012. |
(d) |
Capital expenditures for new wind projects are estimated through 2009, when eligibility for PTCs for new wind projects is scheduled to expire. FPL Energy expects to add approximately 1,100 megawatts (mw) in 2009 and 1,000 mw to 2,000 mw of new wind generation per year from 2010 through 2012, subject to, among other things, continued public policy support, which includes, but is not limited to, the extension of PTCs beyond 2009 and support for the construction and availability of sufficient transmission facilities and capacity, and access to capital/financing. The cost of the planned wind additions for the 2010 through 2012 period is estimated to be approximately $2 billion to $4 billion in each year, which is not included in the table above. |
(e) |
Includes nuclear fuel. |
In October 2008, a wholly-owned subsidiary of FPL Group Capital lent $500 million under a construction and term loan to a third party for an energy-related project. The loan initially bears interest at a variable rate and will be converted to a 20-year, fixed rate term loan upon the earlier of completion of construction or conversion by the FPL Group Capital subsidiary. During the 20-year term, interest is payable semiannually. The loan requires payment of interest only during the first five and one-half years. Amortization of the outstanding principal amount of the loan will begin five and one-half years after the conversion of the construction loan into a term loan, with semiannual payments of principal in an amount sufficient to reduce the outstanding principal balance due at maturity to $300 million.
FPL Group has guaranteed certain payment obligations of FPL Group Capital, including most payment obligations under FPL Group Capital's debt and guarantees. FPL Group and FPL each account for payment guarantees and related contracts, for which it or a subsidiary is the guarantor, under FASB Interpretation No. (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, 2008, subsidiaries of FPL Group, other than FPL, have guaranteed debt service payments relating to agreements that existed at December 31, 2002. The terms of the guarantees are equal to the terms of the related debt, with remaining terms ranging from 1 year to 10 years. The maximum potential amount of future payments that could be required under these guarantees at September 30, 2008 was approximately $16 million. At September 30, 2008, 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, 2008.
16
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 liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these liquidated damages provisions is not material.
Contracts
- In addition to the planned capital expenditures included in the table in Commitments above, FPL has commitments under 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 mw of power annually through mid-2015 and 375 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 740 mw 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 880 mw of power with expiration dates ranging from 2009 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 2032 for the purchase and transportation of natural gas and coal, and storage of natural gas.
FPL Energy has entered into several contracts primarily for the purchase of wind turbines and towers and related construction activities, approximately $1.7 billion of which is included in the planned capital expenditures table in Commitments above. 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 2008 through 2041, as well as for the supply, conversion, enrichment and fabrication of nuclear fuel with expiration dates ranging from 2008 through 2018.
The required capacity and minimum payments under these contracts as of September 30, 2008 were estimated as follows:
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
FPL: |
(millions) |
|||||||||||||||||
Capacity payments: (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JEA and Southern subsidiaries (b) |
$ |
50 |
|
$ |
220 |
|
$ |
230 |
|
$ |
210 |
|
$ |
210 |
|
$ |
750 |
|
Qualifying facilities (b) |
$ |
80 |
|
$ |
320 |
|
$ |
290 |
|
$ |
260 |
|
$ |
270 |
|
$ |
2,920 |
|
Other electricity suppliers (b) |
$ |
15 |
|
$ |
50 |
|
$ |
10 |
|
$ |
10 |
|
$ |
5 |
|
$ |
- |
|
Minimum payments, at projected prices: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Southern subsidiaries - energy (b) |
$ |
20 |
|
$ |
90 |
|
$ |
40 |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Natural gas, including transportation and storage (c) |
$ |
820 |
|
$ |
2,905 |
|
$ |
1,295 |
|
$ |
850 |
|
$ |
560 |
|
$ |
4,835 |
|
Coal (c) |
$ |
20 |
|
$ |
70 |
|
$ |
50 |
|
$ |
10 |
|
$ |
- |
|
$ |
- |
|
|
|
|
||||||||||||||||
FPL Energy (d) |
$ |
425 |
|
$ |
1,365 |
|
$ |
135 |
|
$ |
75 |
|
$ |
80 |
|
$ |
780 |
|
_____________________ |
(a) |
Capacity payments under these contracts, the majority of which are recoverable through the capacity clause, totaled approximately $146 million and $143 million for the three months ended September 30, 2008 and 2007, respectively, and approximately $436 million and $436 million for the nine months ended September 30, 2008 and 2007, respectively. |
(b) |
Energy payments under these contracts, which are recoverable through the fuel clause, totaled approximately $150 million and $134 million for the three months ended September 30, 2008 and 2007, respectively, and approximately $391 million and $336 million for the nine months ended September 30, 2008 and 2007, respectively. |
(c) |
Recoverable through the fuel clause. |
(d) |
Includes termination payments primarily associated with wind turbine contracts beyond 2009. |
In addition, FPL has entered into several long-term agreements for storage capacity and transportation of natural gas from facilities that have not yet begun, or if begun have not yet completed, construction. These agreements range from 15 to 25 years in length and contain firm commitments by FPL totaling up to approximately $200 million annually or $4.8 billion over the terms of the agreements. These firm commitments are contingent upon the occurrence of certain events, including approval by the Federal Energy Regulatory Commission (FERC) and/or completion of construction of the facilities from 2009 to 2011.
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 $940 million ($470 million for FPL), plus any applicable taxes, per incident at any nuclear reactor in the United States, payable at a rate not to exceed $140 million ($70 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 $14 million, $35 million and $18 million, plus any applicable taxes, per incident, respectively.
17
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 $178 million ($103 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 $4 million, plus any applicable taxes, respectively.
Due to the high cost and limited coverage available from third-party insurers, FPL does not have insurance coverage for a substantial portion of its transmission and distribution property and FPL Group has no insurance coverage for FPL FiberNet's fiber-optic cable located throughout Florida. Should FPL's future storm restoration costs exceed the reserve amount established through the May 2007 issuance of storm-recovery bonds, FPL may recover storm restoration costs, subject to prudency review by the Florida Public Service Commission (FPSC), either through securitization provisions pursuant to Florida law or through surcharges approved by the FPSC.
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.
Legal and Regulatory Proceedings
- In November 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA), brought an action in the U.S. District Court for the Northern District of Georgia against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Prevention of Significant Deterioration (PSD) provisions and the New Source Performance Standards (NSPS) of the Clean Air Act. In May 2001, the EPA amended its complaint to allege, 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 a PSD permit, without complying with NSPS requirements, and without applying best available control technology for nitrogen oxides, sulfur dioxides and particulate matter 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 thereafter for each violation. 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 and the EPA has not yet moved to reopen the case. In April 2007, the U.S. Supreme Court in a separate unrelated case rejected an argument that a "major modification" occurs at a plant only when there is a resulting increase in the hourly rate of air emissions. Georgia Power Company has made a similar argument in defense of its case, but has other factual and legal defenses that are unaffected by the Supreme Court's decision.
In August 2001, Florida Municipal Power Agency (FMPA) filed a petition for review with the U.S. Court of Appeals for the District of Columbia (DC Circuit) asking the DC Circuit to reverse and remand orders of the FERC denying FMPA's request for certain credits for transmission facilities owned by FMPA members. This matter arose from a 1993 FPL filing of a comprehensive restructuring of its then-existing tariff structure. All issues in this case have been closed except for FMPA's request for exclusions from FPL's transmission rates of the costs of FPL's facilities that fail to meet the same integration test that was used to deny credits for certain FMPA facilities (integration test). In May 2004, FPL made a compliance filing with the FERC of a proposed rate schedule that does not include those FPL facilities that fail to meet the same integration test. In January 2005, the FERC issued an order on FPL's compliance filing and required FPL to make an additional compliance filing removing the cost of all radial transmission lines from transmission rates, 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, under which FPL's current rate would be reduced by $0.04 per kilowatt (kw) per month. In May 2005, FMPA protested FPL's compliance filing and argued that FPL's rates should be reduced by an additional $0.20 per kw per month. Any reduction in FPL's network service rate also would apply effective January 1, 2004 to Seminole Electric Cooperative Inc. (Seminole), FPL's other network customer. In February 2008, the FERC accepted FPL's April 2005 compliance filing in full and, in March 2008, FPL issued refunds of approximately $4 million to FMPA and $2 million to Seminole in accordance with the FERC's February 2008 order. Subsequently, FMPA sought rehearing of the FERC's February 2008 order. FMPA's position is that FPL's rates should be reduced by an additional $0.20 per kw per month, which, if upheld, would result in an additional refund obligation to FMPA of approximately $24 million, and approximately $13 million to Seminole, at September 30, 2008.
18
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 scheduled for trial in June 2010.
In August 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 Eleventh 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 requested by the plaintiffs.
In December 2003, Edward and Janis Shiflett brought an action on behalf of themselves and their son, Phillip Benjamin Shiflett, in the Circuit Court of the Eighteenth 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 state court subsequently dismissed the drug manufacturing and distribution companies from the action. Plaintiffs' appeal of that order is pending before the Florida Fifth District Court of Appeal. Plaintiffs and FPL have agreed that FPL will not respond to the complaint until requested by the plaintiffs.
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. FPL Energy was added as a defendant in 2005. The petition alleged that the FPL Energy Affiliates had a contractual obligation to produce and sell to TXU a minimum quantity of renewable energy credits each year and that the FPL Energy Affiliates failed to meet this obligation. The plaintiff asserted claims for breach of contract and declaratory judgment and sought damages of approximately $34 million. The FPL Energy Affiliates filed their answer and counterclaim in November 2004, denying the allegations. The counterclaim, as amended, asserted claims for conversion, breach of fiduciary duty, breach of warranty, conspiracy, breach of contract and fraud and sought termination of the contract and damages. Following a jury trial in June 2007, among other findings, both TXU and the FPL Energy Affiliates were found to have breached the contract. In August 2008, the judge issued a final judgment pursuant to which the contract is not terminated and neither party will recover any damages.
FPL Group and FPL are vigorously defending, and believe that they or their affiliates have meritorious defenses to, the lawsuits described above. While management is unable to predict with certainty the outcome of these lawsuits, 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.
19
In February 2008, a fault occurred at an FPL substation causing a system loss of about 3,400 mw of generating capacity, which left approximately 596,000 FPL customers without power. Power was restored to approximately two-thirds of affected customers within one hour and all customers were restored within three hours. FPL's investigation into the root cause of the problem determined the fault occurred as a result of human error. In March 2008, the Florida Reliability Coordinating Council (FRCC) initiated an investigation of the event and the FERC opened a nonpublic formal investigation to determine whether the event involved any violations of mandatory reliability standards. In June 2008, the FRCC issued an interim recommendations report to all FRCC operating entities, including FPL. In July 2008, FPL responded that all recommendations requiring current FPL action had been implemented and that FPL supports the remaining recommendations which require development by the FRCC prior to implementation. The FRCC has indicated that it expects to issue a final report in November 2008. The FERC has provided no timetable for completion of its investigation. The North American Electric Reliability Corporation (NERC) is participating in both investigations. Based on interactions with the FERC staff conducting the investigation, FPL believes that the FERC staff may assert numerous violations of the NERC Reliability Standards, each with a possible fine of up to $1 million per violation per day. FPL believes it has meritorious defenses and will vigorously contest any charges, should they be made. At this time, management is unable to predict the outcome and related impact of these investigations.
In addition to the legal proceedings and regulatory investigations discussed above, FPL Group and its subsidiaries, including FPL, are involved in other legal and regulatory proceedings, actions and claims in the ordinary course of their businesses. Generating plants in which FPL Group or FPL have an ownership interest are also involved in legal and regulatory proceedings, actions and claims, the liabilities from which, if any, would be shared by FPL Group or FPL. In the event that FPL Group and FPL, or their affiliates, do not prevail in these legal and regulatory proceedings, actions and claims, there may be a material adverse effect on their financial statements. While management is unable to predict with certainty the outcome of these legal and regulatory proceedings, actions and claims, 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.
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, |
|||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
2008 |
|
2007 |
|||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
FPL
|
|
Corporate
|
|
|
|
|
|
FPL
|
|
Corporate
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
(millions) |
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
$ |
3,423 |
|
$ |
1,916 |
|
$ |
48 |
|
$ |
5,387 |
|
$ |
3,445 |
|
$ |
1,090 |
|
$ |
40 |
|
$ |
4,575 |
|||||||
Operating expenses |
$ |
2,874 |
|
$ |
1,150 |
|
$ |
47 |
|
$ |
4,071 |
|
$ |
2,854 |
|
$ |
781 |
|
$ |
40 |
|
$ |
3,675 |
|||||||
Net income (loss) (b) |
$ |
314 |
|
$ |
483 |
|
$ |
(23 |
) |
$ |
774 |
|
$ |
326 |
|
$ |
220 |
|
$ |
(13 |
) |
$ |
533 |
|
Nine Months Ended September 30, |
|||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||
|
2008 |
|
2007 |
|||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||
|
|
|
FPL
|
|
Corporate
|
|
|
|
|
|
FPL
|
|
Corporate
|
|
|
|||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
(millions) |
|||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Operating revenues |
$ |
8,829 |
|
$ |
3,432 |
|
$ |
146 |
|
$ |
12,407 |
|
$ |
8,798 |
|
$ |
2,658 |
|
$ |
123 |
|
$ |
11,579 |
|||||||
Operating expenses |
$ |
7,620 |
|
$ |
2,572 |
|
$ |
142 |
|
$ |
10,334 |
|
$ |
7,577 |
|
$ |
2,022 |
|
$ |
118 |
|
$ |
9,717 |
|||||||
Net income (loss) (b) |
$ |
638 |
|
$ |
650 |
|
$ |
(56 |
) |
$ |
1,232 |
|
$ |
663 |
|
$ |
468 |
|
$ |
(43 |
) |
$ |
1,088 |
|
September 30, 2008 |
|
December 31, 2007 |
|||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||
|
|
|
FPL
|
|
Corporate
|
|
|
|
|
|
FPL
|
|
Corporate
|
|
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
(millions) |
|||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total assets |
$ |
26,739 |
|
$ |
16,480 |
|
$ |
2,259 |
|
$ |
45,478 |
|
$ |
24,044 |
|
$ |
14,505 |
|
$ |
1,574 |
|
$ |
40,123 |
|||||
_____________________ |
(a) |
FPL Energy's interest expense is based on a deemed capital structure of 50% debt for operating projects and 100% debt for projects under construction. For these purposes, the deferred credit associated with differential membership interests sold by an FPL Energy subsidiary in December 2007 is included with debt. Residual non-utility interest expense is included in Corporate and Other. |
(b) |
See Note 4 for a discussion of FPL Energy's tax benefits related to PTCs that were recognized based on its tax sharing agreement with FPL Group. |
20
10. Summarized Financial Information of FPL Group Capital
FPL Group Capital, a 100% owned subsidiary of FPL Group, provides funding for and holds ownership interests 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:
Condensed Consolidating Statements of Income
|
Three Months Ended September 30, |
|
|||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||
|
2008 |
|
2007 |
|
|||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||
|
FPL
|
|
FPL
|
|
|
|
FPL Group
|
|
FPL
|
|
FPL
|
|
|
|
FPL Group
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
|
(millions) |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Operating revenues |
$ |
- |
|
$ |
1,965 |
|
$ |
3,422 |
|
$ |
5,387 |
|
$ |
- |
|
$ |
1,131 |
|
$ |
3,444 |
|
$ |
4,575 |
|
|||
Operating expenses |
|
1 |
|
|
(1,199 |
) |
|
(2,873 |
) |
|
(4,071 |
) |
|
- |
|
|
(822 |
) |
|
(2,853 |
) |
|
(3,675 |
) |
|||
Interest expense |
|
(4 |
) |
|
(120 |
) |
|
(79 |
) |
|
(203 |
) |
|
(5 |
) |
|
(112 |
) |
|
(77 |
) |
|
(194 |
) |
|||
Other income (deductions) - net |
|
784 |
|
|
17 |
|
|
(779 |
) |
|
22 |
|
|
528 |
|
|
59 |
|
|
(533 |
) |
|
54 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Income (loss) before income taxes |
|
781 |
|
|
663 |
|
|
(309 |
) |
|
1,135 |
|
|
523 |
|
|
256 |
|
|
(19 |
) |
|
760 |
|
|||
Income tax expense (benefit) |
|
7 |
|
|
192 |
|
|
162 |
|
|
361 |
|
|
(10 |
) |
|
52 |
|
|
185 |
|
|
227 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net income (loss) |
$ |
774 |
|
$ |
471 |
|
$ |
(471 |
) |
$ |
774 |
|
$ |
533 |
|
$ |
204 |
|
$ |
(204 |
) |
$ |
533 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
_____________________ |
|||||||||||||||||||||||||||
(a) |
Represents FPL and consolidating adjustments. |
|
Nine Months Ended September 30, |
|
|||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||
|
2008 |
|
2007 |
|
|||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||
|
FPL
|
|
FPL
|
|
|
|
FPL Group
|
|
FPL
|
|
FPL
|
|
|
|
FPL Group
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
(millions) |
|
|||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues |
$ |
- |
|
$ |
3,584 |
|
$ |
8,823 |
|
$ |
12,407 |
|
$ |
- |
|
$ |
2,786 |
|
$ |
8,793 |
|
$ |
11,579 |
|
|
Operating expenses |
|
- |
|
|
(2,720 |
) |
|
(7,614 |
) |
|
(10,334 |
) |
|
- |
|
|
(2,144 |
) |
|
(7,573 |
) |
|
(9,717 |
) |
|
Interest expense |
|
(14 |
) |
|
(344 |
) |
|
(239 |
) |
|
(597 |
) |
|
(14 |
) |
|
(328 |
) |
|
(210 |
) |
|
(552 |
) |
|
Other income (deductions) - net |
|
1,259 |
|
|
82 |
|
|
(1,243 |
) |
|
98 |
|
|
1,090 |
|
|
120 |
|
|
(1,072 |
) |
|
138 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
1,245 |
|
|
602 |
|
|
(273 |
) |
|
1,574 |
|
|
1,076 |
|
|
434 |
|
|
(62 |
) |
|
1,448 |
|
|
Income tax expense (benefit) |
|
13 |
|
|
(13 |
) |
|
342 |
|
|
342 |
|
|
(12 |
) |
|
14 |
|
|
358 |
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
$ |
1,232 |
|
$ |
615 |
|
$ |
(615 |
) |
$ |
1,232 |
|
$ |
1,088 |
|
$ |
420 |
|
$ |
(420 |
) |
$ |
1,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________ |
|
||||||||||||||||||||||||
(a) |
Represents FPL and consolidating adjustments. |
21
Condensed Consolidating Balance Sheets
22
23
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 2007 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 period.
