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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission Exact name of Registrants as specified in their charters, address of IRS Employer
File Number principal executive offices and Registrants' telephone number Identification Number
- -------------------------------------------------------------------------------------------------------------
1-8841 FPL GROUP, INC. 59-2449419
1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
State or other jurisdiction of incorporation or organization: Florida
Name of exchange
on which registered
Securities registered pursuant to
Section 12(b) of the Act:
FPL Group, Inc.: Common Stock, $0.01 Par Value
and Preferred Share Purchase Rights New York Stock Exchange
Florida Power & Light Company: None
Securities registered pursuant to Section 12(g) of the Act:
FPL Group, Inc.: None
Florida Power & Light Company: Preferred Stock, $100 Par Value
Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) have been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrants' knowledge in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
Aggregate market value of the voting stock of FPL Group, Inc. held by non-
affiliates as of January 31, 2000 (based on the closing market price on the
Composite Tape on January 31, 2000) was $7,495,697,770 (determined by
subtracting from the number of shares outstanding on that date the number
of shares held by directors and officers of FPL Group, Inc.).
There was no voting stock of Florida Power & Light Company held by non-
affiliates as of January 31, 2000.
The number of shares outstanding of each class of FPL Group, Inc. common
stock, as of the latest practicable date: Common Stock, $0.01 Par Value,
outstanding at January 31, 2000: 178,246,835 shares
As of January 31, 2000, there were issued and outstanding 1,000 shares of
Florida Power & Light Company's common stock, without par value, all of
which were held, beneficially and of record, by FPL Group, Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of FPL Group, Inc.'s Proxy Statement for the 2000 Annual Meeting
of Shareholders are incorporated by reference in Part III hereof.
______________________________
This combined Form 10-K represents separate filings by FPL Group, Inc. and
Florida Power & Light Company. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf.
Florida Power & Light Company makes no representations as to the
information relating to FPL Group, Inc.'s other operations.
DEFINITIONS
Acronyms and defined terms used in the text include the following:
Term Meaning
capacity clause Capacity cost recovery clause
CMP Central Maine Power Company
charter Restated Articles of Incorporation, as amended, of FPL Group or FPL, as
the case may be
Coalition The Coalition for Equitable Rates
conservation clause Energy conservation cost recovery clause
DOE U.S. Department of Energy
EMF Electric and magnetic fields
environmental clause Environmental compliance cost recovery clause
FDEP Florida Department of Environmental Protection
FERC Federal Energy Regulatory Commission
FIPUG The Florida Industrial Power Users Group
FGT Florida Gas Transmission Company
FMPA Florida Municipal Power Agency
FPL Florida Power & Light Company
FPL Energy FPL Energy, LLC (and its predecessor FPL Energy, Inc.)
FPL FiberNet FPL FiberNet, LLC
FPL Group FPL Group, Inc.
FPL Group Capital FPL Group Capital Inc
FPSC Florida Public Service Commission
fuel clause Fuel and purchased power cost recovery clause
Holding Company Act Public Utility Holding Company Act of 1935, as amended
IBEW International Brotherhood of Electrical Workers
JEA Jacksonville Electric Authority
kv Kilovolt
kwh Kilowatt-hour
Management's Discussion Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
mortgage FPL's Mortgage and Deed of Trust dated as of January 1, 1944, as
supplemented and amended
mw Megawatt(s)
Note Note to Consolidated Financial Statements
NRC U.S. Nuclear Regulatory Commission
Nuclear Waste Policy Act Nuclear Waste Policy Act of 1982
O&M expenses Other operations and maintenance expenses in the Consolidated
Statements of Income
Public Counsel State of Florida Office of Public Counsel
PURPA Public Utility Regulatory Policies Act of 1978, as amended
qualifying facilities Non-utility power production facilities meeting the requirements of a
qualifying facility under the PURPA
Reform Act Private Securities Litigation Reform Act of 1995
ROE Return on common equity
RTOs Regional Transmission Organizations
SJRPP St. Johns River Power Park
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995
In connection with the safe harbor provisions of the Reform Act, FPL Group
and FPL (collectively, the Company) are hereby filing cautionary statements
identifying important factors that could cause the Company's actual results
to differ materially from those projected in forward-looking statements (as
such term is defined in the Reform Act) made by or on behalf of the Company
which are made in this combined Form 10-K, in presentations, in response to
questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of
words or phrases such as will likely result, are expected to, will
continue, is anticipated, estimated, projection, outlook) are not
statements of historical facts and may be forward-looking. Forward-looking
statements involve estimates, assumptions and uncertainties. Accordingly,
any such statements are qualified in their entirety by reference to, and
are accompanied by, the following important factors that could cause the
Company's actual results to differ materially from those contained in
forward-looking statements made by or on behalf of the Company.
Any forward-looking statement speaks only as of the date on which such
statement is made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date
on which such statement is made or to reflect the occurrence of
unanticipated events. 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.
Some important factors that could cause actual results or outcomes to
differ materially from those discussed in the forward-looking statements
include changes in laws or regulations, changing governmental policies and
regulatory actions, including those of the FERC, the FPSC, the PURPA, the
Holding Company Act and the NRC, with respect to allowed rates of return
including but not limited to ROE and equity ratio limits, industry and rate
structure, operation of nuclear power facilities, acquisition, disposal,
depreciation and amortization of assets and facilities, operation and
construction of plant facilities, recovery of fuel and purchased power
costs, decommissioning costs, and present or prospective wholesale and
retail competition (including but not limited to retail wheeling and
transmission costs).
The business and profitability of the Company are also influenced by
economic and geographic factors including political and economic risks,
changes in and compliance with environmental and safety laws and policies,
weather conditions (including natural disasters such as hurricanes),
population growth rates and demographic patterns, competition for retail
and wholesale customers, availability, pricing and transportation of fuel
and other energy commodities, market demand for energy from plants or
facilities, changes in tax rates or policies or in rates of inflation or in
accounting standards, unanticipated delays or changes in costs for capital
projects, unanticipated changes in operating expenses and capital
expenditures, capital market conditions, competition for new energy
development opportunities and legal and administrative proceedings (whether
civil, such as environmental, or criminal) and settlements.
All such factors are difficult to predict, contain uncertainties which may
materially affect actual results, and are beyond the control of the
Company.
PART I
Item 1. Business
FPL GROUP
FPL Group is a public utility holding company, as defined in the Holding
Company Act. It was incorporated in 1984 under the laws of Florida. FPL
Group's principal subsidiary, FPL, is engaged in the generation,
transmission, distribution and sale of electric energy. FPL Group Capital,
a wholly-owned subsidiary of FPL Group, holds the capital stock and
provides funding for the operating subsidiaries other than FPL. The
business activities of these operating subsidiaries primarily consist of
FPL Energy's independent power projects. For financial information
regarding segments, see Note 14. In 2000, FPL Group Capital formed a new
subsidiary to sell wholesale fiber-optic network capacity. At December 31,
1999, FPL Group and its subsidiaries employed 10,717 persons.
FPL Group is exempt from substantially all of the provisions of the Holding
Company Act on the basis that FPL Group's and FPL's businesses are
predominantly intrastate in character and carried on substantially in a
single state in which both are incorporated.
FPL OPERATIONS
General. FPL was incorporated under the laws of Florida in 1925 and is a
wholly-owned subsidiary of FPL Group. FPL supplies electric service
throughout most of the east and lower west coasts of Florida with a
population of approximately seven million. During 1999, FPL served
approximately 3.8 million customer accounts. Operating revenues were as
follows:
Years Ended December 31,
1999 1998 1997
(millions)
Residential ........................................... $3,357 $3,580 $3,394
Commercial ............................................ 2,226 2,239 2,222
Industrial ............................................ 190 197 206
Other, including the net change in unbilled revenues .. 284 350 310
$6,057 $6,366 $6,132
Regulation. The retail operations of FPL provided approximately 99% of
FPL's operating revenues for 1999. Such operations are regulated by the
FPSC which has jurisdiction over retail rates, service territory, issuances
of securities, planning, siting and construction of facilities and other
matters. FPL is also subject to regulation by the FERC in various
respects, including the acquisition and disposition of facilities,
interchange and transmission services and wholesale purchases and sales of
electric energy.
FPL's nuclear power plants are subject to the jurisdiction of the NRC. NRC
regulations govern the granting of licenses for the construction and
operation of nuclear power plants and subject such power plants to
continuing review and regulation.
Federal, state and local environmental laws and regulations cover air and
water quality, land use, power plant and transmission line siting, EMF from
power lines and substations, noise and aesthetics, solid waste and other
environmental matters. Compliance with these laws and regulations
increases the cost of electric service by requiring, among other things,
changes in the design and operation of existing facilities and changes or
delays in the location, design, construction and operation of new
facilities. See Item 3. Legal Proceedings. Capital expenditures required
to comply with environmental laws and regulations for 2000-02 are included
in FPL's projected capital expenditures set forth in Item 1. Business - FPL
Operations - Capital Expenditures and are not material.
FPL currently holds 190 franchises with varying expiration dates to provide
electric service in various municipalities and counties in Florida. FPL
considers its franchises to be adequate for the conduct of its business.
Retail Ratemaking. The underlying concept of utility ratemaking is to set
rates at a level that allows the utility the opportunity to collect from
customers total revenues (revenue requirements) equal to its cost of
providing service, including a reasonable rate of return on invested
capital. To accomplish this, the FPSC uses various ratemaking mechanisms.
The basic costs of providing electric service, other than fuel and certain
other costs, are recovered through base rates, which are designed to
recover the costs of constructing, operating and maintaining the utility
system. These basic costs include O&M expenses, depreciation and taxes, as
well as a return on FPL's investment in assets used and useful in providing
electric service (rate base). The rate of return on rate base approximates
FPL's weighted cost of capital, which includes its costs for debt and
preferred stock and an allowed ROE. The FPSC monitors FPL's ROE through a
surveillance report that is filed monthly by FPL with the FPSC. The FPSC
does not provide assurance that the allowed ROE will be achieved. Base
rates are determined in rate proceedings which occur at irregular intervals
at the initiative of FPL, the FPSC, Public Counsel or a substantially
affected party.
FPL's last full rate proceeding was in 1984. In 1990, FPL's base rates were
reduced following a change in federal income tax rates. In 1999, the FPSC
approved a three-year agreement among FPL, Public Counsel, FIPUG and
Coalition regarding FPL's retail base rates, authorized regulatory ROE,
capital structure and other matters. The agreement, which became effective
April 15, 1999, provides for a $350 million reduction in annual revenues from
retail base operations allocated to all customers on a cents-per-kilowatt-
hour basis. Additionally, the agreement sets forth a revenue sharing
mechanism for each of the twelve-month periods covered by the agreement,
whereby revenues from retail base operations in excess of a stated threshold
will be shared on the basis of two-thirds refunded to retail customers and
one-third retained by FPL. Revenues from retail base operations in excess of
a second threshold will be refunded 100% to retail customers.
The thresholds are as follows:
Twelve Months Ended
April 14,
2000 2001 2002
(millions)
Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500
Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656
Offsetting the annual revenue reduction will be lower special depreciation.
The agreement allows for special depreciation of up to $100 million, at FPL's
discretion, in each year of the three-year agreement period to be applied to
nuclear and/or fossil generating assets. Under this new depreciation
program, FPL recorded approximately $70 million of special depreciation in
1999. The new depreciation program replaced a revenue-based special
amortization program whereby special amortization in the amount of $63
million, $378 million and $199 million was recorded in 1999, 1998 and 1997,
respectively.