FPL Group and its subsidiaries segregate unrealized mark-to-market gains and losses on derivative transactions into two categories. The first category, referred to as trading activities, represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts. The second category, referred to as non-qualifying hedges, represents the net unrealized effect of derivative transactions entered into as economic hedges (but which do not qualify for hedge accounting under FAS 133) and the ineffective portion of transactions accounted for as cash flow hedges. FPL Group uses derivative instruments to manage its commodity price and interest rate risk.
FPL Group's management uses earnings excluding certain items (adjusted earnings), which were the unrealized mark-to-market effect of non-qualifying hedges and other than temporary impairment (OTTI) losses on securities held in FPL Energy's nuclear decommissioning funds, internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and as inputs in determining whether certain performance targets are met for performance-based compensation under FPL Group's employee incentive compensation plans. FPL Group also uses adjusted earnings when communicating its earnings outlook to 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.
Summary
- Presented below is a summary of net income (loss) by reportable segment (see Note 9):
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
||||||||||||||
|
|
|
|
|
|
||||||||||||||
|
|
2008 |
|
2007 |
|
Increase
|
|
2008 |
|
2007 |
|
Increase
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
(millions) |
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPL |
|
$ |
314 |
|
$ |
326 |
|
$ |
(12 |
) |
$ |
638 |
|
$ |
663 |
|
$ |
(25 |
) |
FPL Energy |
|
|
483 |
|
|
220 |
|
|
263 |
|
|
650 |
|
|
468 |
|
|
182 |
|
Corporate and Other |
|
|
(23 |
) |
|
(13 |
) |
|
(10 |
) |
|
(56 |
) |
|
(43 |
) |
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPL Group Consolidated |
|
$ |
774 |
|
$ |
533 |
|
$ |
241 |
|
$ |
1,232 |
|
$ |
1,088 |
|
$ |
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The decline in FPL's results for the three-month period was primarily due to lower retail customer usage and higher depreciation expense partly offset by lower other operations and maintenance (O&M) expenses, higher other revenues and allowance for equity funds used during construction (AFUDC
-
equity) and certain income tax benefits. The decrease for the nine-month period reflects lower retail customer usage and higher O&M, depreciation and interest expenses partly offset by a retail base rate increase associated with Turkey Point Unit No. 5 commencing operations in May 2007 and higher other revenues and AFUDC
-
equity.
The increase in FPL Energy's results for both the three- and nine-month periods is primarily the result of changes in the market price of derivative instruments classified as non-qualifying hedges, partly offset by higher OTTI losses on securities held in FPL Energy's nuclear decommissioning funds. During the three months ended September 30, 2008, FPL Energy recorded $285 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $40 million of gains from such hedges. During the nine months ended September 30, 2008, FPL Energy recorded $76 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $28 million of losses from such hedges. The change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains/losses as the underlying transactions are realized. As a general rule, a gain (loss) in the non-qualifying hedge category is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under generally accepted accounting principles. During the three months ended September 30, 2008, FPL Energy recorded $17 million of after-tax OTTI losses on securities held in FPL Energy's nuclear decommissioning funds while in the prior period FPL Energy recorded $1 million of such losses. During the nine months ended September 30, 2008, FPL Energy recorded $29 million of after-tax OTTI losses while in the prior period $3 million of such losses were recorded. FPL Energy's 2008 results also reflect the benefits of new investments and improved energy market conditions partly offset by lower wind resource and, for the nine-month period, partly offset by planned and unplanned outages at the Seabrook nuclear facility.
24
The increased losses at Corporate and Other for both the three- and nine-month periods are primarily due to higher interest expense, lower interest income and additional corporate operating costs.
FPL's operating revenues consisted of the following:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|||||||||||
|
|
|
|
|
|||||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|||||||
|
|
|
|
|
|
|
|
|
|||||||
|
|
(millions) |
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Retail base |
|
$ |
1,098 |
|
$ |
1,149 |
|
$ |
2,908 |
|
$ |
2,897 |
|||
Fuel cost recovery |
|
|
1,840 |
|
|
1,808 |
|
|
4,631 |
|
|
4,656 |
|||
Other cost recovery clauses and pass-through costs |
|
|
432 |
|
|
439 |
|
|
1,139 |
|
|
1,118 |
|||
Other, primarily pole attachment rentals, transmission |
|
|
|
|
|
|
|
|
|
|
|
|
|||
and wholesale sales and customer-related fees |
|
|
53 |
|
|
49 |
|
|
151 |
|
|
127 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total |
|
$ |
3,423 |
|
$ |
3,445 |
|
$ |
8,829 |
|
$ |
8,798 |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2008, there was no increase in the average number of customers while a 4.3% decrease in usage per retail customer, due to weather and other factors, decreased retail base revenues by approximately $51 million. For the nine months ended September 30, 2008, an increase in the average number of customers of 0.5% increased retail base revenues by approximately $11 million while a 1.0% decrease in usage per retail customer, reflecting slightly warmer weather which was more than offset by other factors, decreased retail base revenues by approximately $28 million. Partly offsetting the usage decrease for the nine-month period was an extra day of sales in 2008, as it is a leap year. In addition, a base rate increase resulting from Turkey Point Unit No. 5 commencing commercial operation on May 1, 2007 increased retail base revenues for the nine-month period by approximately $28 million. Recently FPL has experienced a decline in customer accounts and in non-weather related customer usage, reflective of the economic slowdown and housing crisis that has affected the country and the state of Florida. FPL expects that retail base revenues will increase approximately $100 million in 2009 when retail base rates are changed pursuant to the 2005 rate agreement to reflect the placement in service of two West County Energy Center units, which is expected to occur in mid-2009 and late 2009.
Revenues from fuel and other cost recovery clauses and pass-through costs, such as franchise fees, revenue taxes and storm-related surcharges, 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 in the condensed consolidated statements of income, as well as by changes in energy sales. Fluctuations in revenues from other cost recovery clauses and pass-through costs are primarily driven by changes in storm-related surcharges, capacity charges, franchise fee costs, the impact of changes in O&M and depreciation expenses 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.
The retail fuel clause recovery factor is normally established annually in November for the following year. In July 2008, the FPSC approved a mid-course increase as a result of significant increases in the price of natural gas and oil as FPL was anticipating an approximately $746 million underrecovery of fuel costs by December 31, 2008. The FPSC permitted FPL to collect 50% of the amount requested over the period from August 2008 to December 2008, with the remaining 50% to be collected throughout 2009. The change in fuel revenues for the three-month period reflects approximately $126 million related to a higher average fuel factor partly offset by approximately $94 million attributable to lower energy sales. The change in fuel revenues for the nine-month period reflects approximately $61 million related to lower energy sales partly offset by approximately $36 million attributable to a higher average fuel factor.
25
The major components of FPL's fuel, purchased power and interchange expense are as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
||||||||||||
|
|
|
|
|
|
||||||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
(millions) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fuel and energy charges during the period |
|
$ |
2,011 |
|
$ |
1,971 |
|
$ |
5,089 |
|
$ |
4,771 |
|
||||
Net deferral of retail fuel costs |
|
|
(166 |
) |
|
(156 |
) |
|
(434 |
) |
|
(84 |
) |
||||
Other, primarily capacity charges net of any capacity deferral |
|
|
147 |
|
|
154 |
|
|
392 |
|
|
394 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
1,992 |
|
$ |
1,969 |
|
$ |
5,047 |
|
$ |
5,081 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in fuel and energy charges for the three months ended September 30, 2008 reflects approximately $148 million related to higher fuel and energy prices partly offset by approximately $108 million attributable to lower energy sales. The increase in fuel and energy charges for the nine months ended September 30, 2008 reflects approximately $388 million related to higher fuel and energy prices partly offset by approximately $70 million attributable to lower energy sales. At September 30, 2008, approximately $634 million of retail fuel costs were deferred pending collection from retail customers in a subsequent period. See discussion above of increases in the retail fuel clause recovery factor. The increase from December 31, 2007 to September 30, 2008 in deferred clause and franchise expenses and the decrease in deferred clause and franchise revenues (current and noncurrent, collectively) on FPL Group's and FPL's condensed consolidated balance sheets totaled approximately $465 million and negatively affected FPL Group's and FPL's cash flows from operating activities for the nine months ended September 30, 2008.
FPL's O&M expenses for the three months ended September 30, 2008 decreased $22 million reflecting lower fossil generation, transmission, distribution and corporate support costs of approximately $3 million, $1 million, $11 million and $6 million, respectively. These decreases were partly offset by higher nuclear generation ($5 million) and customer service ($10 million) costs. FPL's O&M expenses for the nine months ended September 30, 2008 increased $40 million reflecting higher nuclear generation, fossil generation, transmission and customer service costs of approximately $23 million, $14 million, $4 million and $13 million, respectively. These increases were partly offset by lower employee benefit, corporate support and distribution costs of approximately $9 million, $4 million and $3 million, respectively. The increase in nuclear costs reflects plant improvement initiatives to ensure long-term reliable operations. The fossil generation increase reflects costs associated with placing Turkey Point Unit No. 5 in service as well as costs associated with plant maintenance, while the transmission increase reflects additional reliability efforts. The customer service cost increase is primarily due to higher uncollectible accounts. The decline in corporate support costs reflects steps taken to reduce O&M spending as well as a higher allocation of costs to affiliates. Other changes in O&M expenses were primarily driven by pass-through costs which did not significantly affect net income.
Depreciation and amortization expense for the three and nine months ended September 30, 2008 increased $6 million and $20 million, respectively, reflecting higher depreciation on transmission and distribution facilities (collectively, approximately $5 million and $15 million, respectively) to support customer growth and demand and, for the nine-month period, depreciation on Turkey Point Unit No. 5 of approximately $9 million. In addition, depreciation on nuclear assets was higher for the three- and nine-month periods by approximately $1 million and $3 million, respectively, primarily due to the steam generator and reactor head replacements at St. Lucie Unit No. 2, which were substantially completed by late 2007. The remaining change in depreciation and amortization expense for the nine-month period is primarily due to the absence of depreciation on software and other property that has been fully depreciated.
Taxes other than income taxes for the three and nine months ended September 30, 2008 increased by $12 million and $31 million, respectively, primarily due to changes in franchise fees and revenue taxes, which are pass-through costs, and higher property taxes ($2 million and $10 million for the three- and nine-month periods, respectively), reflecting growth in plant in service balances. The increase in franchise fees was primarily driven by higher average franchise rates. Franchise fees and revenue taxes generally vary as a result of fluctuations in retail base and fuel and other cost recovery clause revenues.
Interest expense for the three and nine months ended September 30, 2008 reflects higher average debt balances partly offset by a decline in average interest rates of approximately 35 basis points and 22 basis points, respectively. For the three-month period, higher allowance for borrowed funds used during construction (see AFUDC
-
equity explanation below) offset the increase in interest expense. Interest expense on storm-recovery bonds, as well as certain other interest expenses (collectively, clause interest), are essentially pass-through amounts and do not significantly affect net income, as the clause interest is recovered either under cost recovery clause mechanisms or through the storm-recovery bond surcharge. Clause interest for the three months ended September 30, 2008 and 2007 amounted to approximately $10 million and $12 million, respectively, and approximately $33 million and $21 million for the nine months ended September 30, 2008 and 2007, respectively.
26
The increase in AFUDC - equity for the three and nine months ended September 30, 2008 is primarily attributable to additional AFUDC - equity on two natural gas-fired combined-cycle units of approximately 1,220 mw each at FPL's West County Energy Center in western Palm Beach County, Florida, partly offset by the lack of AFUDC - equity on the steam generator and reactor head replacements at St. Lucie Unit No. 2. AFUDC - equity for the nine months ended September 30, 2008 also reflects the absence of AFUDC - equity on Turkey Point Unit No. 5, which was placed in service in May 2007. The decrease in interest income for the nine months ended September 30, 2008 reflects the cessation of interest on FPL's unrecovered balance of the storm reserve deficiency, which balance was collected upon the issuance of the storm-recovery bonds in May 2007, partly offset by higher interest income earned on higher available cash balances. The decrease in FPL's effective income tax rate for the three months ended September 30, 2008 reflects certain income tax benefits recognized this year.
In 2007, the FPSC denied FPL's need petition for two ultra super critical pulverized coal generating units in Glades County, Florida. FPL subsequently filed a petition with the FPSC requesting authorization to defer, until the next retail base rate proceeding, approximately $35 million of preconstruction costs associated with the coal units, with amortization over a five-year period beginning when new base rates are implemented. These costs are currently reflected in other assets on FPL Group's and FPL's condensed consolidated balance sheets. Any portion of these costs not approved for recovery would be expensed. The FPSC is scheduled to rule on this matter in December 2008.
FPL is currently constructing two natural gas-fired combined-cycle units of approximately 1,220 mw each at its West County Energy Center, which units are expected to be in service by mid-2009 and late 2009. In September 2008, the FPSC approved building at the same site a third natural gas-fired combined-cycle unit of approximately 1,220 mw that is expected to be in service in 2011. Final project approval is expected by early 2009. The FPSC also approved in September 2008 FPL's plan to modernize its Cape Canaveral and Riviera power plants to high-efficiency natural gas-fired units. Each modernized plant is expected to provide approximately 1,200 mw of capacity and be in service by 2013 and 2014, respectively. Siting Board approval is pending and is expected in early 2010. In addition, FPL is in the process of adding approximately 400 mw of baseload capacity at its existing nuclear units at St. Lucie and Turkey Point, which capacity is projected to be in service by the end of 2012.
In March 2008, the FPSC approved FPL's need petition for two additional nuclear units at its Turkey Point site with projected in-service dates between 2018 and 2020, which are expected to total between 2,200 mw and 3,040 mw of baseload capacity. Additional approvals from other regulatory agencies will be required later in the process. The FPSC's nuclear cost recovery rule provides for the recovery of prudently incurred pre-construction costs and carrying charges (equal to the pretax AFUDC rate) on construction costs for new nuclear capacity through levelized charges under the capacity clause. The same rule provides for the recovery of construction costs, once the new capacity goes into service, through a base rate increase. In October 2008, the FPSC approved FPL's first annual request under the nuclear cost recovery rule for recovery of pre-construction costs associated with FPL's planned nuclear units and carrying charges on construction costs associated with the addition of approximately 400 mw of baseload capacity to FPL's existing nuclear units; substantially all of these costs are still subject to prudency review by the FPSC.
In July 2008, the FPSC approved eligibility for recovery of prudently incurred costs for FPL's proposed solar generation facilities through the environmental cost recovery clause. The proposed solar generation facilities are expected to have a capacity totaling 110 mw and to be placed into service by the end of 2010.