In addition, the agreement lowered FPL's authorized regulatory ROE range to
10% - 12% from 11% - 13%. During the term of the agreement, the achieved ROE
may from time to time be outside the authorized range, and the revenue
sharing mechanism described above is specified to be the appropriate and
exclusive mechanism to address that circumstance. For purposes of
calculating ROE, the agreement establishes a cap on FPL's adjusted equity
ratio of 55.83%. The adjusted equity ratio reflects a discounted amount for
off-balance sheet obligations under certain long-term purchased power
contracts. Finally, included in the agreement are provisions which limit
depreciation rates, and accruals for nuclear decommissioning and fossil
dismantlement costs, to currently approved levels and limit amounts
recoverable under the environmental clause during the term of the agreement.
The agreement states that Public Counsel, FIPUG and Coalition will neither
seek nor support any additional base rate reductions during the three-year
term of the agreement unless such reduction is initiated by FPL. Further,
FPL agreed to not petition for any base rate increases that would take
effect during the term of the agreement.
Fuel costs totaled $1.7 billion in 1999 and are recovered through levelized
charges per kwh established pursuant to the fuel clause. These charges are
calculated annually based on estimated fuel costs and estimated customer
usage for the following year, plus or minus a true-up adjustment to reflect
the variance of actual costs and usage from the estimates used in setting
the fuel adjustment charges for prior periods.
Capacity payments to other utilities and generating companies for purchased
power are recovered through the capacity clause and base rates. In 1999,
$440 million was recovered through the capacity clause. Costs associated
with implementing energy conservation programs totaled $83 million in 1999
and are recovered through the conservation clause. Costs of complying with
federal, state and local environmental regulations enacted after April 1993
totaled $16 million in 1999 and are recovered through the environmental
clause to the extent not included in base rates. The new rate agreement
limits recovery under this clause to $12.8 million in 2000 and $6.4 million
in 2001, with no further amounts recoverable during the remaining term of
the agreement.
The FPSC has the authority to disallow recovery of costs that it considers
excessive or imprudently incurred. Such costs may include O&M expenses,
the cost of replacing power lost when fossil and nuclear units are
unavailable and costs associated with the construction or acquisition of
new facilities.
Competition. The electric utility industry is facing increasing
competitive pressure. FPL currently faces competition from other suppliers
of electrical energy to wholesale customers and from alternative energy
sources and self-generation for other customer groups, primarily industrial
customers. In 1999, operating revenues from wholesale and industrial
customers combined represented approximately 4% of FPL's total operating
revenues. A number of potential merchant plants have been announced to
date in Florida. However, only two submissions to seek a determination of
need totaling approximately 1,000 mw have been presented to the FPSC. In
March 1999, the FPSC approved one of the petitions for a power plant to be
constructed within FPL's service territory. FPL, along with other Florida
utilities, has appealed the decision to the Florida Supreme Court.
Almost half of the states, other than Florida, have enacted legislation or
have state commissions that issued orders designed to deregulate the
production and sale of electricity. By allowing customers to choose their
electricity supplier, deregulation is expected to result in a shift from
cost-based rates to market-based rates for energy production and other
services provided to retail customers. Similar initiatives are also being
pursued on the federal level. Although the legislation and initiatives
vary substantially, common areas of focus include when market-based pricing
will be available for wholesale and retail customers, what existing
prudently incurred costs in excess of the market-based price will be
recoverable and whether generation assets should be separated from
transmission, distribution and other assets. It is generally believed
transmission and distribution activities would remain regulated. Since
there is no deregulation proposal currently under consideration in Florida,
FPL is unable to predict the impact of a change to a more competitive
environment or when such a change might occur.
In the event the basis of regulation for some or all of FPL's business
changes from cost-based regulation, existing regulatory assets and
liabilities would be written off unless regulators specify an alternative
means of recovery or refund. Further, other aspects of the business, such
as generation assets and long-term power purchase commitments, would need
to be reviewed to assess their recoverability in a changed regulatory
environment. See Management's Discussion - Results of Operations and
Note 1 - Regulation.
While legislators and state regulatory commissions will decide what role,
if any, competitive forces will have on retail transactions, the FERC has
jurisdiction over potential changes which could affect competition in
wholesale transactions. In 1993, FPL filed with the FERC a comprehensive
revision of its service offerings in the wholesale market. FPL proposed
changes to its wholesale sales tariffs for service to municipal and
cooperatively-owned electric utilities and its power sharing (interchange)
agreements with other utilities. A final decision by the FERC on this
filing is pending.
In December 1999, the FERC issued its final order on regional transmission
organizations or RTOs. RTOs, under a variety of structures, provide for
the independent operation of transmission systems for a given geographic
area. The final order establishes guidelines for public utilities to use
in considering and/or developing plans to initiate operations of RTOs. The
order requires all public utilities to file with the FERC by October 15,
2000, a proposal for an RTO with certain minimum characteristics and
functions to be operational by December 15, 2001, or alternatively, a
description of efforts to participate in an RTO, any existing obstacles to
RTO participation and any plans to work toward RTO participation. FPL is
evaluating various alternatives for compliance with the order.
System Capability and Load. FPL's resources for serving summer load as of
December 31, 1999 consisted of 18,649 mw, of which 16,444 mw are from FPL-
owned facilities (see Item 2. Properties - Generating Facilities) and 2,205
mw are obtained through purchased power contracts. See Note 12 -
Contracts. The compounded annual growth rate of retail kwh sales and
number of retail customers was 2.9% and 1.9%, respectively, for the three
years ended December 31, 1999. It is anticipated that retail kwh sales
will grow at a compounded annual rate of approximately 3.7% for the next
three years.
Occasionally, unusually cold temperatures during the winter months result
in significant increases in electricity usage for a short period of time.
However, customer usage and operating revenues are typically higher during
the summer months largely due to the prevalent use of air conditioning in
FPL's service territory. In 1998, FPL set four consecutive records for
summertime peak demand, ranging from 17,156 mw to 17,897 mw. Adequate
resources were available at the time of each peak to meet customer demand.
In 1999, the FPSC scheduled hearings to consider appropriate reserve margin
targets for peninsular Florida. The FPSC approved a proposal by FPL and
two other Florida utilities to voluntarily adopt a 20% reserve margin
target to be achieved by 2004. FPL's reserve margin target is currently
15%.
FPL intends to repower its two Fort Myers units and two of its three
Sanford units by the end of 2002; these projects will be phased in
beginning in 2001. FPL will also add two new gas-fired combustion turbines
at its Martin site in 2001, and add new combustion turbines and/or gas-
fired combined cycle units from 2003-09. These actions, plus other changes
to FPL's existing units and purchased power contracts, are expected to
increase FPL's net generating capability by over 4,000 mw.
Capital Expenditures. FPL's capital expenditures totaled approximately
$924 million in 1999, $617 million in 1998 and $551 million in 1997.
Capital expenditures for the 2000-02 period are expected to be $3.1
billion, including $1.3 billion in 2000. This estimate is subject to
continuing review and adjustment, and actual capital expenditures may vary
from this estimate. See Management's Discussion - Liquidity and Capital
Resources.
Nuclear Operations. FPL owns and operates four nuclear units, two at
Turkey Point and two at St. Lucie. The operating licenses for Turkey Point
Units Nos. 3 and 4 expire in 2012 and 2013, respectively. The operating
licenses for St. Lucie Units Nos. 1 and 2 expire in 2016 and 2023,
respectively. The nuclear units are periodically removed from service to
accommodate normal refueling and maintenance outages, repairs and certain
other modifications. A condition of the operating license for each unit
requires an approved plan for decontamination and decommissioning. FPL's
current plans provide for prompt dismantlement of the Turkey Point Units
Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013,
respectively. Current plans call for St. Lucie Unit No. 1 to be mothballed
beginning in 2016 with decommissioning activities to be integrated with the
prompt dismantlement of St. Lucie Unit No. 2 beginning in 2023. See
estimated cost data in Note 1 - Decommissioning and Dismantlement of
Generating Plant. FPL has informed the NRC of its intent to apply for a
20-year license renewal for each of its four nuclear units. FPL expects to
file the application with the NRC in 2000 for the Turkey Point units and
2002 for the St. Lucie units.
Fuel. FPL's generating plants use a variety of fuels. See Item 2.
Properties - Generating Facilities and Note 12 - Contracts. The diverse
fuel options, along with purchased power, enable FPL to shift between
sources of generation to achieve an economical fuel mix.
FPL has three contracts in place with FGT that satisfy substantially all of
the anticipated needs for natural gas transportation. Additional agreements
were executed to extend and provide incremental volumes to the Ft. Myers
and Sanford plants, subject to approval by the FERC. The three existing
contracts expire in 2010, 2015 and 2022 but can be extended at FPL's
option. To the extent desirable, FPL can also purchase interruptible gas
transportation service from FGT based on pipeline availability. FPL has a
long-term natural gas supply contract at market rates to provide a portion
of FPL's anticipated needs for natural gas. The remainder of FPL's gas
requirements are purchased under other contracts and in the spot market.
FPL has, through its joint ownership interest in SJRPP Units Nos. 1 and 2,
long-term coal supply and transportation contracts for a portion of the
fuel needs for those units. All of the transportation requirements and a
portion of the fuel supply needs for Scherer Unit No. 4 are covered by a
series of annual and long-term contracts. The remaining fuel requirements
will be obtained in the spot market. FPL's oil requirements are obtained
under short- and long-term contracts and in the spot market.
FPL leases nuclear fuel for all four of its nuclear units. Currently, FPL
is storing spent fuel on site and plans to provide adequate storage
capacity for all of its spent nuclear fuel, pending its removal by the DOE.
See Note 1 - Nuclear Fuel. Under the Nuclear Waste Policy Act, the DOE
was required to construct permanent disposal facilities and take title to
and provide transportation and disposal for spent nuclear fuel by
January 31, 1998 for a specified fee based on current generation from
nuclear power plants. Through December 1999, FPL has paid approximately
$401 million in such fees to the DOE's Nuclear Waste Fund. The DOE did not
meet its statutory obligation for disposal of spent nuclear fuel under the
Nuclear Waste Policy Act. In 1997, a court ruled, in response to petitions
filed by utilities, state governments and utility commissions, that the DOE
could not assert a claim that its delay was unavoidable in any defense
against lawsuits by utilities seeking money damages arising out of the
DOE's failure to perform its obligations. In 1998, FPL filed a lawsuit
against the DOE seeking in excess of $300 million in damages caused by the
DOE's failure to dispose of spent nuclear fuel from FPL's nuclear power
plants. The matter is pending.
Energy Marketing and Trading. FPL's Energy Marketing & Trading Division
buys and sells wholesale energy commodities, such as natural gas, oil and
electric power. The division procures natural gas and oil for FPL's and
FPL Energy's use in power generation and sells excess electric power.
Substantially all of the results of FPL activities are passed through to
customers in the fuel or capacity clauses. FPL Energy's results of these
activities are recognized in income by FPL Energy. The level of activity
is expected to grow as FPL and FPL Energy seek to manage the risk
associated with fluctuating commodity prices and increase the value of
their power generation assets.
Electric and Magnetic Fields. In recent years, public, scientific and
regulatory attention has been focused on possible adverse health effects of
EMF. These fields are created whenever electricity flows through a power
line or an appliance. Several epidemiological (i.e., statistical) studies
have suggested a linkage between EMF and certain types of cancer, including
leukemia and brain cancer; other studies have been inconclusive,
contradicted earlier studies or have shown no such linkage. Neither these
epidemiological studies nor clinical studies have produced any conclusive
evidence that EMF does or does not cause adverse health effects. In 1998,
a working group of the National Institute of Environmental Health Sciences
issued a report classifying EMF as a possible human carcinogen.
FPL is in compliance with the FDEP regulations regarding EMF levels within
and at the edge of the rights of way for transmission lines. Future
changes in the FDEP regulations could require additional capital
expenditures by FPL for such things as increasing the right of way
corridors or relocating or reconfiguring transmission facilities. It is
not presently known whether any such expenditures will be required.