FPL Energy
- FPL Energy's net income for the three months ended September 30, 2008 and 2007 was $483 million and $220 million, respectively, an increase of $263 million. FPL Energy's net income for the nine months ended September 30, 2008 and 2007 was $650 million and $468 million, respectively, an increase of $182 million. The primary drivers, on an after-tax basis, of these increases were as follows:
|
Increase (Decrease) |
||||||||||
|
|
||||||||||
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||
|
|
|
|
||||||||
|
(millions) |
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
New investments (a) |
|
|
$ |
56 |
|
|
|
$ |
132 |
|
|
Existing assets (a) |
|
|
|
(15 |
) |
|
|
|
(3 |
) |
|
Full energy and capacity requirements services and trading |
|
|
|
12 |
|
|
|
|
9 |
|
|
Restructuring activities and asset sales |
|
|
|
- |
|
|
|
|
(1 |
) |
|
Interest expense, differential membership costs and other |
|
|
|
(19 |
) |
|
|
|
(33 |
) |
|
Change in unrealized mark-to-market non-qualifying hedge activity (b) |
|
|
|
245 |
|
|
|
|
104 |
|
|
Change in OTTI losses on securities held in nuclear decommissioning funds |
|
|
|
(16 |
) |
|
|
|
(26 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income increase |
|
|
$ |
263 |
|
|
|
$ |
182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
____________________ |
(a) |
Includes PTCs on wind projects but does not include allocation of interest expense or corporate general and administrative expenses. See Note 4. Results from new projects are included in new investments during the first twelve months of operation. A project's results are included in existing assets beginning with the thirteenth month of operation. |
(b) |
See Note 2 and discussion above related to derivative instruments. |
27
The increase in FPL Energy's results from new investments reflects the addition of approximately 2,475 mw of wind and nuclear generation during or after the three and nine months ended September 30, 2007. For the three months ended September 30, 2008, results from FPL Energy's existing asset portfolio declined primarily due to lower wind resource partially offset by favorable market conditions in the New England Power Pool (NEPOOL) and Electric Reliability Council of Texas (ERCOT) regions. Results from FPL Energy's existing asset portfolio during the nine-month period decreased primarily due to the impact of planned and unplanned outages at the Seabrook nuclear facility and lower results from FPL Energy's retail energy provider due to unfavorable commodity margins partially offset by favorable market conditions in the NEPOOL, ERCOT and PJM Interconnection, L.L.C. (PJM) regions and higher wind resource. Results for the nine-month period in PJM benefited from a new FERC-approved forward capacity market that began in June 2007.
FPL Energy's financial results for the three and nine months ended September 30, 2008 reflect increased gains from its full energy and capacity requirements services and trading activities. Full energy and capacity requirements services include load-following services, which require the supplier of energy to vary the quantity delivered based on the load demand needs of the customer, as well as various ancillary services.
During the three months ended September 30, 2008, FPL Energy recorded $285 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $40 million of gains from such hedges. During the nine months ended September 30, 2008, FPL Energy recorded $76 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $28 million of losses from such hedges. The change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized. During the three months ended September 30, 2008, FPL Energy recorded $17 million of after-tax OTTI losses on securities held in FPL Energy's nuclear decommissioning funds while in the prior period FPL Energy recorded $1 million of such losses. During the nine months ended September 30, 2008, FPL Energy recorded $29 million of after-tax OTTI losses while in the prior period $3 million of such losses were recorded. OTTI losses on securities held in FPL Energy's nuclear decommissioning funds and any write-downs of such securities considered to be permanently impaired are reported in other
FPL Energy's operating revenues for the three months ended September 30, 2008 increased $826 million. The majority of this increase reflects unrealized mark-to-market gains on non-qualifying hedge activity of approximately $632 million for the three months ended September 30, 2008 compared to $42 million of gains on such activity in the 2007 period. The remaining increase in operating revenues for the three months ended September 30, 2008 is primarily due to project additions and favorable market conditions in the NEPOOL and ERCOT regions. FPL Energy's operating revenues for the nine months ended September 30, 2008 increased $774 million. The majority of this increase reflects project additions and favorable market conditions in the NEPOOL, ERCOT and PJM regions. The remaining increase in operating revenues for the nine months ended September 30, 2008 is due to unrealized mark-to-market gains on non-qualifying hedge activity of approximately $92 million for the nine months ended September 30, 2008 compared to $206 million of such losses in the 2007 period.
FPL Energy's operating expenses for the three months ended September 30, 2008 increased $369 million. This increase reflects unrealized mark-to-market losses on non-qualifying hedge activity of approximately $166 million for the three months ended September 30, 2008 compared to $20 million of gains on such activity in the 2007 period and are reflected in fuel, purchased power and interchange expense in FPL Group's condensed consolidated statements of income. FPL Energy's operating expenses also increased as a result of project additions and higher fossil fuel prices. FPL Energy's operating expenses for the nine months ended September 30, 2008 increased $550 million primarily reflecting project additions and higher fossil fuel prices. In addition, this increase was also affected by lower unrealized mark-to-market gains on non-qualifying hedge activity, which totaled approximately $34 million for the nine months ended September 30, 2008 compared to $155 million of such gains in the 2007 period.
Equity in earnings of equity method investees for the three and nine months ended September 30, 2008 increased $10 million and $18 million, respectively
,
due to improved market conditions in the PJM region.
FPL Group's effective income tax rate for all periods presented reflects PTCs for wind projects at FPL Energy. PTCs can significantly 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 $94 million and $193 million for the three and nine months ended September 30, 2008, respectively, and approximately $43 million and $146 million for the comparable periods in 2007. See Note 4. In addition, FPL Energy's results and FPL Group's effective income tax rate for the nine months ended September 30, 2008, benefited from certain income tax adjustments related, in part, to the recent Canadian wind asset acquisition.
28
FPL Energy expects its future portfolio capacity growth to come primarily from wind and solar development and from asset acquisitions. FPL Energy plans to add a total of 7,000 mw to 9,000 mw of new wind generation over the 2008-2012 period of which approximately 1,300 mw of wind capacity is expected to be added in 2008. Through September 30, 2008, construction has been completed on approximately 339 mw of new projects and an additional 811 mw are under construction, all of which are expected to reach commercial operation by the end of 2008. In light of the current economic and credit environment, FPL Energy has reduced its 2009 planned capital expenditures primarily related to wind-related investments and plans to add approximately 1,100 mw of new wind generation in 2009. For the period 2010 to 2012, FPL Energy plans to add approximately 1,000 mw to 2,000 mw per year. In addition, FPL Energy expects to add 200 mw to 400 mw of solar generation by 2012. The planned wind and solar expansions are subject to, among other things, continued public policy support, which includes, but is not limited to, the extension of PTCs for wind projects beyond 2009 and support for the construction and availability of sufficient transmission facilities and capacity, and access to capital/financing. FPL Energy's ability to develop, construct and operate its planned wind and solar expansions could be adversely impacted by the failure, in whole or in part, of such public policy support. In late June 2008, FPL Energy purchased approximately 85 mw of operating wind assets in Canada.
Corporate and Other
- Corporate and Other is primarily comprised of interest expense, the operating results of FPL FiberNet and other business activities as well as corporate interest income and expenses. Corporate and Other allocates interest expense 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. For these purposes, the deferred credit associated with differential membership interests sold by an FPL Energy subsidiary in December 2007 is included with debt. Each subsidiary's income taxes are calculated based on the "separate return method," except that tax benefits that could not be utilized on a separate return basis, but are utilized on the consolidated tax return, are recorded by the subsidiary that generated the tax benefits. Any remaining consolidated income tax benefits or detriments are recorded at Corporate and Other. The major components of Corporate and Other's results, on an after-tax basis, are as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|||||||||||
|
|
|
|
|
|
|||||||||||
|
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
(millions) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Interest expense |
|
$ |
(24 |
) |
$ |
(22 |
) |
$ |
(71 |
) |
$ |
(66 |
) |
|||
Interest income |
|
|
2 |
|
|
5 |
|
|
8 |
|
|
15 |
|
|||
Other |
|
|
(1 |
) |
|
4 |
|
|
7 |
|
|
8 |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Net loss |
|
$ |
(23 |
) |
$ |
(13 |
) |
$ |
(56 |
) |
$ |
(43 |
) |
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The increase in interest expense reflects additional debt outstanding partly offset by lower average interest rates of approximately 114 basis points and 73 basis points for the three- and nine-month periods, respectively. The decline in interest income reflects the absence of interest earned in the prior year on temporary investments which had been accumulated to purchase the Point Beach nuclear power plant (Point Beach). Other includes all other corporate income and expenses as well as other business activities. The decrease in other primarily reflects higher corporate operating costs and investment security write-downs to market value, which are reflected in other - net in the condensed consolidated statements of income, partly offset for the nine months ended September 30, 2008 by additional consolidating tax adjustments.
FPL Group and its subsidiaries, including FPL, require funds to support and grow their businesses. These funds are used for working capital, capital expenditures, investments in or acquisitions of assets and businesses, to pay maturing debt obligations and, from time to time, to redeem or repurchase outstanding debt or equity securities. It is anticipated that these requirements will be satisfied through a combination of internally generated funds, borrowings, 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. FPL Group, FPL and FPL Group Capital access the credit and capital markets as significant sources of liquidity for capital requirements not satisfied by operating cash flows. The inability of FPL Group, FPL and FPL Group Capital to maintain their current credit ratings affects their ability to raise short- and long-term capital, their cost of capital and the execution of their respective financing strategies, and could require the posting of additional collateral under certain agreements.
29
The global and domestic credit and capital markets are experiencing unprecedented levels of volatility and disruption. This has significantly affected available sources of liquidity in the financial markets. FPL and FPL Group Capital have had continuous access to commercial paper and short-term credit markets; however, they have seen a demand by investors for shorter maturities and an overall increase in short-term rates. As of September 30, 2008, FPL's and FPL Group Capital's outstanding commercial paper and short-term notes had an average maturity of 23 days and 30 days, respectively, with weighted average interest rates of 2.83% and 3.20%, respectively. In an effort to counter the possibility of further deterioration in the commercial paper markets, FPL and FPL Group Capital have taken the added precaution of building short-term investment balances, with approximately 93% of such balances held either in U.S. Treasury-backed repurchase agreements or Treasury-backed money market funds. As of September 30, 2008, FPL and FPL Group Capital had commercial paper and short-term notes outstanding totaling approximately $1,550 million and $1,490 million, respectively, and short-term investments of approximately $808 million and $689 million, respectively, for a net short-term debt balance of approximately $742 million and $801 million, respectively. FPL and FPL Group Capital also have bank revolving lines of credit of $2.75 billion and $4.0 billion, respectively, for additional liquidity. See Available Liquidity below. FPL and FPL Group Capital expect to continue to have access to the short- and long-term credit and capital markets, although recent market conditions may result in higher financing costs and the need to consider alternative financing strategies.
In light of the current economic and credit environment, FPL Group has reduced planned capital expenditures at FPL by approximately $475 million in 2008 and, in 2009, reduced FPL and FPL Energy's combined capital expenditures by approximately $1.7 billion. The reductions relate primarily to the deferral of new wind development at FPL Energy and a reduction of projects associated with system growth at FPL. See Note 8
-
Commitments for FPL's and FPL Energy's planned capital expenditures as of September 30, 2008.
Available Liquidity
- At September 30, 2008, FPL Group's total net available liquidity was approximately $4.9 billion, of which FPL's portion was approximately $1.9 billion. The components of each company's net available liquidity at September 30, 2008 were as follows:
|
|
|
|
|
|
|
Maturity Date |
|||||||
|
||||||||||||||
|
|
|
|
|
FPL
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
(millions) |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Bank revolving lines of credit (a) |
$ |
2,500 |
|
$ |
4,000 |
|
$ |
6,500 |
|
(b) |
|
(b) |
||
Less letters of credit |
|
(150 |
) |
|
(259 |
) |
|
(409 |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
2,350 |
|
|
3,741 |
|
|
6,091 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Revolving term loan facility |
|
250 |
|
|
- |
|
|
250 |
|
2011 |
|
|
||
Less borrowings |
|
- |
|
|
- |
|
|
- |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
250 |
|
|
- |
|
|
250 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Subtotal |
|
2,600 |
|
|
3,741 |
|
|
6,341 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Cash and cash equivalents |
|
881 |
|
|
711 |
|
|
1,592 |
|
|
|
|
||
Less commercial paper and short-term notes payable |
|
(1,550 |
) |
|
(1,490 |
) |
|
(3,040 |
) |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net available liquidity |
$ |
1,931 |
|
$ |
2,962 |
|
$ |
4,893 |
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
_____________________ |
(a) |
Provide for the issuance of letters of credit up to $6.5 billion ($2.5 billion for FPL) and are available to support FPL's and FPL Group Capital's commercial paper programs and short-term borrowings 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. FPL's bank revolving lines of credit are also available to support the purchase of $633 million of pollution control, solid waste disposal and industrial development revenue bonds (tax exempt bonds) in the event they are tendered by individual bond holders and not remarketed prior to maturity. |
(b) |
$17 million of FPL's and $40 million of FPL Group Capital's bank revolving lines of credit expire in 2012. The remaining portion of bank revolving lines of credit for FPL and FPL Group Capital expire in 2013. |
At October 30, 2008, 38 banks participate in FPL's and FPL Group Capital's credit facilities, with no one bank providing more than 8% of the total in either credit facility. At October 30, 2008, no bank has advised FPL or FPL Group Capital of its intent to withdraw from the credit facilities or not to honor its obligations. In order for FPL Group Capital to borrow under the terms of its credit facility, FPL Group (which guarantees the payment of FPL Group Capital's credit facility pursuant to a 1998 guarantee agreement) is required to maintain a minimum ratio of funded debt to total capitalization. The FPL Group Capital credit facility also contains default and related acceleration provisions relating to, among other things, failure of FPL Group to maintain the minimum ratio of funded debt to total capitalization. Similarly, in order for FPL to borrow under the terms of its credit facility and revolving term loan facility, FPL is required to maintain a minimum ratio of funded debt to total capitalization. The FPL credit facility and revolving term loan facility also contain default and related acceleration provisions relating to, among other things, failure of FPL to maintain the minimum ratio of funded debt to total capitalization. At September 30, 2008, each of FPL Group and FPL was in compliance with its respective ratio.
30
In addition, at September 30, 2008, FPL had restricted funds set aside (included in special use funds on FPL Group's and FPL's condensed consolidated balance sheets) that provide FPL the capacity to absorb up to approximately $177 million in future prudently incurred storm restoration costs without seeking recovery through a rate adjustment from the FPSC. Also, an indirect wholly-owned subsidiary of FPL Energy has established a $100 million letter of credit facility which expires in 2017 and serves as security for certain obligations under commodity hedge agreements entered into by the subsidiary.
Shelf Registration
- In September 2006, FPL Group, FPL Group Capital, FPL and certain affiliated trusts filed a shelf registration statement with the SEC for an unspecified amount of securities. The amount of securities issuable by the companies is established from time to time by their respective board of directors. As of October 30, 2008, securities that may be issued under the registration statement, as subsequently amended, which became effective upon filing, include, depending on the registrant, senior debt securities, subordinated debt securities, first mortgage bonds, preferred trust securities, common stock, stock purchase contracts, stock purchase units, preferred stock and guarantees related to certain of those securities. At October 30, 2008, FPL Group and FPL Group Capital had $4.0 billion (issuable by either or both of them up to such aggregate amount) of board-authorized available capacity, and FPL had $900 million of board-authorized available capacity.
Credit Ratings
- At October 30, 2008, Moody's Investors Service, Inc. (Moody's), Standard & Poor's Ratings Services (S&P) and Fitch Ratings (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: (b) |
|
|
|
|
|
||
Corporate credit rating |
A2 |
|
A |
|
A |
||
|
|
|
|
|
|
||
FPL: (b) |
|
|
|
|
|
||
Corporate credit rating |
A1 |
|
A |
|
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: (b) |
|
|
|
|
|
||
Corporate credit rating |
A2 |
|
A |
|
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. |
FPL Group and its subsidiaries, including FPL, have no credit rating downgrade triggers that would accelerate the maturity dates of outstanding debt. A change in ratings is not an event of default under applicable debt instruments, and while there are conditions to drawing on the credit facilities maintained by FPL and FPL Group Capital, the maintenance of a specific minimum level of credit rating is not a condition to drawing upon those credit facilities. Commitment fees and interest rates on loans under the credit facilities agreements are tied to credit ratings. A ratings downgrade also could reduce the accessibility and increase the cost of commercial paper and other short-term debt issuances and additional or replacement credit facilities, and could result in the requirement that FPL Group subsidiaries, including FPL, post collateral under certain agreements, including those related to fuel procurement, power sales and purchases, nuclear decommissioning funding, debt-related reserves and trading activities. FPL's and FPL Group Capital's bank revolving lines of credit are available to support these potential requirements. See Available Liquidity above.
Cash Flow
- The changes in cash and cash equivalents are summarized as follows:
|
FPL Group |
|
FPL |
|
||||||||||
|
|
|
|
|
||||||||||
|
Nine Months Ended September 30, |
|
||||||||||||
|
|
|
||||||||||||
|
2008 |
|
2007 |
|
2008 |
|
2007 |
|
||||||
|
|
|
|
|
|
|
|
|
||||||
|
(millions) |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net cash provided by operating activities |
$ |
2,359 |
|
$ |
2,746 |
|
$ |
1,541 |
|
$ |
1,892 |
|
||
Net cash used in investing activities |
|
(3,857 |
) |
|
(3,882 |
) |
|
(1,818 |
) |
|
(1,639 |
) |
||
Net cash provided by (used in) financing activities |
|
2,800 |
|
|
866 |
|
|
1,095 |
|
|
(261 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
$ |
1,302 |
|
$ |
(270 |
) |
$ |
818 |
|
$ |
(8 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
31
FPL Group's cash and cash equivalents increased for the nine months ended September 30, 2008, reflecting cash generated by operating activities, the receipt of cash from the net issuance of long-term debt and a net increase in short-term debt. These inflows were partially offset by capital investments and the payment of dividends on FPL Group's common stock.
FPL Group's cash flows from operating activities for the nine months ended September 30, 2008 reflect cash generated by net income, an increase in FPL's fuel accounts payable, the receipt of storm-related insurance proceeds, the underrecovery by FPL of fuel costs, an increase in customer receivables at FPL and an increase in fuel inventory at FPL Energy.
FPL Group's cash flows from investing activities for the nine months ended September 30, 2008 reflect capital investments, including nuclear fuel purchases, of approximately $1.8 billion by FPL to expand and enhance its electric system and generating facilities to continue to provide reliable service to meet the power needs of present and future customers, and investments in independent power projects of approximately $1.9 billion. FPL Group's cash flows from investing activities also includes amounts related to the purchase and sale of restricted securities held in the special use funds, including the reinvestment of fund earnings and new contributions by FPL Energy, as well as other investment activity, primarily at FPL Group Capital.
During the nine months ended September 30, 2008, FPL Group generated proceeds from financing activities, net of related issuance costs, of approximately $4.7 billion, including a net increase in short-term debt of $2,023 million (comprised of $1,315 million at FPL Group Capital and $708 million at FPL) and the following debt issuances and borrowings:
During the nine months ended September 30, 2008, FPL Group paid approximately $1.9 billion in connection with financing activities, including $506 million for FPL Group Capital debt maturities, $327 million for an FPL Energy subsidiary construction term loan maturity, $200 million for maturing FPL first mortgage bonds, $250 million principal repayments on FPL Energy subsidiary debt, $41 million principal repayment on FPL subsidiary storm-recovery bonds and $535 million for the payment of dividends on FPL Group's common stock.
FPL Group's cash and cash equivalents decreased for the nine months ended September 30, 2007, reflecting capital investments by FPL and FPL Energy, the payment of dividends on FPL Group's common stock and an increase in customer receivables. These outflows were partially offset by cash generated by net income, net issuances of both long- and short-term debt, the return to FPL and FPL Energy of margin cash collateral from their counterparties and a distribution from Karaha Bodas Company, LLC as a result of a court judgment.
32
Contractual Obligations and Planned Capital Expenditures
- FPL Group's and FPL's commitments at September 30, 2008 were as follows:
In October 2008, a wholly-owned subsidiary of FPL Group Capital lent $500 million under a construction and term loan to a third party for an energy-related project. See Note 8
-
Commitments.
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, 2008, FPL Group had standby letters of credit of approximately $689 million ($165 million for FPL) and approximately $8.9 billion notional amount of guarantees ($648 million for FPL), of which approximately $6.7 billion ($165 million for FPL) have expirations within the next five years. An aggregate of approximately $409 million of the standby letters of credit at September 30, 2008 were issued under FPL's and FPL Group Capital's credit facilities. See Available Liquidity above. Letters of credit and guarantees support the buying and selling of wholesale energy commodities, debt and related reserves, nuclear activities, capital expenditures for wind development, the commercial paper program of FPL's consolidated variable interest entity from which it leases nuclear fuel and other contractual agreements. Each of FPL Group and FPL believe it is unlikely that it would incur any liabilities associated with these letters of credit and guarantees. At September 30, 2008, 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 and 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 8
-
Commitments.
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 liquidated damages. Based on past performance of these and similar projects and current forward prices, management believes that the exposure associated with these liquidated damages provisions is not material.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
33
FPL Group's total other comprehensive income (loss) activity is as follows:
|
Accumulated Other Comprehensive Income (Loss) |
|
||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||
|
Nine Months Ended September 30, |
|
||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||
|
2008 |
|
2007 |
|
||||||||||||||||||||||||
|
|
|
|
|
||||||||||||||||||||||||
|
Net
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
(millions) |
|
||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at December 31 of prior year |
|
$ |
(81 |
) |
|
$ |
143 |
|
$ |
54 |
|
$ |
116 |
|
|
$ |
(25 |
) |
|
$ |
98 |
|
$ |
42 |
|
$ |
115 |
|
Net unrealized gains (losses) on commodity cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of net unrealized losses (net of $38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and $18 tax benefit, respectively) |
|
|
(49 |
) |
|
|
- |
|
|
- |
|
|
(49 |
) |
|
|
(26 |
) |
|
|
- |
|
|
- |
|
|
(26 |
) |
Reclassification from AOCI to net income (net of $59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and $14 tax expense, respectively) |
|
|
80 |
|
|
|
- |
|
|
- |
|
|
80 |
|
|
|
20 |
|
|
|
- |
|
|
- |
|
|
20 |
|
Net unrealized gains (losses) on interest rate cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion of net unrealized losses (net of $5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and $4 tax benefit, respectively) |
|
|
(8 |
) |
|
|
- |
|
|
- |
|
|
(8 |
) |
|
|
(5 |
) |
|
|
- |
|
|
- |
|
|
(5 |
) |
Reclassification from AOCI to net income (net of $4 tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
expense and $2 tax benefit, respectively) |
|
|
6 |
|
|
|
- |
|
|
- |
|
|
6 |
|
|
|
(4 |
) |
|
|
- |
|
|
- |
|
|
(4 |
) |
Net unrealized gains (losses) on available for sale securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(net of $23 tax benefit and $11 tax expense, respectively) |
|
|
- |
|
|
|
- |
|
|
(36 |
) |
|
(36 |
) |
|
|
- |
|
|
|
- |
|
|
17 |
|
|
17 |
|
Reclassification from AOCI to retained earnings |
|
|
- |
|
|
|
- |
|
|
(1 |
) |
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
- |
|
|
- |
|
Defined benefit pension and other benefits plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(net of $3 and $1 tax benefit, respectively) |
|
|
- |
|
|
|
(5 |
) |
|
- |
|
|
(5 |
) |
|
|
- |
|
|
|
(2 |
) |
|
- |
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balances at September 30 |
|
$ |
(52 |
) |
|
$ |
138 |
|
$ |
17 |
|
$ |
103 |
|
|
$ |
(40 |
) |
|
$ |
96 |
|
$ |
59 |
|
$ |
115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. In addition, FPL Group, through FPL Energy, uses derivatives to optimize the value of power generation assets. FPL Energy provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, in certain markets and engages in 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 2.
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, 2008 were as follows:
|
|
|
Hedges on Owned Assets |
|
|
|||||||||||
|
|
|
|
|
|
|||||||||||
|
|
|
|
|
|
|
FPL Cost
|
|
FPL
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
||||||
|
(millions) |
|
||||||||||||||
Three months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at June 30, 2008 |
$ |
42 |
|
$ |
(488 |
) |
$ |
(570 |
) |
$ |
998 |
|
$ |
(18 |
) |
|
Reclassification to realized at settlement of contracts |
|
5 |
|
|
93 |
|
|
90 |
|
|
(617 |
) |
|
(429 |
) |
|
Effective portion of changes in fair value recorded in OCI |
|
- |
|
|
- |
|
|
423 |
|
|
- |
|
|
423 |
|
|
Ineffective portion of changes in fair value recorded in earnings |
|
- |
|
|
11 |
|
|
- |
|
|
- |
|
|
11 |
|
|
Changes in fair value excluding reclassification to realized |
|
(26 |
) |
|
371 |
|
|
- |
|
|
(906 |
) |
|
(561 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contracts outstanding at September 30, 2008 |
|
21 |
|
|
(13 |
) |
|
(57 |
) |
|
(525 |
) |
|
(574 |
) |
|
Net option premium payments (receipts) |
|
(20 |
) |
|
20 |
|
|
- |
|
|
- |
|
|
- |
|
|
Net margin cash collateral received |
|
- |
|
|
38 |
|
|
- |
|
|
3 |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mark-to-market energy contract net assets (liabilities) at September 30, 2008 |
$ |
1 |
|
$ |
45 |
|
$ |
(57 |
) |
$ |
(522 |
) |
$ |
(533 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34
|
|
|
Hedges on Owned Assets |
|
|
|||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||
|
|
|
|
|
|
|
FPL Cost
|
|
FPL
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
(millions) |
|
||||||||||||||||||||||
Nine months ended September 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Fair value of contracts outstanding at December 31, 2007 |
$ |
2 |
|
$ |
(138 |
) |
$ |
(109 |
) |
$ |
(119 |
) |
$ |
(364 |
) |
|||||||||
Reclassification to realized at settlement of contracts |
|
6 |
|
|
30 |
|
|
139 |
|
|
(694 |
) |
|
(519 |
) |
|||||||||
Effective portion of changes in fair value recorded in OCI |
|
- |
|
|
- |
|
|
(87 |
) |
|
- |
|
|
(87 |
) |
|||||||||
Ineffective portion of changes in fair value recorded in earnings |
|
- |
|
|
(2 |
) |
|
- |
|
|
- |
|
|
(2 |
) |
|||||||||
Changes in fair value excluding reclassification to realized |
|
13 |
|
|
97 |
|
|
- |
|
|
288 |
|
|
398 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Fair value of contracts outstanding at September 30, 2008 |
|
21 |
|
|
(13 |
) |
|
(57 |
) |
|
(525 |
) |
|
(574 |
) |
|||||||||
Net option premium payments (receipts) |
|
(20 |
) |
|
20 |
|
|
- |
|
|
- |
|
|
- |
|
|||||||||
Net margin cash collateral received |
|
- |
|
|
38 |
|
|
- |
|
|
3 |
|
|
41 |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Total mark-to-market energy contract net assets (liabilities) at September 30, 2008 |
$ |
1 |
|
$ |
45 |
|
$ |
(57 |
) |
$ |
(522 |
) |
$ |
(533 |
) |
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FPL Group's total mark-to-market energy contract net assets (liabilities) at September 30, 2008 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, 2008 were as follows:
|
Maturity |
|
||||||||||||||||||||||||||||||||
|
|
|
||||||||||||||||||||||||||||||||
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
Thereafter |
|
Total |
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
(millions) |
|||||||||||||||||||||||||||||||||
Trading: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Quoted prices in active markets for identical assets |
$ |
(42 |
) |
$ |
29 |
|
$ |
(16 |
) |
$ |
(1 |
) |
$ |
(1 |
) |
|
$ |
- |
|
$ |
(31 |
) |
||||||||||||
Significant other observable inputs |
|
(29 |
) |
|
(37 |
) |
|
(18 |
) |
|
2 |
|
|
2 |
|
|
|
1 |
|
|
(79 |
) |
||||||||||||
Significant unobservable inputs |
|
56 |
|
|
63 |
|
|
13 |
|
|
4 |
|
|
(5 |
) |
|
|
- |
|
|
131 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
(15 |
) |
|
55 |
|
|
(21 |
) |
|
5 |
|
|
(4 |
) |
|
|
1 |
|
|
21 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|||||||||||||||||||||||||||||||||
Owned Assets - Non-Qualifying: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Quoted prices in active markets for identical assets |
|
(8 |
) |
|
(2 |
) |
|
3 |
|
|
- |
|
|
1 |
|
|
|
- |
|
|
(6 |
) |
||||||||||||
Significant other observable inputs |
|
3 |
|
|
21 |
|
|
(23 |
) |
|
(30 |
) |
|
(26 |
) |
|
|
(75 |
) |
|
(130 |
) |
||||||||||||
Significant unobservable inputs |
|
64 |
|
|
68 |
|
|
(3 |
) |
|
(3 |
) |
|
(1 |
) |
|
|
(2 |
) |
|
123 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
59 |
|
|
87 |
|
|
(23 |
) |
|
(33 |
) |
|
(26 |
) |
|
|
(77 |
) |
|
(13 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Owned Assets - OCI: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Quoted prices in active markets for identical assets |
|
2 |
|
|
- |
|
|
- |
|
|
- |
|
|
(3 |
) |
|
|
- |
|
|
(1 |
) |
||||||||||||
Significant other observable inputs |
|
(8 |
) |
|
(20 |
) |
|
(20 |
) |
|
(10 |
) |
|
3 |
|
|
|
- |
|
|
(55 |
) |
||||||||||||
Significant unobservable inputs |
|
(1 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
- |
|
|
(1 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
(7 |
) |
|
(20 |
) |
|
(20 |
) |
|
(10 |
) |
|
- |
|
|
|
- |
|
|
(57 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Owned Assets - FPL Cost Recovery Clauses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Quoted prices in active markets for identical assets |
|
(3 |
) |
|
- |
|
|
- |
|
|
- |
|
|
- |
|
|
|
- |
|
|
(3 |
) |
||||||||||||
Significant other observable inputs |
|
(33 |
) |
|
(491 |
) |
|
- |
|
|
- |
|
|
- |
|
|
|
- |
|
|
(524 |
) |
||||||||||||
Significant unobservable inputs |
|
- |
|
|
- |
|
|
2 |
|
|
- |
|
|
- |
|
|
|
- |
|
|
2 |
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total |
|
(36 |
) |
|
(491 |
) |
|
2 |
|
|
- |
|
|
- |
|
|
|
- |
|
|
(525 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
|||||||||||||||||||||||||||||||||
Total sources of fair value |
$ |
1 |
|
$ |
(369 |
) |
$ |
(62 |
) |
$ |
(38 |
) |
$ |
(30 |
) |
|
$ |
(76 |
) |
$ |
(574 |
) |
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007 were as follows:
|
|
|
|
Hedges on Owned Assets |
|
|
||||||||||||
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
FPL Cost
|
|
FPL
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
(millions) |
|
|||||||||||||||
Three months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Fair value of contracts outstanding at June 30, 2007 |
|
$ |
(9 |
) |
$ |
(96 |
) |
$ |
(106 |
) |
$ |
(459 |
) |
$ |
(670 |
) |
||
Reclassification to realized at settlement of contracts |
|
|
(1 |
) |
|
4 |
|
|
1 |
|
|
227 |
|
|
231 |
|
||
Effective portion of changes in fair value recorded in OCI |
|
|
- |
|
|
- |
|
|
39 |
|
|
- |
|
|
39 |
|
||
Ineffective portion of changes in fair value recorded in earnings |
|
|
- |
|
|
5 |
|
|
- |
|
|
- |
|
|
5 |
|
||
Changes in fair value excluding reclassification to realized |
|
|
4 |
|
|
51 |
|
|
- |
|
|
(140 |
) |
|
(85 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Fair value of contracts outstanding at September 30, 2007 |
|
|
(6 |
) |
|
(36 |
) |
|
(66 |
) |
|
(372 |
) |
|
(480 |
) |
||
Net option premium payments (receipts) |
|
|
- |
|
|
(1 |
) |
|
- |
|
|
28 |
|
|
27 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total mark-to-market energy contract net assets (liabilities) at September 30, 2007 |
|
$ |
(6 |
) |
$ |
(37 |
) |
$ |
(66 |
) |
$ |
(344 |
) |
$ |
(453 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
Hedges on Owned Assets |
|
|
||||||||||||
|
|
|
|
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
FPL Cost
|
|
FPL
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
(millions) |
|
|||||||||||||||
Nine months ended September 30, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Fair value of contracts outstanding at December 31, 2006 |
|
$ |
5 |
|
$ |
8 |
|
$ |
(56 |
) |
$ |
(921 |
) |
$ |
(964 |
) |
||
Reclassification to realized at settlement of contracts |
|
|
(6 |
) |
|
(59 |
) |
|
34 |
|
|
676 |
|
|
645 |
|
||
Value of contracts purchased/previously not consolidated |
|
|
- |
|
|
23 |
|
|
- |
|
|
- |
|
|
23 |
|
||
Effective portion of changes in fair value recorded in OCI |
|
|
- |
|
|
- |
|
|
(44 |
) |
|
- |
|
|
(44 |
) |
||
Ineffective portion of changes in fair value recorded in earnings |
|
|
- |
|
|
1 |
|
|
- |
|
|
- |
|
|
1 |
|
||
Changes in fair value excluding reclassification to realized |
|
|
(5 |
) |
|
(9 |
) |
|
- |
|
|
(127 |
) |
|
(141 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Fair value of contracts outstanding at September 30, 2007 |
|
|
(6 |
) |
|
(36 |
) |
|
(66 |
) |
|
(372 |
) |
|
(480 |
) |
||
Net option premium payments (receipts) |
|
|
- |
|
|
(1 |
) |
|
- |
|
|
28 |
|
|
27 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total mark-to-market energy contract net assets (liabilities) at September 30, 2007 |
|
$ |
(6 |
) |
$ |
(37 |
) |
$ |
(66 |
) |
$ |
(344 |
) |
$ |
(453 |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. With respect to commodities, 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, 2008 and December 31, 2007, the VaR figures were as follows:
|
|
|
Non-Qualifying Hedges
|
|
|
|||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||||||
|
|
|
FPL
|
|
FPL
|
|
|
|
FPL
|
|
FPL
|
|
|
|
FPL
|
|
FPL
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
(millions) |
|||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
December 31, 2007 |
$ |
- |
|
$ |
6 |
|
$ |
6 |
|
$ |
51 |
|
$ |
31 |
|
$ |
37 |
|
$ |
51 |
|
$ |
28 |
|
$ |
39 |
||||||||||||||||
September 30, 2008 |
$ |
- |
|
$ |
1 |
|
$ |
1 |
|
$ |
107 |
|
$ |
40 |
|
$ |
41 |
|
$ |
107 |
|
$ |
38 |
|
$ |
40 |
||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||||||||||
Average for the nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
September 30, 2008 |
$ |
- |
|
$ |
4 |
|
$ |
4 |
|
$ |
79 |
|
$ |
52 |
|
$ |
35 |
|
$ |
79 |
|
$ |
50 |
|
$ |
36 |
||||||||||||||||
_____________________ |
|
(a) |
Non-qualifying hedges are employed to reduce the market risk exposure to physical assets or contracts which are not marked to market. The VaR figures for the non-qualifying hedges and hedges in OCI and FPL cost recovery clauses category do not represent the economic exposure to commodity price movements. |
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 special use 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.