Employees. FPL had 9,783 employees at December 31, 1999. Approximately
35% of the employees are represented by the IBEW under a collective
bargaining agreement with FPL expiring on October 31, 2000.
FPL ENERGY OPERATIONS
FPL Energy. FPL Energy, a wholly-owned subsidiary of FPL Group Capital,
was formed in 1998 to aggregate FPL Group's existing unregulated energy-
related operations. Effective September 30, 1999, FPL Energy, Inc. was
converted from a corporation to a limited liability company, and the name
was changed to FPL Energy, LLC.
FPL Energy's participation in the domestic energy market has evolved in
recent years from non-controlling equity investments to a more active role
that includes ownership, development, construction, management and operation
of many projects. In 1999, FPL Energy established regional offices in
Pennsylvania and Texas and plans to open several more regional offices in
2000. FPL Energy is actively involved in managing more than 80% of its
projects, which represents approximately 95% of the net generating capacity
in which FPL Energy has an ownership interest. This active role is expected
to continue as opportunities in the unregulated generation market are
pursued. As of December 31, 1999, FPL Energy had ownership interests in
operating independent power projects with a net generating capacity of 3,004
mw. These projects' fuel sources are 40% gas, 24% oil, 15% wind, 12% hydro
and 9% other. Diversity in project locations reduces seasonal volatility on
a portfolio basis. The projects are located in the following regions:
Region % of Capacity
Northeast ..................... 48%
Mid-Atlantic .................. 27%
West .......................... 18%
Central ....................... 4%
Colombia, South America ....... 3%
Currently, approximately 30% of FPL Energy's net generating capacity has
qualifying facility status under PURPA. Qualifying facility electricity
may be generated from hydropower, wind, solar, geothermal, fossil fuels,
biomass or waste-product combustion. Utilities pay for qualifying facility
electricity on the basis of each utility's avoided cost of power.
Qualifying facility status exempts the projects from the application of the
Holding Company Act, many provisions of the Federal Power Act, and state
laws and regulations respecting rates and financial or organizational
regulation of electric utilities. FPL Energy also has ownership interest
in operating independent power projects that have received exempt wholesale
generator status as defined in the Holding Company Act. These projects
represent approximately 70% of FPL Energy's net generating capacity.
Exempt wholesale generators own or operate a facility exclusively to sell
electric energy at wholesale. They are barred from selling electricity
directly to retail customers. While projects with qualifying facility and
exempt wholesale generator status are exempt from various restrictions,
each project must still comply with other federal, state and local laws,
including those regarding siting, construction, operation, licensing and
pollution abatement.
In 1999, FPL Energy completed the purchase of CMP's non-nuclear generating
assets, primarily fossil and hydro power plants, for $866 million. The
purchase price was based on an agreement, subject to regulatory approvals,
reached with CMP in January 1998. In October 1998, the FERC struck down
transmission rules that had been in effect in New England since the 1970s.
The FERC rulings regarding transmission, as well as the announcement of new
entrants into the market and changes in fuel prices since January 1998,
resulted in FPL Energy recording a $176 million pre-tax impairment loss
related to the fossil assets. The acquisition was accounted for under the
purchase method of accounting and the results of operating the Maine assets
have been included in FPL Group's consolidated financial statements since
the acquisition date. See Note 9.
FPL Energy's capital expenditures and investments totaled approximately $1.5
billion, $521 million and $291 million in 1999, 1998 and 1997, respectively.
FPL Energy is currently constructing a 1,000 mw combined-cycle natural gas-
fired plant in Texas, of which FPL Energy owns 99%. This plant is expected
to become operational in 2000 and has 70% of the capacity under one- to five-
year contracts. As of December 31, 1999, FPL Energy had remaining
commitments of $71 million for the development of this plant. In addition,
FPL Energy has announced plans to build five plants that would add
approximately 2,100 mw to its generating capacity by 2003. See Management's
Discussion - Liquidity and Capital Resources.
Deregulation of the electric utility market presents both opportunities and
risks for FPL Energy. Opportunities exist for the selective acquisition of
generation assets that are being divested under deregulation plans and for
the construction and operation of efficient plants that can sell power in
competitive markets. Substantially all of the energy produced in 1999 by
FPL Energy's independent power projects was sold through power sales
agreements with utilities that expire in 2000-24. As competitive wholesale
markets become more accessible to other generators, obtaining power sales
agreements will become a progressively more competitive process. FPL
Energy expects that as its existing power sales agreements expire, more of
the energy produced will be sold through shorter-term contracts and into
competitive wholesale markets.
Competitive wholesale markets in the United States continue to evolve and
vary by geographic region. Revenues from electricity sales in these
markets will vary based on the prices obtainable for energy, capacity and
other ancillary services. Some of the factors affecting success in these
markets include the ability to operate generating assets efficiently, the
price and supply of fuel, transmission constraints, competition from new
sources of generation, demand growth and exposure to legal and regulatory
changes.
FPL Energy had 825 employees at December 31, 1999. Approximately 18% of
the employees are represented by the IBEW under a collective bargaining
agreement with FPL Energy expiring on February 28, 2003.
OTHER FPL GROUP OPERATIONS
FPL FiberNet. FPL FiberNet was formed in January 2000 to enhance the value
of FPL Group's fiber-optic network assets that were originally built to
support FPL operations. Accordingly, FPL's existing 1,600 mile fiber-optic
lines were transferred to FPL FiberNet in January 2000. FPL FiberNet will
sell wholesale fiber-optic network capacity to FPL and other new and
existing customers, primarily telephone, cable television, internet and
other telecommunications companies. The existing network interconnects
cities in Florida from Miami to Jacksonville on the east coast, Lake City
in the north, and Tampa to Naples on the west coast. FPL FiberNet plans to
invest approximately $225 million over the next three years to expand the
existing network within major cities throughout Florida. See Note 13.
EXECUTIVE OFFICERS OF THE REGISTRANTS (a)(b)
Name Age Position Effective Date
James L. Broadhead 64 Chairman of the Board and Chief Executive Officer of FPL Group .... May 8, 1990
Chairman of the Board and Chief Executive Officer of FPL .......... January 15, 1990
Dennis P. Coyle 61 General Counsel and Secretary of FPL Group ........................ June 1, 1991
General Counsel and Secretary of FPL .............................. July 1, 1991
K. Michael Davis 53 Controller and Chief Accounting Officer of FPL Group .............. May 13, 1991
Vice President, Accounting, Controller and Chief Accounting
Officer of FPL .................................................. July 1, 1991
Paul J. Evanson 58 President of FPL .................................................. January 9, 1995
Lewis Hay, III 44 Vice President, Finance and Chief Financial Officer of FPL Group .. August 2, 1999
Senior Vice President, Finance and Chief Financial Officer of FPL . August 2, 1999
Lawrence J. Kelleher 52 Vice President, Human Resources of FPL Group ...................... May 13, 1991
Senior Vice President, Human Resources of FPL ..................... July 1, 1991
Robert L. McGrath 46 Treasurer of FPL Group ............................................ January 11, 2000
Treasurer of FPL .................................................. January 11, 2000
Armando J. Olivera 50 Senior Vice President, Power Systems of FPL ....................... July 1, 1999
Thomas F. Plunkett 60 President, Nuclear Division of FPL ................................ March 1, 1996
Antonio Rodriguez 57 Senior Vice President, Power Generation of FPL .................... July 1, 1999
Michael W. Yackira 48 President of FPL Energy, LLC ...................................... January 15, 1998
____________________
(a) Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors.
Except as noted below, each officer has held his present position for five years or more and his employment history
is continuous.
(b) The business experience of the executive officers is as follows: Mr. Hay was senior vice president and chief
financial officer of US Foodservice, a food service distributor, from 1991 to 1997. From 1997 to 1999 he was
executive vice president and chief financial officer of US Foodservice. Mr. McGrath was assistant treasurer of FPL
Group and FPL from February 1998 to January 2000. Prior to that, Mr. McGrath was vice president and chief
financial officer of ESI Energy, Inc. Mr. Olivera was vice president, distribution of FPL from February 1997 to
July 1999. Prior to that, Mr. Olivera was vice president, power delivery of FPL. Mr. Plunkett was site vice
president at Turkey Point. Mr. Rodriguez was vice president, power delivery of FPL from February 1997 to July
1999. Prior to that, Mr. Rodriguez was vice president, operations of FPL's power generation division. Mr. Yackira
was vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief
financial officer of FPL from January 1995 to January 1998.
Item 2. Properties
FPL Group and its subsidiaries maintain properties which are adequate for
their operations. At December 31, 1999, the electric generating,
transmission, distribution and general facilities of FPL represent 45%,
13%, 35% and 7%, respectively, of FPL's gross investment in electric
utility plant in service.
Generating Facilities. As of December 31, 1999, FPL Group had the
following generating facilities:
No. of Net
Facility Location Units Fuel Capability (mw)(a)
FPL:
STEAM TURBINES
Cape Canaveral ...................... Cocoa, FL 2 Oil/Gas 804
Cutler .............................. Miami, FL 2 Gas 215
Fort Myers .......................... Fort Myers, FL 2 Oil 543
Manatee ............................. Parrish, FL 2 Oil 1,625
Martin .............................. Indiantown, FL 2 Oil/Gas 1,631
Port Everglades ..................... Port Everglades, FL 4 Oil/Gas 1,242
Riviera ............................. Riviera Beach, FL 2 Oil/Gas 573
St. Johns River Power Park .......... Jacksonville, FL 2 Coal/Petroleum Coke 254(b)
St. Lucie ........................... Hutchinson Island, FL 2 Nuclear 1,553(c)
Sanford ............................. Lake Monroe, FL 3 Oil/Gas 934
Scherer ............................. Monroe County, GA 1 Coal 658(d)
Turkey Point ........................ Florida City, FL 2 Oil/Gas 810
2 Nuclear 1,386
COMBINED-CYCLE
Lauderdale .......................... Dania, FL 2 Gas/Oil 860
Martin .............................. Indiantown, FL 2 Gas 950
Putnam .............................. Palatka, FL 2 Gas/Oil 498
COMBUSTION TURBINES
Fort Myers .......................... Fort Myers, FL 12 Oil 636
Lauderdale .......................... Dania, FL 24 Oil/Gas 840
Port Everglades ..................... Port Everglades, FL 12 Oil/Gas 420
DIESEL UNITS
Turkey Point ........................ Florida City, FL 5 Oil 12
TOTAL ................................. 16,444
FPL Energy:
Cerro Gordo ......................... Clearlake, IA 54 Wind 42
Doswell ............................. Ashland, VA 4 Gas 665
Maine ............................... Various - ME 7 Oil 713
Maine ............................... Various - ME 92 Hydro 373
Maine ............................... Ft. Fairfield, ME 1 Wastewood 31
Marcus Hook 50 ...................... Marcus Hook, PA 1 Gas 50
Southwest Mesa ...................... McCamey, TX 107 Wind 75
Vansycle ............................ Helix, OR 38 Wind 25
Investments in Joint Ventures ....... Various N/M Various 1,030
TOTAL ................................. 3,004
____________________
(a) Represents FPL's net warm weather peaking capability and FPL Energy's net ownership interest in plant capacity.
(b) Represents FPL's 20% ownership interest in each of SJRPP Units Nos. 1 and 2, which are jointly owned with the JEA.
(c) Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2.
(d) Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with the JEA.
N/M - Not meaningful
Transmission and Distribution. As of December 31, 1999, FPL owned and
operated 487 substations and the following electric transmission and
distribution lines:
Overhead Lines Trench and Submarine
Nominal Voltage Pole Miles Cable Miles
500 kv ............................................................ 1,107(a) -
230 kv ............................................................ 2,246 31
138 kv ............................................................ 1,433 49
115 kv ............................................................ 670 -
69 kv ............................................................ 166 14
Less than 69 kv ................................................... 39,858 21,353
Total ............................................................. 45,480 21,447
____________________
(a) Includes approximately 75 miles owned jointly with the JEA.