36
The following are estimates of the fair value of FPL Group's and FPL's financial instruments:
|
September 30, 2008 |
|
December 31, 2007 |
|
||||||||||||||||
|
|
|
|
|
||||||||||||||||
|
Carrying
|
|
Estimated
|
|
Carrying
|
|
Estimated
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||
|
(millions) |
|
||||||||||||||||||
FPL Group: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Long-term debt, including current maturities |
$ |
13,994 |
|
$ |
12,956 |
(a) |
|
$ |
12,681 |
|
$ |
12,642 |
(a) |
|
||||||
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Other current assets |
$ |
54 |
|
$ |
54 |
(b) |
|
$ |
3 |
|
$ |
3 |
(b) |
|
||||||
Special use funds |
$ |
1,895 |
|
$ |
1,895 |
(b) |
|
$ |
2,025 |
|
$ |
2,025 |
(b) |
|
||||||
Other investments |
$ |
97 |
|
$ |
97 |
(b) |
|
$ |
108 |
|
$ |
108 |
(b) |
|
||||||
Interest rate swaps - net unrealized gain (loss) |
$ |
(28 |
) |
$ |
(28 |
) (c) |
|
$ |
(28 |
) |
$ |
(28 |
) (c) |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
FPL: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Long-term debt, including current maturities |
$ |
5,573 |
|
$ |
4,934 |
(a) |
|
$ |
5,217 |
|
$ |
5,185 |
(a) |
|
||||||
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Special use funds |
$ |
1,469 |
|
$ |
1,469 |
(b) |
|
$ |
1,436 |
|
$ |
1,436 |
(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. |
The special use funds of FPL Group and FPL consist of restricted funds set aside to cover the cost of storm damage for FPL and for the 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. At FPL, adjustments to market value result in a corresponding adjustment to the related liability accounts based on current regulatory treatment. The market value adjustments of FPL Group's non-rate regulated operations result in a corresponding adjustment to OCI, except for impairments deemed to be other than temporary which are reported in current period earnings. Because the funds set aside by FPL for storm damage could be needed at any time, the related investments are generally more liquid and, therefore, are less sensitive to changes in interest rates. The nuclear decommissioning funds, in contrast, are generally invested in longer-term securities, as decommissioning activities are not scheduled to begin until at least 2014 (2032 at FPL).
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, 2008, the estimated fair value for FPL Group interest rate swaps was as follows:
(a) |
Three-month London InterBank Offered Rate (LIBOR) plus 1.18896% |
(b) |
Three-month LIBOR |
(c) |
Six-month LIBOR |
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 $616 million ($289 million for FPL) at September 30, 2008.
Equity price risk - Included in the nuclear decommissioning reserve funds of FPL Group are marketable equity securities carried at their market value of approximately $1,300 million and $1,456 million ($844 million and $1,063 million for FPL) at September 30, 2008 and December 31, 2007, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges, which is a reasonable near-term market change, would result in a $130 million ($84 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, 2008.
37
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, 2008, approximately 95% of FPL Group's and 100% of 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.
Item 4. Controls and Procedures
(a) |
Evaluation of Disclosure Controls and Procedures |
|
|
|
|
|
|
38
PART II
FPL Group and FPL are parties to various lawsuits in the ordinary course of their respective businesses. For information regarding material lawsuits, see Item 3. Legal Proceedings and Note 16 - Litigation to Consolidated Financial Statements in the 2007 Form 10-K for FPL Group and FPL and Note 8 - Legal and Regulatory Proceedings herein. Such descriptions are incorporated herein by reference.
There were no material changes from the risk factors disclosed in FPL Group's and FPL's 2007 Form 10-K except as follows:
Adverse capital and credit market conditions may adversely affect FPL Group's and FPL's ability to meet liquidity needs, access capital and operate and grow their businesses, and the cost of capital. Disruptions, uncertainty or volatility in the financial markets can also adversely impact the results of operations and financial condition of FPL Group and FPL, as well as exert downward pressure on stock prices.
FPL Group and FPL are subject to credit and performance risk from third parties under supply and service contracts.
The factors discussed above and in Part I, Item 1A. Risk Factors in FPL Group's and FPL's 2007 Form 10-K, as well as other information set forth in this report, which could materially affect FPL Group's and FPL's businesses, financial condition and/or future operating results should be carefully considered. The risks described above and in FPL Group's and FPL's 2007 Form 10-K are not the only risks facing FPL Group and FPL. Additional risks and uncertainties not currently known to FPL Group or FPL, or that are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.
The following table presents information regarding purchases made by FPL Group of its common stock:
|
|
|
|
|
|
Total Number of
|
|
Maximum Number of
|
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
|
|
|
|
|
|
|
|
|||||||||
7/1/08 - 7/31/08 |
|
|
2,139 |
|
|
|
$ |
66.10 |
|
|
|
- |
|
|
|
20,000,000 |
|
8/1/08 - 8/31/08 |
|
|
1,327 |
|
|
|
$ |
59.73 |
|
|
|
- |
|
|
|
20,000,000 |
|
9/1/08 - 9/30/08 |
|
|
- |
|
|
|
$ |
- |
|
|
|
- |
|
|
|
20,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Total |
|
|
3,466 |
|
|
|
|
|
|
|
|
- |
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
_____________________ |
(a) |
Represents shares of common stock purchased from employees to pay certain withholding taxes upon the vesting of stock awards granted to such employees under the FPL Group, Inc. Amended and Restated Long Term Incentive Plan. |
(b) |
In February 2005, FPL Group's Board of Directors authorized a common stock repurchase plan of up to 20 million shares of common stock over an unspecified period, which authorization was ratified and confirmed by the Board of Directors in December 2005. |
39
Item 5. Other Information
(a) |
None |
|
|
|
|
|
|
|
|
Item 6. Exhibits
|
|
Exhibit
|
|
FPL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
|
|
Exhibit
|
|
FPL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________________ |
*Incorporated herein by reference |
|
41
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: October 30, 2008
K. MICHAEL DAVIS
K. Michael Davis
Controller and Chief Accounting Officer of FPL Group, Inc. Vice President, Accounting and
Chief Accounting Officer of Florida Power & Light Company
(Principal Accounting Officer of the Registrants)
42
Exhibit 3(ii)a
AMENDED AND RESTATED BYLAWS
Section 1. Annual Meeting.
The annual meeting of the shareholders of the Corporation shall be held at the time and place designated by the board of directors of the Corporation.
Section 2. Special Meetings. Special meetings of the shareholders may be called by the chairman of the board of directors or the president or the secretary of the Corporation and shall be called upon the written request of a majority of the entire board of directors or the holder or holders of not less than a majority of all the outstanding shares of stock of the Corporation entitled to vote on the matter or matters to be presented at the meeting. Such request shall state the purpose or purposes of the proposed meeting. No business shall be conducted at any special meeting other than the business for which the special meeting is called as set forth in the notice of the special meeting. Special meetings shall be held at the time and place designated by the chief executive officer of the Corporation.
Section 3. Place and Presiding Officer. Meetings of the shareholders may be held within or without the State of Florida.
Meetings of the shareholders may be presided over by the chairman of the board, the president or any vice president. The secretary of the Corporation, or any person chosen by the person presiding over the shareholders' meeting, shall act as secretary for the meeting.
Section 4. Notice. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten nor more than sixty days before the meeting, personally, by United States mail, or in such other manner as may be permitted by law, by or at the direction of the chairman of the board, the president, the secretary, or the officer or persons calling the meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the stock transfer books of the Corporation, with postage thereon prepaid.
Section 5. Notice of Adjourned Meetings. When a meeting is adjourned to another time or place, it shall not be necessary to give any notice of the adjourned meeting if the time and place to which the meeting is adjourned are announced at the meeting at which the adjournment is taken, and at the adjourned meeting any business may be transacted that might have been transacted on the original date of the meeting. If, however, after the adjournment the board of directors fixes a new record date for the adjourned meeting, a notice of the adjourned meeting shall be given as provided in Section 4 of this Article I to each shareholder of record on the new record date entitled to vote at such meeting.
Section 6. Closing of Transfer Books and Fixing Record Date. For the purpose of determining shareholders entitled to notice of, or to vote at, any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose, the board of directors may provide that the stock transfer books shall be closed for a stated period not to exceed, in any case, sixty days (or such longer period as may from time to time be permitted by law). If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of, or to vote at, a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the board of directors may fix in advance a date as the record date for any determination of shareholders, such date in any case to be not more than sixty days (or such longer period as may from time to time be permitted by law) and, in case of a meeting of shareholders, not less than ten days prior to the date on which the particular action requiring such determination of shareholders is to be taken.
If the stock transfer books are not closed and no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the board of directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section 6, such determination shall apply to any adjournment thereof, unless the board of directors fixes a new record date for the adjourned meeting.
Section 7. Shareholder Quorum and Voting. A majority of the total number of shares outstanding and entitled to vote, present in person or represented by proxy thereat, shall constitute a quorum at a meeting of shareholders for the transaction of business, except as otherwise provided by law or by the Corporation's Restated Articles of Incorporation (the "Charter"). If a specified item of business is required to be voted on by a class or series of shares, a majority of the total number of shares outstanding and entitled to vote of such class or series, present in person or represented by proxy thereat, shall constitute a quorum at a meeting of shareholders for the transaction of such item of business by such class or series. If, however, a quorum does not exist at a meeting, the holders of a majority of the shares present at such meeting and entitled to vote may adjourn the meeting from time to time, without notice other than by announcement at the meeting, until the requisite number of shares entitled to vote shall be present. At any such adjourned meeting at which a quorum exists, any business may be transacted which might have been transacted at the meeting as originally noticed. After a quorum has been established at a meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof.
If a quorum exists, action on a matter (including the election of directors) shall be approved by the shareholders of the Corporation if the matter receives the affirmative vote of a majority of the total number of shares represented at the meeting and entitled to vote on such matter, unless the matter is one upon which, by express provision of law a greater vote is required or from time to time permitted by action of the board of directors, or by the Charter or these bylaws a greater or different vote is required, in either which case such express provision shall govern and control the requisite vote requirement.
Section 8. Inspectors of Election. Prior to each meeting of shareholders, the board of directors shall appoint not less than one nor more than five inspectors of election who shall have such duties and perform such functions in connection with the meeting as shall be determined by the board of directors.
Section 9. Notice of Shareholder Business and Director Nominations .
(a) (1) General . Nominations of persons for election to the board of directors of the Corporation and the proposal of any other business to be considered by the shareholders of the Corporation may be made at any annual meeting of shareholders, only (i) pursuant to the Corporation's notice of meeting (or any supplement thereto), (ii) by or at the direction of the board of directors (or any duly authorized committee thereof) or (iii) by any shareholder of the Corporation who (A) is a shareholder of record at the time of the giving of the notice provided for in this Section 9 and at the time of the annual meeting, (B) is entitled to vote at the annual meeting on the election of directors or proposal and (C) complies with the notice procedures set forth in this Section 9 as to such business or nomination. Clause (iii) of this Section 9(a)(1) shall be the exclusive means for a shareholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and included in the Corporation's notice of meeting) before an annual meeting of shareholders.
(2) Timely Notice . Without qualification or limitation, for any nominations or any other business to be properly brought before an annual meeting by a shareholder of the Corporation pursuant to Section 9(a)(1)(iii) hereof, the shareholder previously must have given timely notice thereof in proper written form (as more fully described in Section 9(a)(3) hereof) to the secretary of the Corporation and any such other business must constitute a proper matter for shareholder action. To be timely, a shareholder's notice must be delivered to the secretary of the Corporation in person or by facsimile, or sent by U.S. certified mail and received by the secretary of the Corporation, at the principal executive offices of the Corporation, not earlier than the opening of business on the 120th day prior and not later than the close of business on the 90th day prior to the first anniversary of the date of the Corporation's immediately preceding annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days earlier or more than 60 days later than such first anniversary date, notice by the shareholder to be timely must be so delivered or received not earlier than the opening of business on the 120th day prior to the date of such annual meeting and not later than the close of business on the later of the 90th day prior to the date of such annual meeting or the 10th day following the day on which public announcement of the date of such annual meeting is first made by the Corporation. In no event shall any adjournment or postponement of an annual meeting or the public announcement thereof commence a new time period (or extend any time period) for the giving of notice by a shareholder as described above.
(3) Notice in Proper Written Form . To be in proper written form, a shareholder's notice to the secretary of the Corporation (whether given pursuant to Section 9(a) or Section 9(b) hereof) must set forth in writing:
(A) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made:
(i) the name and address of such shareholder as they appear on the Corporation's books, and of such beneficial owner, if any;
(ii) information about all holdings or other interests in the Corporation's securities, including without limitation:
(a) the class or series and number of shares of the Corporation which are, directly or indirectly, owned of record and/or owned beneficially by the shareholder and such beneficial owner, if any, and a representation that the shareholder and beneficial owner, if any, will notify the Corporation in writing of the class or series and number of such shares owned of record and beneficially as of the record date for the meeting, promptly following the later of the record date and the date notice of the record date is first publicly announced;
(b) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the Corporation or with a value derived in whole or in part from the value of any class or series of shares of the Corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the Corporation or otherwise (a "Derivative Instrument") directly or indirectly owned beneficially by such shareholder and beneficial owner, if any, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the Corporation;
(c) any proxy, contract, arrangement, understanding or relationship pursuant to which such shareholder and beneficial owner, if any, has a right to vote any shares of any security of the Corporation;
(d) any short interest in any security of the Corporation (for purposes hereof, a person or entity shall be deemed to have a short interest in a security if such person or entity directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security);
(e) any rights to dividends on the shares of the Corporation owned beneficially by such shareholder and beneficial owner, if any, that are separated or separable from the underlying shares of the Corporation;
(f) any proportionate interest in shares of the Corporation or Derivative Instruments held, directly or indirectly, by (X) a general or limited partnership in which such shareholder and beneficial owner, if any, is a general partner or, directly or indirectly, beneficially owns an interest in a general partner or (Y) a limited liability company in which such shareholder and beneficial owner, if any, is a managing member or, directly or indirectly, beneficially owns an interest in a managing member or (Z) another entity or enterprise in which such shareholder and beneficial owner, if any, serves in a similar management capacity or directly or indirectly, beneficially owns an interest in an entity or enterprise that serves in such a management capacity; and
(g) any performance-related fees (other than an asset-based fee) that such shareholder and beneficial owner, if any, is entitled to based on any increase or decrease in the value of shares of the Corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation any such interests held by such shareholder's and beneficial owner's, if any, affiliates, any person or entity with whom such shareholder and beneficial owner, if any, is acting in concert or members of such shareholder's and beneficial owner's, if any, immediate family sharing the same household (which information shall be supplemented by such shareholder and beneficial owner, if any, not later than ten (10) days after the later of the record date for the annual meeting or the date on which the record date for the annual meeting is first publicly announced to disclose such ownership as of the record date);
(iii) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such annual meeting on the matter proposed and intends to appear in person or by proxy at such meeting to propose such nomination or other business;
(iv) if the shareholder intends to solicit proxies in support of such shareholder's proposal, a representation to that effect; and
(v) any other information relating to such shareholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder.