Character of Ownership. Substantially all of FPL's properties are subject
to the lien of FPL's mortgage, which secures most debt securities issued by
FPL. The principal properties of FPL Group are held by FPL in fee and are
free from other encumbrances, subject to minor exceptions, none of which is
of such a nature as to substantially impair the usefulness to FPL of such
properties. Some of FPL's electric lines are located on land not owned in
fee but are covered by necessary consents of governmental authorities or
rights obtained from owners of private property.
Item 3. Legal Proceedings
In 1991, FPL entered into 30-year power purchase agreements with two
qualifying facilities (as defined by PURPA) located in Palm Beach County,
Florida. The power plants, which have a total generating capacity of 125
mw, were intended to sell capacity and energy to FPL and to provide steam
to sugar processors. The plants were to be fueled by bagasse (sugar cane
waste) and wood waste. Construction of the plants was funded, in part,
through the sale of $288.5 million of solid waste industrial development
revenue bonds (the bonds). The plants are owned by Okeelanta Power Limited
Partnership (Okeelanta); Osceola Power Limited Partnership (Osceola); Flo-
Energy Corp.; Glades Power Partnership; Gator Generating Company, Limited
Partnership; and Lake Power Leasing Partnership (collectively, the
partnerships).
In January 1997, FPL filed a complaint against Okeelanta and Osceola in the
Circuit Court for Palm Beach County, Florida, seeking an order declaring
that FPL's obligations under the power purchase agreements were rendered of
no force and effect because the power plants failed to accomplish
commercial operation before January 1, 1997, as required by the agreements.
In November 1997, the complaint was amended to include the partnerships.
The partnerships filed for bankruptcy under Chapter XI of the U.S.
Bankruptcy Code in May 1997. In November 1997, the partnerships entered
into an agreement with the holders of more than 70% of the bonds. This
agreement gives the holders of a majority of the principal amount of the
bonds (the majority bondholders) the right to control, fund and manage any
litigation against FPL and the right to settle with FPL on any terms such
majority bondholders approve, provided that certain agreements with sugar
processors are not affected and certain other conditions are met.
In January 1998, the partnerships (through the attorneys for the majority
bondholders) filed an answer denying the allegations in FPL's complaint and
asserting a counterclaim for approximately $2 billion of actual damages,
consisting of all capacity payments that could have been made over the 30-
year term of the power purchase agreements plus some security deposits. The
partnerships also seek three times their actual damages for alleged
violations of Florida antitrust laws by FPL, FPL Group and FPL Group
Capital, plus attorneys' fees. In October 1998, the trial court dismissed
all of the partnerships' antitrust claims against FPL, FPL Group and FPL
Group Capital. The partnerships appealed the trial court's dismissal to
the Fourth District Court of Appeal which affirmed the trial court's
decision as to FPL Group and FPL Group Capital and dismissed as premature
the partnerships' appeal of the trial court's decision as to FPL. In June
1999, the partnerships' motion for summary judgment was denied; they have
appealed.
In July 1990, FPL entered into an amended and restated agreement (the
contract) with a qualifying facility (as defined by PURPA) located in Duval
County, Florida. Construction of the facility, which is owned by Cedar Bay
Generating Company, L.P. (Cedar Bay), was financed in part by loans from
institutional investors, including Paribas.
The contract provides FPL with the right to dispatch the Cedar Bay facility
"in any manner it deems appropriate." Despite this contractual right,
Cedar Bay initiated an action in 1997 in the Circuit Court for Duval
County, Florida, challenging, among other things, the manner in which the
facility had been dispatched by FPL. Although the court granted summary
judgment to FPL with regard to Cedar Bay's claim that FPL's dispatch
decisions violated the express terms of the contract, it permitted a jury
to hear Cedar Bay's claim that such dispatch decisions violated an implied
duty of good faith and fair dealing. The jury awarded Cedar Bay
approximately $13 million on this claim. Thereafter, the court entered a
declaration that FPL was, in the future, to dispatch the Cedar Bay facility
in accordance with certain specified parameters. FPL expects to recover
the amount of this judgment through the capacity clause.
FPL has appealed both the jury award and the court's declaration. In
October 1999, after FPL filed its notice of appeal in the Cedar Bay action,
Paribas, on behalf of itself and a group of other Cedar Bay lenders, filed
an action against FPL in the Circuit Court of Duval County. The suit
alleges breach of contract, breach of an implied duty of good faith and
fair dealing, fraud, tortious interference with contract and several other
claims regarding the manner in which FPL has dispatched the Cedar Bay
facility. It seeks unspecified damages and other relief.
FPL has moved to dismiss all counts of Paribas' complaint. If the jury
award and court declaration in the Cedar Bay case is upheld fully on
appeal, Paribas apparently believes that, they and the other lenders have
no claims against FPL (or at least would have no damages arising
therefrom), and has therefore moved to stay its own action pending
resolution of the appeal in the Cedar Bay action.
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 injunctive
relief and the assessment of civil penalties for violations of the
Prevention of Significant Deterioration (PSD) provisions and the New Source
Performance Standards (NSPS) of the Clean Air Act. Among other things, the
EPA alleges 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. The suit seeks
injunctive relief requiring the installation of such technology and civil
penalties of up to $25,000 per day for each violation from August 7, 1977
through January 30, 1997, and $27,000 per day for each violation
thereafter. Georgia Power has filed an answer to the 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 the event that FPL Group and FPL does not prevail in these suits, there
may be a material adverse effect on their financial statements. However,
FPL Group and FPL believe that they have meritorious defenses to the
litigation and are vigorously defending these suits. Accordingly, the
liabilities, if any, arising from these proceedings are not anticipated to
have a material adverse effect on their financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
PART II
Item 5. Market for the Registrants' Common Equity and Related
Stockholder Matters
Common Stock Data. All of FPL's common stock is owned by FPL Group. FPL
Group's common stock is traded on the New York Stock Exchange. The high
and low sales prices for the common stock of FPL Group as reported in the
consolidated transaction reporting system of the New York Stock Exchange
for each quarter during the past two years are as follows:
1999 1998
Quarter High Low High Low
First ....................................................... $61 15/16 $50 1/8 $65 3/16 $56 1/16
Second ...................................................... $60 1/2 $52 7/8 $65 5/8 $58 11/16
Third ....................................................... $56 11/16 $49 1/8 $70 $59 11/16
Fourth ...................................................... $52 1/2 $41 1/8 $72 9/16 $60 1/2
Approximate Number of Stockholders. As of the close of business on
January 31, 2000, there were 49,694 holders of record of FPL Group's common
stock.
Dividends. Quarterly dividends have been paid on common stock of FPL Group
during the past two years in the following amounts:
Quarter 1999 1998
First ......................................................................................... $0.52 $0.50
Second ........................................................................................ $0.52 $0.50
Third ......................................................................................... $0.52 $0.50
Fourth ........................................................................................ $0.52 $0.50
The amount and timing of dividends payable on FPL Group's common stock are
within the sole discretion of FPL Group's board of directors. The board of
directors reviews the dividend rate at least annually (in February) to
determine its appropriateness in light of FPL Group's financial position
and results of operations, legislative and regulatory developments
affecting the electric utility industry in general and FPL in particular,
competitive conditions and any other factors the board deems relevant. The
ability of FPL Group to pay dividends on its common stock is dependent upon
dividends paid to it by its subsidiaries, primarily FPL. There are no
restrictions in effect that currently limit FPL's ability to pay dividends
to FPL Group. See Management's Discussion - Liquidity and Capital
Resources and Note 4 - Common Stock Dividend Restrictions regarding
dividends paid by FPL to FPL Group.
Item 6. Selected Financial Data
Years Ended December 31,
1999 1998 1997 1996 1995
SELECTED DATA OF FPL GROUP
(millions, except per share amounts):
Operating revenues ...................................... $ 6,438 $ 6,661 $ 6,369 $ 6,037 $ 5,592
Net income .............................................. $ 697 $ 664 $ 618 $ 579 $ 553
Earnings per share of common stock(a) ................... $ 4.07 $ 3.85 $ 3.57 $ 3.33 $ 3.16
Dividends paid per share of common stock ................ $ 2.08 $ 2.00 $ 1.92 $ 1.84 $ 1.76
Total assets ............................................ $13,441 $12,029 $12,449 $12,219 $12,459
Long-term debt, excluding current maturities ............ $ 3,478 $ 2,347 $ 2,949 $ 3,144 $ 3,377
Obligations of FPL under capital lease, excluding
current maturities .................................... $ 157 $ 146 $ 186 $ 182 $ 179
Preferred stock of FPL with sinking fund requirements,
excluding current maturities .......................... $ - $ - $ - $ 42 $ 50
Energy sales (kwh) ...................................... 92,483 91,041 84,642 80,889 79,756
SELECTED DATA OF FPL (millions):
Operating revenues ...................................... $ 6,057 $ 6,366 $ 6,132 $ 5,986 $ 5,530
Net income available to FPL Group........................ $ 576 $ 616 $ 608 $ 591 $ 568
Total assets ............................................ $10,608 $10,748 $11,172 $11,531 $11,751
Long-term debt, excluding current maturities ............ $ 2,079 $ 2,191 $ 2,420 $ 2,981 $ 3,094
Energy sales (kwh) ...................................... 88,067 89,362 82,734 80,889 79,756
Energy sales:
Residential ........................................... 50.2% 50.9% 50.6% 51.1% 50.8%
Commercial ............................................ 40.3 38.8 39.8 38.6 38.5
Industrial ............................................ 4.5 4.4 4.7 4.7 4.9
Interchange power sales ............................... 3.0 3.2 2.1 2.6 1.6
Other(b) .............................................. 2.0 2.7 2.8 3.0 4.2
Total ................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Approximate 60-minute net peak served (mw)(c):
Summer season ......................................... 17,615 17,897 16,613 16,064 15,813
Winter season ......................................... 17,057 16,802 13,047 16,490 18,096
Average number of customer accounts (thousands):
Residential ........................................... 3,332 3,266 3,209 3,153 3,097
Commercial ............................................ 405 397 389 381 374
Industrial ............................................ 16 15 15 15 15
Other ................................................. 3 2 3 2 3
Total ................................................... 3,756 3,680 3,616 3,551 3,489
Average price per kwh (cents)(d) ........................ 6.87 7.13 7.37 7.39 6.97
____________________
(a) Basic and assuming dilution.
(b) Includes the net change in unbilled sales.
(c) Winter season includes November - December of the current year and January - March of the following year.
(d) Excludes interchange power sales, net change in unbilled revenues and cost recovery clause revenues, and the
provision for refund.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
The operations of FPL continue to be the predominant contributor to FPL
Group's earnings. Earnings growth, however, over the past two years has
mostly come from improved results at FPL Energy.
FPL Group's 1999 net income and earnings per share grew 5.0% and 5.7%,
respectively. The 1999 amounts include the net effect of several
nonrecurring transactions that resulted in additional net income of $16
million, or $0.09 per share for the year. Excluding the nonrecurring items,
FPL Group's net income was $681 million and earnings per share were $3.98,
resulting in growth of 2.6% and 3.4%, respectively. The comparable growth
rates for 1998 were 7.4% and 7.8%, respectively. The nonrecurring
transactions are discussed in more detail below within the segment to which
they relate.
FPL - FPL's results for 1999 include the settlement of litigation between
FPL and FMPA, which resulted in a fourth quarter after-tax charge of $42
million. The charge, included in O&M expenses, reflects a settlement
agreement pursuant to which FPL agreed to pay FMPA a cash settlement; FPL
agreed to reduce the demand charge on an existing power purchase agreement;
and FPL and FMPA agreed to enter into a new power purchase agreement giving
FMPA the right to purchase limited amounts of power in the future at a
specified price. This agreement settled a dispute with FMPA that had been
pending for nearly ten years.
FPL's net income for 1999, excluding the FMPA charge, was up slightly from
1998. Lower depreciation, customer growth and lower O&M expenses offset
the effect of the rate reduction, implemented in April 1999, and a decline
in electricity used by retail customers. FPL's net income growth in 1998
compared to 1997 was primarily associated with an increase in total kwh
sales and lower interest charges, partly offset by higher depreciation and
O&M expenses.
FPL's operating revenues consist primarily of revenues from retail base
operations, cost recovery clauses and franchise fees. Revenues from retail
base operations were $3.2 billion, $3.6 billion and $3.4 billion in 1999,
1998 and 1997, respectively. Revenues from cost recovery clauses and
franchise fees represent a pass-through of costs and do not significantly
affect net income. Fluctuations in these revenues are primarily driven by
changes in energy sales, fuel prices and capacity charges.
In 1999, the FPSC approved a three-year agreement among FPL, Public
Counsel, FIPUG and Coalition regarding FPL's retail base rates, authorized
regulatory ROE, capital structure and other matters. The agreement, which
became effective April 15, 1999, provides for a $350 million reduction in
annual revenues from retail base operations allocated to all customers on a
cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a
revenue sharing mechanism for each of the twelve-month periods covered by
the agreement, whereby revenues from retail base operations in excess of a
stated threshold will be shared on the basis of two-thirds refunded to
retail customers and one-third retained by FPL. Revenues from retail base
operations in excess of a second threshold will be refunded 100% to retail
customers.
The thresholds are as follows:
Twelve Months Ended
April 14,
2000 2001 2002
(millions)
Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500
Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656
Offsetting the annual revenue reduction will be lower special depreciation.
The agreement allows for special depreciation of up to $100 million, at FPL's
discretion, in each year of the three-year agreement period to be applied to
nuclear and/or fossil generating assets. Under this new depreciation
program, FPL recorded approximately $70 million of special depreciation in
1999. The new depreciation program replaced a revenue-based special
amortization program whereby special amortization in the amount of $63
million, $378 million and $199 million was recorded in 1999, 1998 and 1997,
respectively.
In addition, the agreement lowered FPL's authorized regulatory ROE range to
10% - 12%. During the term of the agreement, the achieved ROE may from
time to time be outside the authorized range, and the revenue sharing
mechanism described above is specified to be the appropriate and exclusive
mechanism to address that circumstance. FPL reported an ROE of 12.1%,
12.6% and 12.3% in 1999, 1998 and 1997, respectively. See Note 1 -
Revenues and Rates.
The decline in revenues from retail base operations during 1999 was to a
large extent due to the negative impact of the agreement that reduced
retail base revenues by approximately $300 million. A 2.8% decline in
usage per retail customer mainly due to milder weather conditions than the
prior year was almost entirely offset by an increase in the number of
customer accounts. The number of customer accounts grew 2% to
approximately 3.8 million in 1999.
The increase in retail base revenues in 1998 from 1997 reflects a 4.8%
increase in usage per retail customer from warmer weather combined with a
1.8% increase in the number of customer accounts.
FPL's O&M expenses in 1999 benefited from continued cost control efforts.
This was partially offset by higher overhaul costs at fossil plants. O&M
expenses increased in 1998 as a result of additional costs associated with
improving the service reliability of FPL's distribution system, partially
offset by lower nuclear maintenance costs and conservation clause expenses.
Conservation clause expenses are essentially a pass-through and do not
affect net income.
Lower interest charges in 1999 and 1998 reflect lower average debt balances
and the full amortization in 1998 of deferred costs associated with
reacquired debt.
The electric utility industry is facing increasing competitive pressure.
FPL currently faces competition from other suppliers of electrical energy
to wholesale customers and from alternative energy sources and self-
generation for other customer groups, primarily industrial customers. In
1999, operating revenues from wholesale and industrial customers combined
represented approximately 4% of FPL's total operating revenues. A number
of potential merchant plants have been announced to date in Florida.
However, only two submissions to seek a determination of need totaling
approximately 1,000 mw have been presented to the FPSC. In March 1999, the
FPSC approved one of the petitions for a power plant to be constructed
within FPL's service territory. FPL, along with other Florida utilities,
has appealed the decision to the Florida Supreme Court. Since there is no
deregulation proposal currently under consideration in Florida, FPL is
unable to predict the impact of a change to a more competitive environment
or when such a change might occur. See Note 1 - Regulation.
FPL Energy - FPL Energy's 1999 and 1998 operating results benefited from a
60% and 51% increase, respectively, in the generating capacity of FPL
Energy's power plant portfolio. Operating results also benefited from
improved results of a gas-fired power plant in the Mid-Atlantic region,
mainly due to the financial restructuring of the project, renegotiation of
fuel and power sales contracts, lower non-fuel O&M expenses and improved
plant availability. The improvement in FPL Energy's 1999 operating results
were partly offset by higher administrative expenses to accommodate future
growth. The generating capacity growth since 1997 is primarily the result
of the acquisition of the Maine assets (1,117 mw), natural gas projects
(300 mw) in the Northeast region and several wind projects (291 mw) in the
Central and West regions.
In 1999, FPL Energy's operating results include the effect of a $176
million ($104 million after-tax) impairment loss. See Note 9. FPL
Energy's 1998 operating results reflect the cost of terminating an interest
rate swap agreement, partly offset by the receipt of a settlement relating
to a contract dispute.
Deregulation of the electric utility market presents both opportunities and
risks for FPL Energy. Opportunities exist for the selective acquisition of
generation assets that are being divested under deregulation plans and for
the construction and operation of efficient plants that can sell power in
competitive markets. Substantially all of the energy produced in 1999 by
FPL Energy's independent power projects was sold through power sales
agreements with utilities that expire in 2000-24. As competitive wholesale
markets become more accessible to other generators, obtaining power sales
agreements will become a progressively more competitive process. FPL
Energy expects that as its existing power sales agreements expire, more of
the energy produced will be sold through shorter-term contracts and into
competitive wholesale markets.
Competitive wholesale markets in the United States continue to evolve and
vary by geographic region. Revenues from electricity sales in these
markets will vary based on the prices obtainable for energy, capacity and
other ancillary services. Some of the factors affecting success in these
markets include the ability to operate generating assets efficiently, the
price and supply of fuel, transmission constraints, competition from new
sources of generation, demand growth and exposure to legal and regulatory
changes.
Corporate and Other - In 1999, net income for the corporate and other
segment reflects a $149 million ($96 million after-tax) gain on the sale of
an investment in Adelphia Communications Corporation common stock, a $108
million ($66 million after-tax) gain recorded by FPL Group Capital on the
redemption of its one-third equity interest in a cable limited partnership,
costs associated with closing a retail marketing business and the favorable
resolution of a prior year state tax matter. In 1998, net income for the
corporate and other segment reflects a loss from the sale of Turner Foods
Corporation's assets, the cost of terminating an agreement designed to fix
interest rates and adjustments relating to prior years' tax matters,
including the resolution of an audit issue with the Internal Revenue
Service.
Year 2000 - FPL Group did not experience any significant year 2000-related
problems. The total cost of addressing year 2000 issues was approximately
$37 million.
Liquidity and Capital Resources
FPL Group's capital requirements consist of expenditures to meet increased
electricity usage and customer growth of FPL and investment opportunities
at FPL Energy. In 1999, FPL Group's capital expenditures reflect FPL
Energy's investment in generating assets in Maine and the cost of
constructing a natural gas power plant in Texas, as well as FPL's power
plant expansion activities. As of December 31, 1999, FPL Energy has made
commitments totaling approximately $72 million, primarily in connection
with the development of an independent power project. Capital expenditures
of FPL for the 2000-02 period are expected to be approximately $3.1
billion, including $1.3 billion in 2000. FPL Group Capital and its
subsidiaries have guaranteed approximately $680 million of purchased power
agreement obligations, debt service payments and other payments subject to
certain contingencies. See Note 12 - Commitments.
Debt maturities of FPL Group's subsidiaries will require cash outflows of
approximately $595 million ($420 million for FPL) through 2004, including
$125 million for FPL in 2000. It is anticipated that cash requirements for
capital expenditures, energy-related investments and debt maturities in
2000 will be satisfied with internally generated funds and debt issuances.
Any internally generated funds not required for capital expenditures and
current maturities may be used to reduce outstanding debt or repurchase
common stock, or for investment. Any temporary cash needs will be met by
short-term bank borrowings. In 1999 FPL Group Capital redeemed $125
million in debentures, which resulted in a loss on reacquired debt of
approximately $8 million and issued $1.4 billion in debentures, primarily
to finance FPL Energy's generating capacity growth. In 1999, FPL had $230
million in first mortgage bonds mature and issued $225 million in first
mortgage bonds, primarily to redeem $216 million first mortgage bonds with
a 2% higher interest rate. Bank lines of credit currently available to FPL
Group and its subsidiaries aggregate $2.4 billion ($880 million for FPL).
During 1999, FPL Group repurchased 2.2 million shares of common stock under
the 10 million share repurchase program. As of December 31, 1999, FPL
Group is authorized to repurchase an additional 6.2 million shares under
this program.
FPL self-insures for damage to certain transmission and distribution
properties and maintains a funded storm reserve to reduce the financial
impact of storm losses. The balance of the storm fund reserve at December
31, 1999 and 1998 was $216 million and $259 million, respectively. During
1999, storm fund reserves were reduced to recover the costs associated with
three storms. Bank lines of credit of $300 million, included in the $880
million above, are also available if needed to provide cash for storm
restoration costs. The FPSC has indicated that it would consider future
storm losses in excess of the funded reserve for possible recovery from
customers.
FPL's charter and mortgage contain provisions which, under certain
conditions, restrict the payment of dividends and the issuance of
additional unsecured debt, first mortgage bonds and preferred stock. Given
FPL's current financial condition and level of earnings, expected financing
activities and dividends are not affected by these limitations.
New Accounting Rule
In June 1998, the Financial Accounting Standards Board issued Financial
Accounting Standards No. (FAS) 133, "Accounting for Derivative Instruments
and Hedging Activities." The statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value.
The statement requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria
are met. FPL Group and FPL are currently assessing the effect, if any, on
their financial statements of implementing FAS 133. FPL Group and FPL will
be required to adopt FAS 133 beginning in 2001.
Market Risk Sensitivity
Substantially all financial instruments and positions held by FPL Group and
FPL described below are held for purposes other than trading.
Interest rate risk - The special use funds of FPL include restricted funds
set aside to cover the cost of storm damage and for the decommissioning of
FPL's nuclear power plants. A portion of these funds is invested in fixed
income debt securities carried at their market value of approximately $847
million and $650 million at December 31, 1999 and 1998, respectively.
Adjustments to market value result in a corresponding adjustment to the
related liability accounts based on current regulatory treatment. Because
the funds set aside 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 expected to begin until at least 2012.
At December 31, 1999 and 1998, other investments of FPL Group include $291
million and $72 million, respectively, of investments that are carried at
estimated fair value or cost, which approximates fair value.
The following are estimates of the fair value of FPL's and FPL Group's
long-term debt:
1999 1998
Carrying Fair Carrying Fair
Value Value Value Value
(millions)
Long-term debt of FPL (a) .................. $2,204 $2,123(b) $2,421 $2,505(b)
Long-term debt of FPL Group (a) ............ $3,603 $3,518(b) $2,706 $2,797(b)
____________________
(a) Includes current maturities.
(b) Based on quoted market prices for these or similar issues.