(B) if the notice relates to any business that the shareholder proposes to bring before the meeting other than a nomination of a director or directors:
(i) a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration), the reasons for conducting such business at the meeting, any material interest of such shareholder and beneficial owner, if any, in such business and, in the event that such business includes a proposal to amend the Charter or by-laws of the Corporation, the language of the proposed amendment; and
(ii) a description of all agreements, arrangements and understandings between such shareholder and beneficial owner, if any, and any other person or persons (including the names of such persons) in connection with the proposal of such business by such shareholder.
(C) If the shareholder proposes to nominate a person for election to the board of directors, as to each such person whom the shareholder proposes to nominate:
(i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and
(ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such shareholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including without limitation all information that would be required to be disclosed pursuant to Rule 404 promulgated by the Securities and Exchange Commission under Regulation S-K (or any successor rule or regulation) if the shareholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the "registrant" for purposes of such rule and the nominee were a director or executive officer of such "registrant"; and
(D) with respect to each nominee for election to the board of directors, include a completed and signed questionnaire, representation and agreement as required by Article 1, Section 10 hereof. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as an independent director of the Corporation or that could be material to a reasonable shareholder's understanding of the independence, or lack thereof, of such nominee.
(4) Notwithstanding anything in Section 9(a)(2) above to the contrary, in the event that the number of directors to be elected to the board of directors at an annual meeting of the shareholders is increased in accordance with Article II, Section 2 and there is no public announcement naming all of the nominees for directors or specifying the size of the increased board of directors made by the Corporation at least 90 days prior to the first anniversary of the date of the immediately preceding annual meeting, a shareholder's notice required by this Section 9 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary of the Corporation in person or by facsimile, or sent by U.S. certified mail and received by the secretary of the Corporation, at the principal executive offices of the Corporation, not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation.
(5) For purposes of this Section 9, (a) an "affiliate" of, or person "affiliated" with, a specified person, is a person that directly, or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified, and (b) an "associate" , when used to indicate a relationship with any person, means (i) a corporation or organization of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of 10 percent or more of any class of equity securities, (ii) any trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar capacity, and (iii) any relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the Corporation or any of its subsidiaries.
(b) Special Meetings of Shareholders . Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the board of directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (i) by or at the direction of the board of directors (or any duly authorized committee thereof) or (ii) provided that the board of directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who (i) is a shareholder of record at the time of the giving of notice provided for in this Section 9 and at the time of the special meeting, (ii) is entitled to vote at the meeting for the election of directors and (iii) complies with the notice procedures set forth in this Section 9 as to such nomination. In the event a special meeting of shareholders is properly called by the Corporation for the purpose of electing one or more directors to the board of directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareholder's notice required by Sections 9(a)(2) and 9(a)(3) hereof with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by Section 9(a)(3)(D) hereof) shall be delivered to the secretary of the Corporation in person or by facsimile, or sent by U.S. certified mail and received by the secretary of the Corporation, at the principal executive offices of the Corporation, not earlier than the opening of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made by the Corporation of the date of such special meeting and of the fact that directors are to be elected. In no event shall any adjournment or postponement of a special meeting or the public announcement thereof commence a new time period (or extend any time period) for the giving of notice by a shareholder as described above.
(c) If the notice requirements set forth in this Section 9 are satisfied by a shareholder and such shareholder's nominee or proposal has been included in a proxy statement that has been prepared by management of the Corporation to solicit proxies for the applicable meeting of shareholders and such shareholder does not appear or send a qualified representative to present such nominee or proposal at such meeting, the Corporation need not present such nominee or proposal for a vote at such meeting notwithstanding that proxies in respect of such vote may have been received by the Corporation. For purposes of this Section 9, to be considered a qualified representative of the shareholder, a person must be authorized by a writing executed by such shareholder or an electronic transmission (as defined in the Florida Business Corporation Act, as amended) delivered by such shareholder to the secretary of the Corporation (in the case of a writing, delivered in person or by facsimile, or sent by U.S. certified mail and received, at the principal executive offices of the Corporation) to act for such shareholder as proxy at the meeting of shareholders and such person must produce such writing or electronic transmission, or a reliable printed reproduction of such writing or electronic transmission, at the meeting of shareholders.
(d) Except as otherwise provided in the Corporation's Charter, only such persons as are nominated in accordance with the procedures set forth in this Article I, Section 9 or are chosen to fill any vacancy occurring in the board of directors in accordance with Article II, Section 3 shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Article I, Section 9. Except as otherwise provided by law, the Charter or these bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Article 1, Section 9, and, if any proposed nomination or business is not in compliance with this Article 1, Section 9, to declare that such defective proposal or nomination shall be disregarded.
(e) For purposes of this Section 9, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Services, Associated Press or comparable national news service, in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder, or posted on the Corporation's website.
(f) Notwithstanding the foregoing provisions of this Section 9, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder, and all applicable rules and requirements of the New York Stock Exchange (the "NYSE") or, if the Corporation's shares are not listed on the NYSE, the applicable rules and requirements of the primary securities exchange or quotation system on which the Corporation's shares are listed or quoted, in each case with respect to the matters set forth in this Section 9; provided, however, that any references in these bylaws to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 9(a)(1)(iii) or Section 9(b) hereof. Nothing in this Section 9 shall be deemed to affect any rights (i) of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act or (ii) of the holders of any series of stock having preference over the common stock as to dividends or upon liquidation, if and to the extent provided for under law, the Charter or these bylaws.
Section 10. Submission of Questionnaire, Representation and Agreement .
To be eligible to be a nominee for initial election as a director of the Corporation, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 9 of this Article I) to the secretary of the Corporation in person or by facsimile, or sent by U.S. certified mail and received by the secretary of the Corporation, at the principal executive offices of the Corporation, a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the secretary upon written request) and a written representation and agreement (in the form provided by the secretary upon written request) that such person
(i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the Corporation, will act or vote on any issue or question (a "Voting Commitment") that has not been disclosed to the Corporation or (B) any Voting Commitment that could limit or interfere with such person's ability to comply, if elected as a director of the Corporation, with such person's fiduciary duties under applicable law,
(ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the Corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and
(iii) in such person's individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the Corporation, and will comply with, applicable law and all applicable publicly disclosed corporate governance, business conduct, ethics, conflict of interest, corporate opportunities, confidentiality and stock ownership and trading policies and guidelines of the Corporation.
ARTICLE II. DIRECTORS
Section 1. Function. All corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed under the direction of, the board of directors.
Section 2. Number. The number of directors of the Corporation shall not be less than three nor more than sixteen. The authorized number of directors, within the limits above specified, shall be determined by the affirmative vote of a majority of the entire board of directors given at a regular or special meeting thereof. No decrease in the number of directors constituting the board of directors shall shorten the term of any incumbent director.
At each annual meeting the shareholders shall elect directors to hold office until the next succeeding annual meeting. Each director so elected shall hold office for the term of which he or she is elected and until his or her successor shall have been elected and qualified or until his or her earlier resignation, retirement, removal from office or death. No person who shall have attained the age of 72 years by the date of election shall be eligible for election as a director of the Corporation, provided, however, that the board of directors is authorized, in circumstances it deems appropriate and by unanimous approval of all of the directors then in office (except the director whose qualification is the subject of the action), to render a director then in office (the "Affected Director") eligible for election as a director of the Corporation until either the date of election next following the Affected Director's 73 rd birthday or the date of election next following the Affected Director's 74 th birthday, and no director who shall have attained the age of 70 years by the date of election shall be eligible for election as chairman of the board of directors; provided, however, that these limitations shall not be applied in a manner which would cause the involuntary retirement of an employee of the Corporation.
Section 3. Vacancies. Any vacancy occurring in the board of directors, including any vacancy created by reason of an increase in the number of directors, shall be filled only by a majority vote of the directors then in office, and directors so chosen shall hold office for a term expiring at the next annual meeting of shareholders.
Section 4. Removal. A director may be removed by the majority vote of the entire board of directors. A director may also be removed by shareholders, but only for cause and only by the affirmative vote of the holders of at least 75% of the voting power of the then outstanding shares of Voting Stock (as defined in the Charter), voting together as a single class. Except as may otherwise be provided by law, cause for removal shall be construed to exist only if the director whose removal is proposed has been convicted of a felony by a court of competent jurisdiction and such conviction is no longer subject to direct appeal or has been adjudged by a court of competent jurisdiction to be liable for negligence or misconduct in the performance of his or her duty to the Corporation in a matter of substantial importance to the Corporation, and such adjudication is no longer subject to direct appeal.
Notwithstanding the foregoing, and except as otherwise provided by law, in the event that holders of any class or series of Preferred Stock are entitled, voting separately as a class, to elect one or more directors, the provisions of this Section 4 shall apply, in respect to the removal of a director so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares of Voting Stock voting together as a single class.
Section 5. Quorum and Voting. A majority of the number of directors fixed by, or in the manner provided in, these bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the board of directors, the quorum shall consist of a majority of the remaining directors until the vacancy has been filled. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.
Section 6. Executive and Other Committees. The board of directors, by resolution adopted by a majority of the entire board of directors, may designate from among its members an executive committee and one or more other committees. Each committee of the board of directors shall have such powers and functions as may be delegated to it by resolution adopted by the entire board of directors, except as prohibited by law.
The board of directors, by resolution adopted in accordance with this Section 6, shall designate a chairman for each committee it establishes who shall preside at all meetings of the committee and who shall have such additional duties as shall from time to time be designated by the board of directors.
The board of directors, by resolution adopted in accordance with this Section 6, may designate one or more directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee.
Section 7. Meetings. Regular meetings of the board of directors shall be held without notice at the location of and immediately after the adjournment of the annual meeting of shareholders in each year, and at such other time and place, as may be determined by the board of directors. Notice of the time and place of special meetings of the board of directors shall be given to each director either by personal delivery, e-mail, facsimile, reputable overnight delivery service, telegram, cablegram, or by telephone at least two days prior to the meeting. Notice may also be given through the postal service if mailed at least five days prior to the meeting.
Notice of a meeting of the board of directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
Except as otherwise provided in the Charter, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the board of directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of adjournment, to the other directors.
Meetings of the board of directors may be called by the chairman of the board, the president, or by any two directors.
Members of the board of directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
Meetings of the board of directors shall be presided over by the chairman of the board, or if such position is vacant or such person is absent, by the president. If neither the chairman of the board nor the president is present, the directors shall elect a chairman for the meeting from one of their members present.
Section 8. Action Without a Meeting. Any action required to be taken at a meeting of the directors or any action which may be taken at a meeting of the directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the directors or all the members of the committee, as the case may be, is filed in the minutes of the proceedings of the board or of the committee. Such consent shall have the same effect as a unanimous vote.
ARTICLE III. OFFICERS
Section 1. Types. The officers of the Corporation shall consist of a chairman of the board, a president, a secretary, a treasurer and such vice presidents and other officers as may be appointed by the board of directors or by a duly appointed officer authorized by these bylaws or by resolution of the board of directors to appoint officers.
The chief executive officer of the Corporation shall be either the chairman of the board or the president as determined by the board of directors.
The chief executive officer of the Corporation shall have the authority to appoint one or more assistant treasurers, assistant controllers and assistant secretaries.
Section 2. Appointment and Term. The officers of the Corporation shall be appointed by the board of directors or by a duly appointed officer authorized to appoint officers. Each officer shall hold office until the first board of directors meeting immediately following the annual shareholders' meeting next occurring after his or her appointment to office and until his or her successor shall have been appointed or until his or her earlier resignation, retirement, removal from office or death.
Section 3. Duties. All officers of the Corporation shall have such authority and shall perform such duties as generally pertain to their respective offices and shall have such additional authority and perform such additional duties as may from time to time be determined by resolution of the board of directors.
Section 4. Removal of Officers. Any officer may be removed by the board of directors at any time with or without cause. Any officer appointed by the chief executive officer may be removed by the chief executive officer at any time with or without cause.
Removal of any officer shall be without prejudice to the contract rights, if any, of the person so removed; provided, however, the appointment of any officer shall not of itself create contract rights.
ARTICLE IV. STOCK CERTIFICATES
Certificates representing shares in the Corporation shall be signed by the president or a vice president and the secretary or an assistant secretary. In addition, such certificates may be signed by a transfer agent or a registrar (other than the Corporation itself) and may be sealed with the seal of the Corporation or a facsimile thereof. Any or all of the signatures on such certificates may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, such certificate may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of its issuance.
Each certificate representing shares shall state upon the face thereof: the name of the Corporation; that the Corporation is organized under the laws of Florida; the name of the person or persons to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate or a statement that the shares are without par value.
ARTICLE V. DIVIDENDS
The board of directors of the Corporation may, from time to time, declare, and the Corporation may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by the Charter.
ARTICLE VI. INDEMNIFICATION/ADVANCEMENT OF EXPENSES
Section 1. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or was or is called as a witness or was or is otherwise involved in any Proceeding in connection with his or her status as an Indemnified Person, shall be indemnified and held harmless by the Corporation to the fullest extent permitted under the Florida Business Corporation Act (the "Act"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Act permitted the Corporation to provide prior to such amendment). Such indemnification shall cover all expenses incurred by an Indemnified Person (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith.
Notwithstanding the foregoing, except with respect to indemnification specified in Section 3 of this Article VI, the Corporation shall indemnify an Indemnified Person in connection with a Proceeding (or part thereof) initiated by such person only if authorization for such Proceeding (or part thereof) was not denied by the board of directors of the Corporation prior to 60 days after receipt of notice thereof from such person.
For purposes of this Article VI:
(i) a "Proceeding" is an action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom;
(ii) an "Indemnified Person" is a person who is, or who was (whether at the time the facts or circumstances underlying the Proceeding occurred or were alleged to have occurred or at any other time), (A) a director or officer of the Corporation, (B) a director, officer or other employee of the Corporation serving as a trustee or fiduciary of an employee benefit plan of the Corporation, (C) an agent or non-officer employee of the Corporation as to whom the Corporation has agreed to grant such indemnity, or (D) serving at the request of the Corporation in any capacity with any entity or enterprise other than the Corporation and as to whom the Corporation has agreed to grant such indemnity.
Section 2. Expenses. Expenses, including attorneys' fees, incurred by an Indemnified Person in defending or otherwise being involved in a Proceeding in connection with his or her status as an Indemnified Person shall be paid by the Corporation in advance of the final disposition of such Proceeding, including any appeal therefrom, (i) in the case of (A) a director or officer, or former director or officer, of the Corporation or (B) a director, officer or other employee, or former director, officer or other employee, of the Corporation serving as a trustee or fiduciary of any employee benefit plan of the Corporation, upon receipt of an undertaking ("Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation; or (ii) in the case of any other Indemnified Person, upon such terms and as the board of directors, the chairman of the board or the president of the Corporation deems appropriate.
Notwithstanding the foregoing, in connection with a Proceeding (or part thereof) initiated by such person, except a Proceeding authorized by Section 3 of this Article VI, the Corporation shall pay said expenses in advance of final disposition only if authorization for such Proceeding (or part thereof) was not denied by the board of directors of the Corporation prior to 60 days after receipt of a request for such advancement accompanied by an Undertaking.
A person to whom expenses are advanced pursuant to this Section 2 shall not be obligated to repay such expenses pursuant to an Undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction concerning the right of such person to be indemnified or the obligation of such person to repay pursuant to such Undertaking.
Section 3. Protection of Rights. If a claim for indemnification under Section 1 of this Article VI is not promptly paid in full by the Corporation after a written claim has been received by the Corporation or if expenses pursuant to Section 2 of this Article VI have not been promptly advanced after a written request for such advancement accompanied by an Undertaking has been received by the Corporation (in each case, except if authorization thereof was denied by the board of directors of the Corporation as provided in Article VI, Section 1 and Section 2, as applicable), the Indemnified Person may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such Indemnified Person shall also be entitled to be paid the reasonable expense thereof. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required Undertaking has been tendered to the Corporation) that indemnification of the Indemnified Person is prohibited by law, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its board of directors, independent legal counsel, or its shareholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the Indemnified Person is proper in the circumstances, nor an actual determination by the Corporation (including its board of directors, independent legal counsel, or its shareholders) that indemnification of the Indemnified Person is prohibited, shall be a defense to the action or create a presumption that indemnification of the Indemnified Person is prohibited.
Section 4. Miscellaneous.
(i) Power to Request Service and to Grant Indemnification. The chairman of the board or the president or the board of directors may request any director, officer, agent or employee of the Corporation to serve as its representative in the position of a director or officer (or in a substantially similar capacity) of an entity or enterprise other than the Corporation, and may grant to such person indemnification by the Corporation as described in Section 1 of this Article VI.
(ii) Non-Exclusivity of Rights. The rights conferred on any person by this Article VI shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. The board of directors shall have the authority, by resolution, to provide for such indemnification of employees or agents of the Corporation or others and for such other indemnification of directors, officers, employees or agents as it shall deem appropriate.
(iii) Insurance Contracts and Funding. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of or person serving in any other capacity with, the Corporation or another corporation, partnership, joint venture, trust or other enterprise (including serving as a trustee or fiduciary of any employee benefit plan) against any expenses, liabilities or losses, whether or not the Corporation would have the power to indemnify such person against such expenses, liabilities or losses under the Act. The Corporation may enter into contracts with any director, officer, agent or employee of the Corporation in furtherance of the provisions of this Article VI, and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article VI.
(iv) Contractual Nature. The provisions of this Article VI shall continue in effect as to a person who has ceased to be a director, officer, agent or employee and shall inure to the benefit of the heirs, executors and administrators of such person. This Article VI shall be deemed to be a contract between the Corporation and each person who, at any time that this Article VI is in effect, serves or served in any capacity which entitles him or her to indemnification hereunder and any repeal or other modification of this Article VI or any repeal or modification of the Act, or any other applicable law shall not limit any rights of indemnification with respect to Proceedings in connection with which he or she is an Indemnified Person, or advancement of expenses in connection with such Proceedings, then existing or arising out of events, acts or omissions occurring prior to such repeal or modification, including without limitation, the right to indemnification for Proceedings, and advancement of expenses with respect to such Proceedings, commenced after such repeal or modification to enforce this Article VI with regard to Proceedings arising out of acts, omissions or events arising prior to such repeal or modification.
(v) Savings Clause. If this Article VI or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, the Corporation shall nevertheless (A) indemnify each Indemnified Person as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement and (B) advance expenses in accordance with Section 2 of this Article VI, in each case with respect to any Proceeding in connection with which he or she is an Indemnified Person, including an action by or in the right of the Corporation, to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated or held to be unenforceable and as permitted by applicable law.
ARTICLE VII. ACTION WITH RESPECT TO
SECURITIES OF OTHER CORPORATIONS
Unless otherwise directed by the board of directors, the chief executive officer or his or her designee shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which the Corporation may hold securities and to otherwise exercise any and all rights and powers which the Corporation may possess by reason of its ownership of securities in such other corporation.
ARTICLE VIII. AMENDMENT
The power to adopt, alter, amend or repeal bylaws shall be vested in the board of directors. Bylaws adopted by the board of directors may be repealed or changed, and new bylaws may be adopted by shareholders only if such repeal, change or adoption is approved by the affirmative vote of the holders of at least 75% of the then outstanding Voting Stock (as defined in the Charter), voting together as a single class.
ARTICLE IX. CONTINUING EFFECT OF BYLAW PROVISIONS
Any provisions contained in these bylaws which, at the time of its adoption, was authorized or permitted by applicable law shall continue to remain in full force and effect until such time as such provision is specifically amended in accordance with these bylaws, notwithstanding any subsequent modification of such law (except to the extent such bylaw provision expressly provides for its modification by or as a result of any such subsequently enacted law).
(amended and restated effective October 17, 2008)
Exhibit 3(ii)b
FLORIDA POWER & LIGHT COMPANY
Section 1. Annual Meeting . The annual shareholder's meeting of the Company shall be held at the time and place designated by the board of directors of the Company.
Section 2. Special Meetings . Special meetings of the shareholder shall be held when and at the place directed by the chairman of the board, the president, the board of directors, the executive committee or as otherwise provided by law.
Section 3. Place and Presiding Officer . Meetings of the shareholder may be held within or without the State of Florida.
Meetings of the shareholder may be presided over by the chairman of the board, the president or any vice president. The secretary of the Company, or any person chosen by the person presiding over the shareholder's meeting, shall act as secretary for the meeting.
Section 4. Action Without a Meeting . Any action required or permitted to be taken at any shareholder's meeting may be taken without a meeting, by a consent in writing setting forth the action so taken and signed by the shareholder.
ARTICLE II. DIRECTORS
Section 1. Function . All corporate powers shall be exercised by or under the authority of, and the business and affairs of this corporation shall be managed under the direction of, the board of directors.
Section 2. Number . The number of directors of the Company shall not be less than three nor more than fifteen. The authorized number of directors, within the limits above specified, shall be determined by the affirmative vote of a majority of the whole board given at a regular or special meeting of the board of directors, provided that, the number of directors shall not be reduced to a number less than the number of directors then in office unless such reduction shall become effective only at and after the next ensuing meeting of the shareholder for the election of directors.
At each annual meeting the shareholder shall elect directors to hold office until the next succeeding annual meeting. Each director so elected shall hold office for the term of which he or she is elected and until his or her successor shall have been elected and qualified or until his or her earlier resignation, retirement, removal from office or death. No person who shall have attained the age of 72 years by the date of election shall be eligible for election as a director of the Company, and no director who shall have attained the age of 70 years by the date of election shall be eligible as chairman of the board of directors; provided, however, these limitations shall not be applied in a manner which would cause the involuntary retirement of an employee of the Company.
Section 3. Vacancies . Any vacancy occurring in the board of directors, including any vacancy created by reason of an increase in the number of directors, may be filled by the affirmative vote of a majority of the remaining directors though less than a quorum of the board of directors. A director elected to fill a vacancy shall hold office only until the next election of directors by the shareholder.
Section 4. Quorum and Voting . A majority of the number of directors fixed by, or in the manner provided in, these bylaws shall constitute a quorum for the transaction of business; provided, however, that whenever, for any reason, a vacancy occurs in the board of directors, the quorum shall consist of a majority of the remaining directors until the vacancy has been filled. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the board of directors.
Section 5. Executive and Other Committees . The board of directors, by resolution adopted by a majority of the entire board of directors, may designate from among its members an executive committee and one or more other committees. Each committee of the board of directors shall have such powers and functions as may be delegated to it by resolution adopted by the entire board of directors, except as prohibited by law.
The board of directors, by resolution adopted in accordance with this section, shall designate a chairman for each committee it establishes who shall preside at all meetings of the committee and who shall have such additional duties as shall from time to time be designated by the board.
The board of directors, by resolution adopted in accordance with this section, may designate one or more directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee.
Section 6. Place of Meetings and Presiding Officer . Regular and special meetings of the board of directors may be held within or without the State of Florida.
Meetings of the board shall be presided over by the chairman of the board and in his absence the president. If both the chairman and the president are absent, the directors shall elect a chairman for the meeting from one of their members present.
Section 7. Time, Notice and Call of Meetings . Regular meetings of the board of directors shall be held without notice at the location of and immediately after the adjournment of the annual shareholder's meeting in each year, and at such other time and place, as may be determined by the board of directors. Notice of the time and place of special meetings of the board of directors shall be given to each director either by personal delivery, telegram, cablegram, or by telephone at least two days prior to the meeting. Notice may also be given through the postal service if mailed at least 5 days prior to the meeting.
Notice of a meeting of the board of directors need not be given to any director who signs a waiver of notice either before or after the meeting. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when a director states, at the beginning of the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.
Except as otherwise provided in the Company's Charter, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors need be specified in the notice or waiver of notice of such meeting.
A majority of the directors present, whether or not a quorum exists, may adjourn any meeting of the board of directors to another time and place. Notice of any such adjourned meeting shall be given to the directors who were not present at the time of the adjournment and, unless the time and place of the adjourned meeting are announced at the time of the adjournment, to the other directors.
Meetings of the board of directors may be called by the chairman of the board, by the president, or by any two directors.
Members of the board of directors may participate in a meeting of such board by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting.
Section 8. Action Without a Meeting . Any action required to be taken at a meeting of the directors or any action which may be taken at a meeting of the directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the directors or all the members of the committee, as the case may be, is filed in the minutes of the proceedings of the board or of the committee. Such consent shall have the same effect as a unanimous vote.
ARTICLE III. OFFICERS
Section 1. Types . The officers of the Company shall consist of a chairman of the board, a president, a secretary, a treasurer and such vice presidents and other officers as may be appointed by the board of directors or by a duly appointed officer authorized by these bylaws or by resolution of the board of directors to appoint officers.
The chief executive officer of the Company shall be either the chairman of the board or the president as determined by the board of directors.
The chairman of the board and the president of the Company shall each have the authority to appoint one or more assistant treasurers, assistant controllers and assistant secretaries.
Section 2. Appointment and Term. The officers of the Company shall be appointed by the board of directors or by a duly appointed officer authorized to appoint officers. Each officer shall hold office until the first board of directors meeting immediately following the annual shareholder's meeting next occurring after his or her appointment to office and until his or her successor shall have been appointed or until his or her earlier resignation, retirement, removal from office or death.
Section 3. Duties. All officers of the Company shall have such authority and shall perform such duties as generally pertain to their respective offices and shall have such additional authority and perform such additional duties as may from time to time be determined by resolution of the board of directors.
Section 4. Removal of Officers. Any officer may be removed by the board of directors at any time with or without cause. Any officer appointed by the chief executive officer or the president may be removed by either the chief executive officer or the president at any time with or without cause.
ARTICLE IV. STOCK CERTIFICATES
Certificates representing shares in the Company shall be signed by the president or a vice president and the secretary or an assistant secretary and may be sealed with the seal of the Company or a facsimile thereof. The signatures of the president or vice president and the secretary or assistant secretary may be facsimiles if the certificate is manually signed on behalf of a transfer agent, or a registrar, other than the Company itself or an employee of the Company. In case any officer who signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Company with the same effect as if he were such officer at the date of its issuance.
Each certificate representing shares shall state upon the face thereof: the name of the Company; that the Company is organized under the laws of Florida; the name of the person or persons to whom issued; the number and class of shares and the designation of the series, if any, which such certificate represents; and the par value of each share represented by such certificate or a statement that the shares are without par value.
ARTICLE V. DIVIDENDS
The board of directors of the Company may, from time to time, declare, and the Company may pay, dividends on its outstanding shares in the manner and upon the terms and conditions provided by law and by its Charter.
ARTICLE VI. INDEMNIFICATION/ADVANCEMENT OF EXPENSES
Section 1. Right to Indemnification . Each person who was or is made a party or is threatened to be made a party to or was or is called as a witness or was or is otherwise involved in any Proceeding in connection with his or her status as an Indemnified Person, shall be indemnified and held harmless by the Company to the fullest extent permitted under the Florida Business Corporation Act (the "Act"), as the same now exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Company to provide broader indemnification rights than the Act permitted the Company to provide prior to such amendment). Such indemnification shall cover all expenses incurred by an Indemnified Person (including, but not limited to, attorneys' fees and other expenses of litigation) and all liabilities and losses (including, but not limited to, judgments, fines, ERISA or other excise taxes or penalties and amounts paid or to be paid in settlement) incurred by such person in connection therewith.
Notwithstanding the foregoing, except with respect to indemnification specified in Section 3 of this Article VI, the Company shall indemnify an Indemnified Person in connection with a Proceeding (or part thereof) initiated by such person only if authorization for such Proceeding (or part thereof) was not denied by the board of directors of the Company prior to 60 days after receipt of notice thereof from such person.
For purposes of this Article VI:
(i) a "Proceeding" is an action, suit or proceeding, whether civil, criminal, administrative or investigative, and any appeal therefrom;
(ii) an "Indemnified Person" is a person who is, or who was (whether at the time the facts or circumstances underlying the Proceeding occurred or were alleged to have occurred or at any other time), (A) a director or officer of the Company, (B) a director, officer or other employee of the Company serving as a trustee or fiduciary of an employee benefit plan of the Company, (C) an agent or non-officer employee of the Company as to whom the Company has agreed to grant such indemnity, or (D) serving at the request of the Company in any capacity with any entity or enterprise other than the Company and as to whom the Company has agreed to grant such indemnity.
Section 2. Expenses . Expenses, including attorneys' fees, incurred by an Indemnified Person in defending or otherwise being involved in a Proceeding in connection with his or her status as an Indemnified Person shall be paid by the Company in advance of the final disposition of such Proceeding, including any appeal therefrom, (i) in the case of (A) a director or officer, or former director or officer, of the Company or (B) a director, officer or other employee, or former director, officer or other employee, of the Company serving as a trustee or fiduciary of any employee benefit plan of the Company, upon receipt of an undertaking ("Undertaking") by or on behalf of such person to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Company; or (ii) in the case of any other Indemnified Person, upon such terms and as the board of directors, the chairman of the board or the president of the Company deems appropriate.
Notwithstanding the foregoing, in connection with a Proceeding (or part thereof) initiated by such person, except a Proceeding authorized by Section 3 of this Article VI, the Company shall pay said expenses in advance of final disposition only if authorization for such Proceeding (or part thereof) was not denied by the board of directors of the Company prior to 60 days after receipt of a request for such advancement accompanied by an Undertaking.
A person to whom expenses are advanced pursuant to this Section 2 shall not be obligated to repay such expenses pursuant to an Undertaking until the final determination of any pending Proceeding in a court of competent jurisdiction concerning the right of such person to be indemnified or the obligation of such person to repay pursuant to such Undertaking.
Section 3. Protection of Rights . If a claim for indemnification under Section 1 of this Article VI is not promptly paid in full by the Company after a written claim has been received by the Company or if expenses pursuant to Section 2 of this Article VI have not been promptly advanced after a written request for such advancement accompanied by an Undertaking has been received by the Company (in each case, except if authorization thereof was denied by the board of directors of the Company as provided in Article VI, Section 1 and Section 2, as applicable), the Indemnified Person may at any time thereafter bring suit against the Company to recover the unpaid amount of the claim or the advancement of expenses. If successful, in whole or in part, in such suit, such Indemnified Person shall also be entitled to be paid the reasonable expense thereof. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any Proceeding in advance of its final disposition where the required Undertaking has been tendered to the Company) that indemnification of the Indemnified Person is prohibited by law, but the burden of proving such defense shall be on the Company. Neither the failure of the Company (including its board of directors, independent legal counsel, or its shareholders) to have made a determination, if required, prior to the commencement of such action that indemnification of the Indemnified Person is proper in the circumstances, nor an actual determination by the Company (including its board of directors, independent legal counsel, or its shareholders) that indemnification of the Indemnified Person is prohibited, shall be a defense to the action or create a presumption that indemnification of the Indemnified Person is prohibited.
Section 4. Miscellaneous .
(i) Power to Request Service and to Grant Indemnification . The chairman of the board or the president or the board of directors may request any director, officer, agent or employee of the Company to serve as its representative in the position of a director or officer (or in a substantially similar capacity) of an entity or enterprise other than the Company, and may grant to such person indemnification by the Company as described in Section 1 of this Article VI.
(ii) Non-Exclusivity of Rights . The rights conferred on any person by this Article VI shall not be exclusive of any other rights which such person may have or hereafter acquire under any statute, provision of the Charter, bylaw, agreement, vote of shareholders or disinterested directors or otherwise. The board of directors shall have the authority, by resolution, to provide for such indemnification of employees or agents of the Company or others and for such other indemnification of directors, officers, employees or agents as it shall deem appropriate.
(iii) Insurance Contracts and Funding . The Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of or person serving in any other capacity with, the Company or another corporation, partnership, joint venture, trust or other enterprise (including serving as a trustee or fiduciary of any employee benefit plan) against any expenses, liabilities or losses, whether or not the Company would have the power to indemnify such person against such expenses, liabilities or losses under the Act. The Company may enter into contracts with any director, officer, agent or employee of the Company in furtherance of the provisions of this Article VI, and may create a trust fund, grant a security interest or use other means (including, without limitation, a letter of credit) to ensure the payment of such amounts as may be necessary to effect the advancing of expenses and indemnification as provided in this Article VI.
(iv) Contractual Nature . The provisions of this Article VI shall continue in effect as to a person who has ceased to be a director, officer, agent or employee and shall inure to the benefit of the heirs, executors and administrators of such person. This Article VI shall be deemed to be a contract between the Company and each person who, at any time that this Article VI is in effect, serves or served in any capacity which entitles him or her to indemnification hereunder and any repeal or other modification of this Article VI or any repeal or modification of the Act, or any other applicable law shall not limit any rights of indemnification with respect to Proceedings in connection with which he or she is an Indemnified Person, or advancement of expenses in connection with such Proceedings, then existing or arising out of events, acts or omissions occurring prior to such repeal or modification, including without limitation, the right to indemnification for Proceedings, and advancement of expenses with respect to such Proceedings, commenced after such repeal or modification to enforce this Article VI with regard to Proceedings arising out of acts, omissions or events arising prior to such repeal or modification.
(v) Savings Clause . If this Article VI or any portion hereof shall be invalidated or held to be unenforceable on any ground by any court of competent jurisdiction, the decision of which shall not have been reversed on appeal, the Company shall nevertheless (A) indemnify each Indemnified Person as to costs, charges and expenses (including attorneys' fees), judgments, fines and amounts paid in settlement and (B) advance expenses in accordance with Section 2 of this Article VI, in each case with respect to any Proceeding in connection with which he or she is an Indemnified Person, including an action by or in the right of the Company, to the fullest extent permitted by any applicable portion of this Article VI that shall not have been invalidated or held to be unenforceable and as permitted by applicable law.