Market risk associated with all of these securities is estimated as the
potential gain in fair value of net liabilities resulting from a
hypothetical 10% increase in interest rates and amounts to $97 million and
$68 million for FPL Group and $39 million and $60 million for FPL at
December 31, 1999 and 1998, respectively.
Equity price risk - Included in the special use funds of FPL are marketable
equity securities carried at their market value of approximately $573
million and $556 million at December 31, 1999 and 1998, respectively. A
hypothetical 10% decrease in the prices quoted by stock exchanges would
result in a $56 million reduction in fair value and corresponding
adjustment to the related liability accounts based on current regulatory
treatment at both December 31, 1999 and 1998.
Other risks - Under current cost-based regulation, FPL's cost of fuel is
recovered through the fuel clause, with no effect on earnings. FPL's
Energy Marketing & Trading Division buys and sells wholesale energy
commodities, such as natural gas, oil and electric power. The division
procures natural gas and oil for FPL's and FPL Energy's use in power
generation and sells excess electric power. Substantially all of the
result of the FPL activities are passed through to customers in the fuel or
capacity clauses. FPL Energy's results of these activities are recognized
in income by FPL Energy. The level of activity is expected to grow as FPL
and FPL Energy seek to manage the risk associated with fluctuating
commodity prices and increase the value of their power generation assets.
At December 31, 1999, there were no material open positions in these
activities.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion - Market Risk Sensitivity
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY:
We have audited the consolidated financial statements of FPL Group, Inc.
and of Florida Power & Light Company, listed in the accompanying index at
Item 14(a)1 of this Annual Report (Form 10-K) to the Securities and
Exchange Commission for the year ended December 31, 1999. These financial
statements are the responsibility of the respective company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FPL Group, Inc. and
Florida Power & Light Company at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Miami, Florida
February 11, 2000
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
Years Ended December 31,
1999 1998 1997
OPERATING REVENUES ................................................................. $6,438 $6,661 $6,369
OPERATING EXPENSES:
Fuel, purchased power and interchange ............................................ 2,365 2,244 2,255
Other operations and maintenance ................................................. 1,322 1,284 1,231
Depreciation and amortization .................................................... 1,040 1,284 1,061
Impairment loss on Maine assets .................................................. 176 - -
Taxes other than income taxes .................................................... 615 597 594
Total operating expenses ....................................................... 5,518 5,409 5,141
OPERATING INCOME ................................................................... 920 1,252 1,228
OTHER INCOME (DEDUCTIONS):
Interest charges ................................................................. (222) (322) (291)
Preferred stock dividends - FPL .................................................. (15) (15) (19)
Divestiture of cable investments ................................................. 257 - -
Other - net ...................................................................... 80 28 4
Total other income (deductions) - net .......................................... 100 (309) (306)
INCOME BEFORE INCOME TAXES ......................................................... 1,020 943 922
INCOME TAXES ....................................................................... 323 279 304
NET INCOME ......................................................................... $ 697 $ 664 $ 618
Earnings per share of common stock (basic and assuming dilution) ................... $4.07 $3.85 $3.57
Dividends per share of common stock ................................................ $2.08 $2.00 $1.92
Average number of common shares outstanding ........................................ 171 173 173
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(millions)
December 31,
1999 1998
PROPERTY, PLANT AND EQUIPMENT:
Electric utility plant in service and other property ....................................... $18,474 $17,592
Nuclear fuel under capital lease - net...................................................... 157 146
Construction work in progress .............................................................. 923 214
Less accumulated depreciation and amortization ............................................. (10,290) (9,397)
Total property, plant and equipment - net ................................................ 9,264 8,555
CURRENT ASSETS:
Cash and cash equivalents .................................................................. 361 187
Customer receivables, net of allowances of $7 and $8 ...................................... 482 559
Materials, supplies and fossil fuel inventory - at average cost ............................ 343 282
Deferred clause expenses ................................................................... 54 82
Other ...................................................................................... 133 156
Total current assets ..................................................................... 1,373 1,266
OTHER ASSETS:
Special use funds of FPL ................................................................... 1,352 1,206
Other investments .......................................................................... 611 391
Other ...................................................................................... 841 611
Total other assets ....................................................................... 2,804 2,208
TOTAL ASSETS ................................................................................. $13,441 $12,029
CAPITALIZATION:
Common shareholders' equity ................................................................ $ 5,370 $ 5,126
Preferred stock of FPL without sinking fund requirements ................................... 226 226
Long-term debt ............................................................................. 3,478 2,347
Total capitalization ..................................................................... 9,074 7,699
CURRENT LIABILITIES:
Short-term debt ............................................................................ 339 110
Current maturities of long-term debt ....................................................... 125 359
Accounts payable ........................................................................... 407 338
Customers' deposits ........................................................................ 284 282
Accrued interest and taxes ................................................................. 182 191
Deferred clause revenues ................................................................... 116 89
Other ...................................................................................... 417 272
Total current liabilities ................................................................ 1,870 1,641
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes .......................................................... 1,079 1,255
Deferred regulatory credit - income taxes .................................................. 126 148
Unamortized investment tax credits ......................................................... 184 205
Storm and property insurance reserve ....................................................... 216 259
Other ...................................................................................... 892 822
Total other liabilities and deferred credits ............................................. 2,497 2,689
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ......................................................... $13,441 $12,029
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
Years Ended December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................................................... $ 697 $ 664 $ 618
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 1,040 1,284 1,061
Decrease in deferred income taxes and related regulatory credit .............. (198) (237) (30)
Other - net .................................................................. 24 32 (52)
Net cash provided by operating activities ...................................... 1,563 1,743 1,597
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures of FPL ...................................................... (861) (617) (551)
Independent power investments .................................................... (1,540) (521) (291)
Distributions and loan repayments from partnerships and joint ventures ........... 132 304 53
Proceeds from the sale of assets ................................................. 198 135 43
Other - net....................................................................... (101) (96) (51)
Net cash used in investing activities .......................................... (2,172) (795) (797)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ....................................................... 1,609 343 42
Retirement of long-term debt ..................................................... (584) (727) (717)
Increase (decrease) in short-term debt ........................................... 229 (24) 113
Repurchase of common stock ....................................................... (116) (62) (48)
Dividends on common stock ........................................................ (355) (345) (332)
Net cash provided by (used in) financing activities ............................ 783 (815) (942)
Net increase (decrease) in cash and cash equivalents ............................... 174 133 (142)
Cash and cash equivalents at beginning of year ..................................... 187 54 196
Cash and cash equivalents at end of year ........................................... $ 361 $ 187 $ 54
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ........................................................... $ 221 $ 308 $ 287
Cash paid for income taxes ....................................................... $ 573 $ 463 $ 434
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations ........................................... $ 86 $ 34 $ 81
Debt assumed for property additions .............................................. $ - $ - $ 420
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(millions)
Accumulated
Common Stock (a) Additional Other Common
Aggregate Paid-In Unearned Comprehensive Retained Shareholders'
Shares Par Value Capital Compensation Income (Loss) Earnings Equity
Balances, December 31, 1996 .... 183 $2 $3,345 $(272) $ - $1,518
Net income ................... - - - - - 618
Repurchase of common stock ... (1) - (48) - - -
Dividends on common stock .... - - - - - (332)
Earned compensation under ESOP - - 6 8 - -
Other comprehensive income ... - - - - 1 -
Other ........................ - - (1) - - -
Balances, December 31, 1997..... 182(b) 2 3,302 (264) 1 1,804
Net income ................... - - - - - 664
Repurchase of common stock ... (1) - (62) - - -
Dividends on common stock .... - - - - - (345)
Earned compensation under ESOP - - 13 12 - -
Other comprehensive income ... - - - - - -
Other ........................ - - (1) - - -
Balances, December 31, 1998 .... 181(b) 2 3,252 (252) 1 2,123 $5,126
Net income ................... - - - - - 697
Repurchase of common stock ... (2) - (116) - - -
Dividends on common stock .... - - - - - (355)
Earned compensation under ESOP - - 12 14 - -
Other comprehensive loss ..... - - - - (2) -
Other ........................ - - - (6) - -
Balances, December 31, 1999 .... 179(b) $2 $3,148 $(244) $(1) $2,465 $5,370
____________________
(a) $0.01 par value, authorized - 300,000,000 shares; outstanding 178,554,735 and 180,712,435 at December 31, 1999 and
1998, respectively.
(b) Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8 million, 9 million and
9 million at December 31, 1999, 1998 and 1997, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(millions)
Years Ended December 31,
1999 1998 1997
OPERATING REVENUES ................................................................ $6,057 $6,366 $6,132
OPERATING EXPENSES:
Fuel, purchased power and interchange ........................................... 2,232 2,175 2,196
Other operations and maintenance ................................................ 1,158 1,163 1,132
Depreciation and amortization ................................................... 989 1,249 1,034
Income taxes .................................................................... 327 356 329
Taxes other than income taxes ................................................... 605 596 592
Total operating expenses ...................................................... 5,311 5,539 5,283
OPERATING INCOME .................................................................. 746 827 849
OTHER INCOME (DEDUCTIONS):
Interest charges ................................................................ (163) (196) (227)
Other - net ..................................................................... 8 - 5
Total other deductions - net .................................................. (155) (196) (222)
NET INCOME ........................................................................ 591 631 627
PREFERRED STOCK DIVIDENDS ......................................................... 15 15 19
NET INCOME AVAILABLE TO FPL GROUP, INC. ........................................... $ 576 $ 616 $ 608
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
(millions)
December 31,
1999 1998
ELECTRIC UTILITY PLANT:
Plant in service ......................................................................... $17,556 $17,159
Less accumulated depreciation ............................................................ (10,184) (9,317)
Net .................................................................................... 7,372 7,842
Nuclear fuel under capital lease - net.................................................... 157 146
Construction work in progress ............................................................ 449 159
Electric utility plant - net ......................................................... 7,978 8,147
CURRENT ASSETS:
Cash and cash equivalents ................................................................ - 152
Customer receivables, net of allowances of $7 and $8 ..................................... 433 521
Materials, supplies and fossil fuel inventory - at average cost .......................... 299 239
Deferred clause expenses ................................................................. 54 82
Other .................................................................................... 107 122
Total current assets ................................................................. 893 1,116
OTHER ASSETS:
Special use funds ........................................................................ 1,352 1,206
Other .................................................................................... 385 279
Total other assets ................................................................... 1,737 1,485
TOTAL ASSETS ............................................................................... $10,608 $10,748
CAPITALIZATION:
Common shareholder's equity .............................................................. $ 4,793 $ 4,803
Preferred stock without sinking fund requirements ........................................ 226 226
Long-term debt ........................................................................... 2,079 2,191
Total capitalization ................................................................. 7,098 7,220
CURRENT LIABILITIES:
Commercial paper ......................................................................... 94 -
Current maturities of long-term debt ..................................................... 125 230
Accounts payable ......................................................................... 379 321
Customers' deposits ...................................................................... 284 282
Accrued interest and taxes ............................................................... 137 198
Deferred clause revenues ................................................................. 116 89
Other .................................................................................... 298 231
Total current liabilities ............................................................ 1,433 1,351
OTHER LIABILITIES AND DEFERRED CREDITS:
Accumulated deferred income taxes ........................................................ 802 887
Deferred regulatory credit - income taxes ................................................ 126 148
Unamortized investment tax credits ....................................................... 184 205
Storm and property insurance reserve ..................................................... 216 259
Other .................................................................................... 749 678
Total other liabilities and deferred credits ......................................... 2,077 2,177
COMMITMENTS AND CONTINGENCIES
TOTAL CAPITALIZATION AND LIABILITIES ....................................................... $10,608 $10,748
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
Years Ended December 31,
1999 1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................... $ 591 $ 631 $ 627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................ 989 1,249 1,034
Decrease in deferred income taxes and related regulatory credit........... (105) (202) (98)
Other - net .............................................................. 24 40 (60)
Net cash provided by operating activities .................................. 1,499 1,718 1,503
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ......................................................... (861) (617) (551)
Other - net .................................................................. (52) (80) (83)
Net cash used in investing activities ...................................... (913) (697) (634)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt ................................................... 224 197 -
Retirement of long-term debt ................................................. (455) (389) (505)
Increase (decrease) in commercial paper ...................................... 94 (40) 40
Capital contributions from FPL Group, Inc. ................................... - - 140
Dividends .................................................................... (601) (640) (619)
Net cash used in financing activities ...................................... (738) (872) (944)
Net increase (decrease) in cash and cash equivalents ........................... (152) 149 (75)
Cash and cash equivalents at beginning of year ................................. 152 3 78
Cash and cash equivalents at end of year ....................................... $ - $ 152 $ 3
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest ....................................................... $ 171 $ 181 $ 216
Cash paid for income taxes ................................................... $ 503 $ 510 $ 575
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Additions to capital lease obligations ....................................... $ 86 $ 34 $ 81
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FLORIDA POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
(millions)
Common
Common Additional Retained Shareholder's
Stock (a) Paid-In Capital Earnings Equity
Balances, December 31, 1996 ......................... $1,373 $2,424 $871
Contributions from FPL Group, Inc. ................ - 140 -
Net income available to FPL Group, Inc. ........... - - 608
Dividends to FPL Group, Inc. ...................... - - (601)
Other ............................................. - 2 (3)
Balances, December 31, 1997 ......................... 1,373 2,566 875
Net income available to FPL Group, Inc. ........... - - 616
Dividends to FPL Group, Inc. ...................... - - (626)
Other ............................................. - - (1)
Balances, December 31, 1998 ......................... 1,373 2,566 864 $4,803
Net income available to FPL Group, Inc. ........... - - 576
Dividends to FPL Group, Inc. ...................... - - (586)
Balances, December 31, 1999 ......................... $1,373 $2,566 $ 854 $4,793
____________________
(a) Common stock, no par value, 1,000 shares authorized, issued and outstanding.