ARTICLE VII. ACTION WITH RESPECT TO
SECURITIES OF OTHER CORPORATIONS
Unless otherwise directed by the board of directors, the chief executive officer or his or her designee shall have power to vote and otherwise act on behalf of the Company, in person or by proxy, at any meeting of shareholders of or with respect to any action of shareholders of any other corporation in which the Company may hold securities and to otherwise exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other corporation.
ARTICLE VIII. AMENDMENT
These bylaws may be altered, amended or repealed, and new bylaws may be adopted, by the board of directors or the shareholder consistent with the provisions of the Company's Charter.
Amended and restated effective October 17, 2008
Exhibit 10(a)
FPL GROUP, INC.
Annual Retainer
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$50,000 |
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(payable quarterly) |
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(payable quarterly) |
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(under Non-Employee Directors Stock Plan) |
dividing $100,000 by closing price of FPL Group common stock on effective date of grant (rounded up to the nearest 10 shares) |
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Exhibit 10(b)
RESTRICTED STOCK AWARD AND RETENTION AGREEMENT
under the
FPL GROUP, INC. AMENDED AND RESTATED LONG-TERM INCENTIVE PLAN
This Restricted Stock Award and Retention Agreement ("Agreement"), between FPL Group, Inc. (hereinafter called the "Company") and K. Michael Davis (hereinafter called the "Participant") is dated and effective August 28, 2008.
1. Grant of Restricted Stock Award - The Company hereby grants to the Participant 4,906 shares of the Company's common stock, par value $.01 per share ("Common Stock"), which shares (the "Awarded Shares") shall be subject to the restrictions set forth in Sections 2 and 3, below, as well as all other terms and conditions set forth in this Agreement and in the Company's Amended and Restated Long Term Incentive Plan, as amended from time to time (the "Plan").
2. Vesting - Restrictions and Limitations - Subject to the limitations and other terms and conditions set forth in this Agreement and in the Plan, the Awarded Shares shall vest, the Company shall remove all restrictions from such Awarded Shares and the Participant shall obtain unrestricted ownership of the Awarded Shares on December 31, 2009 (the "Vesting Date"):
The period between the date of grant of the Awarded Shares and the Vesting Date or earlier date on which the Awarded Shares may vest in accordance herewith shall be hereinafter referred to as the "Restriction Period."
3. Terms and Conditions - The Awarded Shares shall be registered in the name of the Participant effective on the date of grant. The Company will issue the Awarded Shares either (i) in certificated form, subject to a restrictive legend substantially in the form attached hereto as Exhibit "A" and stop transfer instructions to its transfer agent, and will provide for retention of custody of the Awarded Shares prior to vesting and/or (ii) in non-certificated form, subject to restrictions and instructions of like effect. Prior to vesting (and if the Awarded Shares have not theretofore been forfeited in accordance herewith), the Participant shall have the right to enjoy all shareholder rights (including without limitation the right to receive cash dividends and to vote the Awarded Shares at all meetings of the shareholders of the Company at which holders of Common Stock have the right to vote), with the following exceptions:
(a) The Participant shall not be entitled to delivery of unrestricted shares until the end of the Restriction Period.
(b) The Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of the Awarded Shares prior to the end of the Restriction Period.
4. Vesting Conditions - Except as otherwise set forth herein or in the Plan, in order for the Awarded Shares to vest the Participant must (i) remain in the continuous employment of the Company as Controller & Chief Accounting Officer and as Vice President Accounting & Chief Accounting Officer of Florida Power & Light Company ("FPL") (or with such other title or duties as the Company's Chief Executive Officer or Chief Financial Officer shall approve in writing) from the effective date of this Agreement through the Vesting Date and (ii) remain in compliance with, and not breach, the terms and conditions (including without limitation the Protective Covenants) set forth in this Agreement. A breach by the Participant of the terms and conditions set forth in this Agreement shall result in the immediate forfeiture of all then unvested Awarded Shares. Except as otherwise set forth in the Plan as in effect on the date hereof in connection with a Change of Control (as defined in the Plan), in the event that the Participant's employment with the Company (or a subsidiary, affiliate or successor of the Company) terminates for any reason prior to the Vesting Date, his or her rights hereunder will be determined as follows:
(a) Except as otherwise set forth in section 4(c), below, if the Participant's termination of employment prior to the Vesting Date is due to resignation, discharge for Cause (as hereinafter defined), or retirement, all rights to Awarded Shares (including without limitation rights to dividends not theretofore paid) under this Agreement shall be immediately forfeited, and
(b) If the Participant's termination of employment is due to:
the Awarded Shares shall vest on the date of termination of employment, in accordance with the following schedule:
Number of shares vested
Date of termination of employment under this Section 4(b)
(c) If the Participant's termination of employment occurs prior to the Vesting Date but after a Change of Control, then the Awarded Shares shall vest as set forth in Section 9.01(ii) of the Plan as in effect on the date hereof.
(d) If the Participant's employment is terminated prior to vesting of the Awarded Shares for any reason other than as set forth in sections 4(a), (b) and (c) above, or if an ambiguity exists as to the interpretation of those sections, the Compensation Committee of the Company's Board of Directors (the "Committee") shall determine whether the Participant's then-unvested Awarded Shares shall be forfeited or whether the Participant shall be entitled to vesting (pro rata or otherwise) as set forth above, and any Awarded Shares which may vest shall do so on the date of termination of employment.
For purposes of this Agreement, "Cause" shall mean a material and willful failure by the Participant to meet his obligations as Controller & Chief Accounting Officer and as Vice President Accounting & Chief Accounting Officer of FPL (or such other obligations or duties as the Company's Chief Executive Officer or Chief Financial Officer shall reasonably assign to him, which shall be reasonably similar to the Participant's duties on the date hereof or shall be reasonably related to the transition of such duties to the Participant's successor). Cause shall also mean the Participant's conviction of, or plea of guilty or nolo contendere to, a felony involving (i) an act of dishonesty against the Company, (ii) an act of moral turpitude, or (iii) an act that causes, or could reasonably be expected to cause, material harm to the Company's financial status or reputation.
5. Income Taxes - The Participant shall notify the Company immediately of any election made with respect to this Agreement under Section 83(b) of the Internal Revenue Code of 1986, as amended. Upon vesting and delivery of Awarded Shares to the Participant, the Company shall have the right to withhold from any such distribution, in order to meet the Company's tax withholding obligations, shares of Common Stock with a Fair Market Value (as defined in the Plan) equal to the minimum statutory withholding for taxes (including federal and state income taxes and payroll taxes applicable to the supplemental taxable income relating to such distribution) and any other tax liabilities for which the Company has an obligation relating to such distribution.
6. Nonassignability - The Participant's rights and interest in the Awarded Shares may not be assigned, pledged, or transferred prior to vesting except, in the event of death, to a designated beneficiary or by will or by the laws of descent and distribution. This Agreement and all of Participant's rights, duties and obligations hereunder are personal in nature and may not be assigned, delegated or otherwise disposed of by the Participant.
7. Effect Upon Employment - This Agreement is not to be construed as giving any right to the Participant for continuous employment by the Company or a subsidiary or affiliate. The Company and its subsidiaries and affiliates retain the right to terminate the Participant at will and with or without cause at any time.
8. Successors and Assigns - This Agreement shall inure to the benefit of and shall be binding upon the Company and the Participant and their respective heirs, successors and assigns.
9. Protective Covenants - In consideration of the Awarded Shares granted under this Agreement, the Participant covenants and agrees as follows (the "Protective Covenants"):
(a) During the Participant's employment with the Company, and for a two-year period following the termination of the Participant's employment with the Company, Participant agrees (i) not to compete or attempt to compete for, or act as a broker or otherwise participate in, any projects in which the Company has at any time done any work or undertaken any development efforts, or (ii) directly or indirectly solicit any of the Company's customers, vendors, contractors, agents, or any other parties with which the Company has an existing or prospective business relationship, for the benefit of the Participant or for the benefit of any third party, nor shall the Participant accept consideration or negotiate or enter into agreements with such parties for the benefit of the Participant or any third party.
(b) During the Participant's employment with the Company, and for a two-year period following the termination of the Participant's employment with the Company, the Participant shall not, directly or indirectly, on behalf of the Participant or for any other business, person or entity, entice, induce or solicit or attempt to entice, induce or solicit any employee of the Company or its subsidiaries or affiliates to leave the Company's employ (or the employ of such subsidiary or affiliate) or to hire or to cause any employee of the Company to become employed for any reason whatsoever.
(c) The Participant shall not, at any time or in any way, disparage the Company or its current or former officers, directors, and employees, orally or in writing, or make any statements that may be derogatory or detrimental to the Company's good name or business reputation.
(d) The Participant acknowledges that the Company would not have an adequate remedy at law for monetary damages if the Participant breaches these Protective Covenants. Therefore, in addition to all remedies to which the Company may be entitled for a breach or threatened breach of these Protective Covenants, including but not limited to monetary damages, the Company will be entitled to specific enforcement of these Protective Covenants and to injunctive or other equitable relief as a remedy for a breach or threatened breach. In addition, upon any breach of these Protective Covenants or any separate confidentiality agreement or confidentiality provision between the Company and the Participant, all Participant's rights to receive theretofore unvested Awarded Shares and dividends relating thereto under this Agreement shall be forfeited.
(e) For purposes of this section 9, the term "Company" shall include all subsidiaries and affiliates of the Company, including, without limitation, Florida Power & Light Company and FPL Energy, LLC, and their respective subsidiaries and affiliates (such subsidiaries and affiliates being hereinafter referred to as the "FPL Entities"). The Company and the Participant agree that each of the FPL Entities is an intended third-party beneficiary of this section 9, and further agree that each of the FPL Entities is entitled to enforce the provisions of this section 9 in accordance with its terms.
(f) Notwithstanding anything to the contrary contained in this Agreement, the terms of these Protective Covenants shall survive the termination of this Agreement and shall remain in effect.
10. Incorporation of Plan's Terms - This Agreement (insofar as it relates to the Awarded Shares) is made under and subject to the provisions of the Plan, and all the provisions of the Plan are also provisions of this Agreement (including, but not limited to, the provisions of Section 9 of the Plan pertaining to a Change of Control). If there is a difference or conflict between the provisions of this Agreement and the mandatory provisions of the Plan, the provisions of the Plan will govern. If there is a difference or conflict between the provisions of this Agreement and a provision of the Plan as to which the Committee is authorized to make a contrary determination, the provisions of this Agreement will govern. Except as otherwise expressly defined in this Agreement, all terms used herein are used as defined in the Plan as it may be amended from time to time. The Company and the Committee retain all authority and powers granted by the Plan as it may be amended from time to time to the extent not expressly limited by this Agreement. The Participant acknowledges that he may not and will not rely on any statement of account or other communication or document issued in connection with the Plan other than the Plan, this Agreement, and any document signed by an authorized representative of the Company that is designated as an amendment of the Plan or this Agreement.
11. Interpretation of Other Equity Award Agreements . (a) If one of the following occurs:
then such retirement shall be designated as an "early retirement at the Company's request" solely for purposes of the applicable provisions of the Award Agreements listed on Exhibit B attached hereto and made a part hereof, and the then-serving Chief Executive Officer of the Company shall execute a designation to such effect.
(b) If the Participant terminates his employment with the Company absent the occurrence of (i) one of the conditions set forth in section 11(a), or (ii) a Change of Control, then such termination, whether or not denominated as a retirement, shall not be deemed an "early retirement at the Company's request" for any purpose.
(c) If the Participant terminates his employment following a Change of Control his rights to the Awarded Shares and any other then-unvested equity awards shall be as set forth in Section 9.01(ii) of the Plan on the date hereof.
12. Significant Management Change - If no Change of Control has then occurred, and the Participant, after giving at least thirty (30) days prior written notice, retires from the Company effective on a date which is prior to the Vesting Date but after the Significant Management Change Date, the Awarded Shares will be forfeited as of the date on which the Participant retires and the Company will pay the Participant $300,000 as soon as reasonably practicable after his retirement date and in accordance with its normal payroll practices, subject to applicable withholding.
13. Interpretation - The Committee has the sole and absolute right and discretion to interpret the provisions of this Agreement.
14. Governing Law/Jurisdiction - This Agreement shall be construed and interpreted in accordance with the laws of the State of Florida, without regard to its conflict of laws principles. All suits, actions, and proceedings relating to this Agreement may be brought only in the courts of the State of Florida located in Palm Beach County or in the United States District Court for the Southern District of Florida in West Palm Beach, Florida. The Company and the Participant hereby consent to the nonexclusive personal jurisdiction of the courts described in this section 14 for the purpose of all suits, actions, and proceedings relating to the Agreement or the Plan. The Company and the Participant each waive all objections to venue and to all claims that a court chosen in accordance with this section 14 is improper based on a venue or a forum non conveniens claim.
15. Amendment - This Agreement may be amended, in whole or in part and in any manner not inconsistent with the provisions of the Plan, at any time and from time to time, by written agreement between the Company (upon the approval of the Committee) and the Participant.
16. Adjustments - In the event of any change in the outstanding shares of Common Stock by reason of any stock dividend or split, recapitalization, reclassification, merger, consolidation, combination or exchange of shares or similar corporate change, then the number of Awarded Shares shall be adjusted proportionately. No adjustment will be made in connection with the payment by the Company of any cash dividend on its Common Stock or in connection with the issuance by the Company of any warrants, rights, or options to acquire additional shares of Common Stock or of securities convertible into Common Stock.
17. Data Privacy - By entering into this Agreement, the Participant: (i) authorizes the Company and any of its subsidiaries and affiliates, and any agent of the Company and a subsidiary or affiliate administering the Plan or providing Plan recordkeeping services, to disclose to the Company and any of its subsidiaries or affiliates such information and data as the Company or any such subsidiary or affiliate shall reasonably request in order to facilitate the administration of this Agreement; and (ii) authorizes the Company and any of its subsidiaries or affiliates to store and transmit such information in electronic form, provided such information is appropriately safeguarded in accordance with Company policy.
18. Notices - All notices and other communications required or permitted by this Agreement or necessary or convenient in connection with it shall be in writing and shall be deemed to have been given when delivered by hand or overnight delivery or mailed by registered or certified mail, return receipt requested, to:
FPL Group, Inc.: |
Participant: |
Mr. R. H. Escoto |
K. Michael Davis |
Executive Vice President, Human Resources |
1101 NW 115 Ave |
700 Universe Boulevard |
Plantation, Florida 33323 |
Juno Beach, Florida 33408 |
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bob_escoto@fpl.com |
By signing this Agreement, the Participant accepts and agrees to all of the foregoing terms and provisions and to all the terms and provisions of the Plan incorporated herein by reference and confirms that he has received a copy of the Plan.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.
FPL GROUP, INC. |
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ROBERT H. ESCOTO |
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Robert H. Escoto |
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Executive Vice President, Human Resources |
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K. MICHAEL DAVIS |
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K. Michael Davis |
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Exhibit "A"
LEGEND TO BE PLACED ON STOCK CERTIFICATE
The shares represented by this certificate are subject to the provisions of the FPL Group, Inc. Amended and Restated Long Term Incentive Plan (the "Plan") and a Restricted Stock Award and Retention Agreement (the "Agreement") between the holder hereof and FPL Group, Inc. and may not be sold or transferred except in accordance therewith. Copies of the Plan and Agreement are kept on file by the Vice President & Corporate Secretary of FPL Group, Inc.
Exhibit "B"
EQUITY AWARD AGREEMENTS
for K. Michael Davis
2008 Performance Share Award Agreement |
February 15, 2008 |
2007 Performance Share Award Agreement |
February 15, 2007 |
2006 Performance Share Award Agreement |
February 17, 2006 |
Restricted Stock Award Agreement |
February 15, 2008 |
Restricted Stock Award Agreement |
February 15, 2007 |
Restricted Stock Award Agreement |
February 16, 2006 |
Non-Qualified Stock Option Agreement |
February 15, 2008 |
2007 Stock Option Award Non-Qualified Stock Option Agreement |
February 15, 2007 |
2006 Stock Option Award Non-Qualified Stock Option Agreement |
February 16, 2006 |
Exhibit 31(a) |
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Date: October 30, 2008 |
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LEWIS HAY, III |
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Lewis Hay, III
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Exhibit 31(b) |
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Date: October 30, 2008 |
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ARMANDO PIMENTEL, JR. |
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Armando Pimentel, Jr.
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Exhibit 31(c) |
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Date: October 30, 2008 |
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ARMANDO J. OLIVERA |
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Armando J. Olivera
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Exhibit 31(d) |
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Date: October 30, 2008 |
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ARMANDO PIMENTEL, JR. |
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Armando Pimentel, Jr.
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