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1999, 1998 and 1997
1. Summary of Significant Accounting and Reporting Policies
Basis of Presentation - FPL Group, Inc.'s (FPL Group) operations are
conducted primarily through Florida Power & Light Company (FPL) and FPL
Energy, LLC (FPL Energy), formerly FPL Energy, Inc. FPL, a rate-regulated
public utility, supplies electric service to approximately 3.8 million
customers throughout most of the east and lower west coasts of Florida.
FPL Energy invests in independent power projects through both controlled
and consolidated entities and non-controlling ownership interests in joint
ventures accounted for under the equity method.
The consolidated financial statements of FPL Group and FPL include the
accounts of their respective majority-owned and controlled subsidiaries.
All significant intercompany balances and transactions have been eliminated
in consolidation. Certain amounts included in prior years' consolidated
financial statements have been reclassified to conform to the current
year's presentation. The preparation of financial statements requires the
use of estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses and the disclosure of contingent
assets and liabilities. Actual results could differ from those estimates.
Regulation - FPL is subject to regulation by the Florida Public Service
Commission (FPSC) and the Federal Energy Regulatory Commission (FERC). Its
rates are designed to recover the cost of providing electric service to its
customers including a reasonable rate of return on invested capital. As a
result of this cost-based regulation, FPL follows the accounting practices
set forth in Statement of Financial Accounting Standards No. (FAS) 71,
"Accounting for the Effects of Certain Types of Regulation." FAS 71
indicates that regulators can create assets and impose liabilities that
would not be recorded by unregulated entities. Regulatory assets and
liabilities represent probable future revenues that will be recovered from
or refunded to customers through the ratemaking process. The continued
applicability of FAS 71 is assessed at each reporting period.
In the event that FPL's generating operations are no longer subject to the
provisions of FAS 71, portions of the existing regulatory assets and
liabilities that relate to generation would be written off unless
regulators specify an alternative means of recovery or refund. The
principal regulatory assets and liabilities are as follows:
December 31,
1999 1998
(millions)
Assets (included in other assets):
Unamortized debt reacquisition costs ...................................................... $ 12 $ -
Deferred Department of Energy assessment .................................................. $ 39 $ 44
Liabilities:
Deferred regulatory credit - income taxes ................................................. $126 $148
Unamortized investment tax credits ....................................................... $184 $205
Storm and property insurance reserve (see Note 12 - Insurance)............................. $216 $259
The amounts presented above exclude clause-related regulatory assets and
liabilities that are recovered or refunded over twelve-month periods.
These amounts are included in current assets and liabilities in the
consolidated balance sheets. Further, other aspects of the business, such
as generation assets and long-term power purchase commitments, would need
to be reviewed to assess their recoverability in a changed regulatory
environment. Since there is no deregulation proposal currently under
consideration in Florida, FPL is unable to predict the impact of a change
to a more competitive environment or when such a change might occur.
Almost half of the states, other than Florida, have enacted legislation or
have state commissions that issued orders designed to deregulate the
production and sale of electricity. By allowing customers to choose their
electricity supplier, deregulation is expected to result in a shift from
cost-based rates to market-based rates for energy production and other
services provided to retail customers. Similar initiatives are also being
pursued on the federal level. Although the legislation and initiatives vary
substantially, common areas of focus include when market-based pricing will
be available for wholesale and retail customers, what existing prudently
incurred costs in excess of the market-based price will be recoverable and
whether generation assets should be separated from transmission,
distribution and other assets. It is generally believed transmission and
distribution activities would remain regulated.
In December 1999, the FERC issued its final order on regional transmission
organizations or RTOs. RTOs, under a variety of structures, provide for
the independent operation of transmission systems for a given geographic
area. The final order establishes guidelines for public utilities to use
in considering and/or developing plans to initiate operations of RTOs. The
order requires all public utilities to file with the FERC by October 15,
2000, a proposal for an RTO with certain minimum characteristics and
functions to be operational by December 15, 2001, or alternatively, a
description of efforts to participate in an RTO, any existing obstacles to
RTO participation and any plans to work toward RTO participation. FPL is
evaluating various alternatives for compliance with the order.
Revenues and Rates - FPL's retail and wholesale utility rate schedules are
approved by the FPSC and the FERC, respectively. FPL records unbilled base
revenues for the estimated amount of energy delivered to customers but not
yet billed. Unbilled base revenues are included in customer receivables
and amounted to $130 million and $152 million at December 31, 1999 and
1998, respectively. Substantially all of the energy produced by FPL
Energy's independent power projects is sold through long-term power sales
agreements with utilities and revenue is recorded on an as-billed basis.
In 1999, the FPSC approved a three-year agreement among FPL, the State of
Florida Office of Public Counsel (Public Counsel), The Florida Industrial
Power Users Group (FIPUG) and The Coalition for Equitable Rates (Coalition)
regarding FPL's retail base rates, authorized regulatory return on common
equity (ROE), capital structure and other matters. The agreement, which
became effective April 15, 1999, provides for a $350 million reduction in
annual revenues from retail base operations allocated to all customers on a
cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a
revenue sharing mechanism for each of the twelve-month periods covered by
the agreement, whereby revenues from retail base operations in excess of a
stated threshold will be shared on the basis of two-thirds refunded to
retail customers and one-third retained by FPL. Revenues from retail base
operations in excess of a second threshold will be refunded 100% to retail
customers.
The thresholds are as follows:
Twelve Months Ended
April 14,
2000 2001 2002
(millions)
Threshold to refund 66 2/3% to customers ..... $3,400 $3,450 $3,500
Threshold to refund 100% to customers ........ $3,556 $3,606 $3,656
In addition, the agreement lowered FPL's authorized regulatory ROE range to
10% - 12%. During the term of the agreement, the achieved ROE may from
time to time be outside the authorized range, and the revenue sharing
mechanism described above is specified to be the appropriate and exclusive
mechanism to address that circumstance. For purposes of calculating ROE,
the agreement establishes a cap on FPL's adjusted equity ratio of 55.83%.
The adjusted equity ratio reflects a discounted amount for off-balance
sheet obligations under certain long-term purchased power contracts.
Finally, the agreement established a new special depreciation program (see
Electric Plant, Depreciation and Amortization) and includes provisions
which limit depreciation rates, and accruals for nuclear decommissioning
and fossil dismantlement costs, to currently approved levels and limit
amounts recoverable under the environmental compliance cost recovery clause
during the term of the agreement.
The agreement states that Public Counsel, FIPUG and Coalition will neither
seek nor support any additional base rate reductions during the three-year
term of the agreement unless such reduction is initiated by FPL. Further,
FPL agreed to not petition for any base rate increases that would take
effect during the term of the agreement.
FPL's revenues include amounts resulting from cost recovery clauses,
certain revenue taxes and franchise fees. Cost recovery clauses, which are
designed to permit full recovery of certain costs and provide a return on
certain assets utilized by these programs, include substantially all fuel,
purchased power and interchange expenses, conservation- and environmental-
related expenses and certain revenue taxes. Revenues from cost recovery
clauses are recorded when billed; FPL achieves matching of costs and
related revenues by deferring the net under or over recovery. Any under
recovered costs or over recovered revenues are collected from or returned
to customers in subsequent periods.
Electric Plant, Depreciation and Amortization - The cost of additions to
units of utility property of FPL and FPL Energy is added to electric
utility plant. In accordance with regulatory accounting, the cost of FPL's
units of utility property retired, less net salvage, is charged to
accumulated depreciation. Maintenance and repairs of property as well as
replacements and renewals of items determined to be less than units of
utility property are charged to other operations and maintenance (O&M)
expenses. At December 31, 1999, the generating, transmission, distribution
and general facilities of FPL represented approximately 45%, 13%, 35% and
7%, respectively, of FPL's gross investment in electric utility plant in
service. Substantially all electric utility plant of FPL is subject to the
lien of a mortgage securing FPL's first mortgage bonds.
Depreciation of electric property is primarily provided on a straight-line
average remaining life basis. FPL includes in depreciation expense a
provision for fossil plant dismantlement and nuclear plant decommissioning.
For substantially all of FPL's property, depreciation and fossil fuel
plant dismantlement studies are performed and filed with the FPSC at least
every four years. In April 1999, the FPSC granted final approval of FPL's
most recent depreciation studies, which were effective January 1, 1998.
Fossil fuel plant dismantlement studies were filed in September 1998 and
were effective January 1, 1999. The weighted annual composite depreciation
rate for FPL's electric plant in service was approximately 4.3% for 1999,
4.4% for 1998 and 4.3% for 1997, excluding the effects of decommissioning
and dismantlement. Further, these rates exclude the special and plant-
related deferred cost amortization discussed below.
The agreement that reduced FPL's base rates (see Revenues and Rates) also
allows for special depreciation of up to $100 million, at FPL's discretion,
in each year of the three-year agreement period to be applied to nuclear
and/or fossil generating assets. Under this new depreciation program, FPL
recorded approximately $70 million of special depreciation in 1999. The new
depreciation program replaced a revenue-based special amortization program
whereby FPL recorded as depreciation and amortization expense a fixed amount
of $9 million in 1999 and $30 million in 1998 and 1997 for nuclear assets.
FPL also recorded under this program variable amortization based on the
actual level of retail base revenues compared to a fixed amount. The
variable amounts recorded in 1999, 1998 and 1997 were $54 million, $348
million and $169 million, respectively. The 1998 and 1997 variable amounts
include, as depreciation and amortization expense, $161 million and $169
million, respectively, for amortization of regulatory assets. The remaining
variable amounts were applied against nuclear and fossil production assets.
Additionally, FPL completed amortization of certain plant-related deferred
costs by recording $24 million and $22 million, in 1998 and 1997,
respectively. These costs are considered recoverable costs and are monitored
through the monthly reporting process with the FPSC.
Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units.
Nuclear fuel lease expense was $83 million, $83 million and $85 million in
1999, 1998 and 1997, respectively. Included in this expense was an
interest component of $8 million, $9 million and $9 million in 1999, 1998
and 1997, respectively. Nuclear fuel lease payments and a charge for spent
nuclear fuel disposal are charged to fuel expense on a unit of production
method. These costs are recovered through the fuel and purchased power
cost recovery clause (fuel clause). Under certain circumstances of lease
termination, FPL is required to purchase all nuclear fuel in whatever form
at a purchase price designed to allow the lessor to recover its net
investment cost in the fuel, which totaled $157 million at December 31,
1999. For ratemaking, these leases are classified as operating leases. For
financial reporting, the capital lease obligation is recorded at the amount
due in the event of lease termination.
Decommissioning and Dismantlement of Generating Plant - FPL accrues nuclear
decommissioning costs over the expected service life of each unit. Nuclear
decommissioning studies are performed at least every five years and are
submitted to the FPSC for approval. In October 1998, FPL filed updated
nuclear decommissioning studies with the FPSC. These studies assume prompt
dismantlement for the Turkey Point Units Nos. 3 and 4 with decommissioning
activities commencing in 2012 and 2013, respectively. Current plans call
for St Lucie Unit No. 1 to be mothballed beginning in 2016 with
decommissioning activities to be integrated with the prompt dismantlement
of St. Lucie Unit No. 2 beginning in 2023. These studies also assume that
FPL will be storing spent fuel on site pending removal to a U.S. Government
facility. The studies, which are pending FPSC approval, indicate FPL's
portion of the ultimate costs of decommissioning its four nuclear units,
including costs associated with spent fuel storage, to be $7.3 billion.
Decommissioning expense accruals included in depreciation and amortization
expense, were $85 million in each of the years 1999, 1998 and 1997. FPL's
portion of the ultimate cost of decommissioning its four units, expressed
in 1999 dollars, is currently estimated to aggregate $1.7 billion. At
December 31, 1999 and 1998, the accumulated provision for nuclear
decommissioning totaled approximately $1.4 billion and $1.2 billion,
respectively, and is included in accumulated depreciation. See Electric
Plant, Depreciation and Amortization.
Similarly, FPL accrues the cost of dismantling its fossil fuel plants over
the expected service life of each unit. Fossil dismantlement expense was
$17 million in each of the years 1999, 1998 and 1997, and is included in
depreciation and amortization expense. FPL's portion of the ultimate cost
to dismantle its fossil units is $482 million. At December 31, 1999 and
1998, the accumulated provision for fossil dismantlement totaled $232
million and $185 million, respectively, and is included in accumulated
depreciation. The dismantlement studies filed in 1998 indicated an
estimated reserve deficiency of $38 million, which was recovered through
the special amortization program. See Electric Plant, Depreciation and
Amortization.
Restricted trust funds for the payment of future expenditures to
decommission FPL's nuclear units are included in special use funds of FPL.
Securities held in the decommissioning fund are carried at market value
with market adjustments resulting in a corresponding adjustment to the
accumulated provision for nuclear decommissioning. See Note 3 - Special
Use Funds. Contributions to the funds are based on current period
decommissioning expense. Additionally, fund earnings, net of taxes are
reinvested in the funds. The tax effects of amounts not yet recognized for
tax purposes are included in accumulated deferred income taxes.
Accrual for Major Maintenance Costs - Consistent with regulatory treatment,
FPL's estimated nuclear maintenance costs for each nuclear unit's next
planned outage are accrued over the period from the end of the last outage
to the end of the next planned outage. The accrual for nuclear maintenance
costs at December 31, 1999 and 1998 totaled $42 million and $31 million,
respectively. Any difference between the estimated and actual costs are
included in O&M expenses when known.
FPL Energy's estimated major maintenance costs for each unit's next planned
outage are accrued over the period from the end of the last outage to the
end of the next planned outage. The accrual for FPL Energy's major
maintenance costs at December 31, 1999 and 1998 totaled $33 million and $2
million, respectively. Any difference between the estimated and actual
costs are included in O&M expenses when known.
Construction Activity - In accordance with an FPSC rule, FPL is not
permitted to capitalize interest or a return on common equity during
construction, except for projects that cost in excess of 1/2% of the plant
in service balance and will require more than one year to complete. The
FPSC allows construction projects below that threshold as an element of
rate base. FPL Group's unregulated operations capitalize interest on
construction projects.
Storm and Property Insurance Reserve Fund (storm fund) - The storm fund
provides coverage toward storm damage costs and possible retrospective
premium assessments stemming from a nuclear incident under the various
insurance programs covering FPL's nuclear generating plants. Securities
held in the fund are carried at market value with market adjustments
resulting in a corresponding adjustment to the storm and property insurance
reserve. See Note 3 - Special Use Funds and Note 12 - Insurance. Fund
earnings, net of taxes, are reinvested in the fund. The tax effects of
amounts not yet recognized for tax purposes are included in accumulated
deferred income taxes.
Other Investments - Included in other investments in FPL Group's
consolidated balance sheets is FPL Group's participation in leveraged
leases of $154 million at both December 31, 1999 and 1998. Additionally,
other investments include notes receivable and non-controlling non-majority
owned interests in partnerships and joint ventures, essentially all of
which are accounted for under the equity method. See Note 3.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid
investments with original maturities of three months or less.
Retirement of Long-Term Debt - The excess of FPL's reacquisition cost over
the book value of long-term debt is deferred and amortized to expense
ratably over the remaining life of the original issue, which is consistent
with its treatment in the ratemaking process. Through this amortization
and amounts recorded under the special amortization program, the remaining
balance of this regulatory asset was fully amortized in 1998. Retirements
of debt, after the special amortization program terminated on April 14,
1999, resulted in additional reacquisition costs. See Regulation. FPL
Group Capital Inc (FPL Group Capital) expenses this cost in the period
incurred.
Income Taxes - Deferred income taxes are provided on all significant
temporary differences between the financial statement and tax bases of
assets and liabilities. FPL is included in the consolidated federal income
tax return filed by FPL Group. FPL determines its income tax provision on
the "separate return method." The deferred regulatory credit - income
taxes of FPL represents the revenue equivalent of the difference in
accumulated deferred income taxes computed under FAS 109, "Accounting for
Income Taxes," as compared to regulatory accounting rules. This amount is
being amortized in accordance with the regulatory treatment over the
estimated lives of the assets or liabilities which resulted in the initial
recognition of the deferred tax amount. Investment tax credits (ITC) for
FPL are deferred and amortized to income over the approximate lives of the
related property in accordance with the regulatory treatment. The special
amortization program included amortization of regulatory assets related to
income taxes of $59 million in 1997.
Accounting for Derivative Instruments and Hedging Activities - In June 1998,
the Financial Accounting Standards Board issued FAS 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards requiring that every derivative instrument
(including certain derivative instruments embedded in other contracts) be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The statement requires that changes in the derivative's fair
value be recognized currently in earnings unless specific hedge accounting
criteria are met. FPL Group and FPL are currently assessing the effect, if
any, on their financial statements of implementing FAS 133. FPL Group and
FPL will be required to adopt FAS 133 beginning in 2001.
2. Employee Retirement Benefits
FPL Group and its subsidiaries sponsor a noncontributory defined benefit
pension plan and defined benefit postretirement plans for health care and
life insurance benefits (other benefits) for substantially all employees.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period
ending September 30, 1999 and a statement of the funded status of both
years:
Pension Benefits Other Benefits
1999 1998 1999 1998
(millions)
Change in benefit obligation:
Obligation at October 1 of prior year ...................... $1,173 $1,146 $ 345 $ 324
Service cost ............................................... 46 45 6 5
Interest cost .............................................. 71 75 21 21
Participant contributions .................................. - - 2 1
Plan amendments ............................................ - 8 - -
Actuarial (gains) losses - net ............................. (38) 34 (24) 10
Acquisitions ............................................... 4 - 2 -
Benefit payments ........................................... (78) (135) (17) (16)
Obligation at September 30 ................................... 1,178 1,173 335 345
Change in plan assets:
Fair value of plan assets at October 1 of prior year ....... 2,329 2,287 115 125
Actual return on plan assets ............................... 310 184 12 7
Participant contributions .................................. - - 2 1
Benefit payments and expenses .............................. (84) (142) (18) (18)
Fair value of plan assets at September 30 .................... 2,555 2,329 111 115
Funded Status:
Funded status at September 30 .............................. 1,377 1,156 (224) (230)
Unrecognized prior service cost ............................ (89) (100) - -
Unrecognized transition (asset) obligation ................. (117) (140) 45 49
Unrecognized (gain) loss ................................... (900) (736) 7 34
Prepaid (accrued) benefit cost at FPL Group ................ $ 271 $ 180 $(172) $ (147)
Prepaid (accrued) benefit cost at FPL ...................... $ 263 $ 173 $(168) $ (145)
The following table provides the components of net periodic benefit cost
for the plans for the years ended December 31, 1999, 1998 and 1997:
Pension Benefits Other Benefits
1999 1998 1997 1999 1998 1997
(millions)
Service cost ................................. $ 46 $ 45 $ 38 $ 6 $ 6 $ 6
Interest cost ................................ 71 75 76 21 21 21
Expected return on plan assets ............... (156) (149) (135) (7) (8) (7)
Amortization of transition (asset) obligation. (23) (23) (23) 3 3 3
Amortization of prior service cost ........... (8) (8) 1 - - -
Amortization of losses (gains) ............... (22) (21) (26) 1 1 -
Net periodic (benefit) cost .................. (92) (81) (69) 24 23 23
Effect of Maine acquisition .................. - - - 2 - -
Effect of special retirement program ......... - - 18 - - -
Net periodic (benefit) cost at FPL Group ..... $ (92) $ (81) $ (51) $ 26 $ 23 $ 23
Net periodic (benefit) cost at FPL ........... $ (89) $ (80) $ (50) $ 23 $ 23 $ 23
The weighted-average discount rate used in determining the benefit
obligations was 6.5% and 6.0% for 1999 and 1998, respectively. The assumed
level of increase in future compensation levels was 5.5% for all years.
The expected long-term rate of return on plan assets was 7.75% for all
years.
Based on the current discount rates and current health care costs, the
projected 2000 trend assumptions used to measure the expected cost of
benefits covered by the plans are 6.2% and 5.6%, for persons prior to age
65 and over age 65, respectively. The rate is assumed to decrease over the
next 3 years to the ultimate trend rate of 5% for all age groups and remain
at that level thereafter.
Assumed health care cost trend rates can have a significant effect on the
amounts reported for the health care plans. A 1% increase or decrease in
assumed health care cost trend rates would have a corresponding effect on
the service and interest cost components and the accumulated obligation of
other benefits of approximately $1 million and $13 million, respectively.
3. Financial Instruments
The carrying amounts of cash equivalents and short-term debt approximate
their fair values. At December 31, 1999 and 1998, other investments of FPL
Group include $291 million and $72 million, respectively, of investments
that are carried at estimated fair value or cost, which approximates fair
value. The following estimates of the fair value of financial instruments
have been made using available market information and other valuation
methodologies. However, the use of different market assumptions or methods
of valuation could result in different estimated fair values.
December 31,
1999 1998
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(millions)
Long-term debt of FPL (a) .................................... $2,204 $2,123(b) $2,421 $2,505(b)
Long-term debt of FPL Group (a) .............................. $3,603 $3,518(b) $2,706 $2,797(b)
____________________
(a) Includes current maturities.
(b) Based on quoted market prices for these or similar issues.
Special Use Funds - The special use funds consist of storm fund assets
totaling $131 million and $160 million, and decommissioning fund assets
totaling $1.220 billion and $1.046 billion at December 31, 1999 and 1998,
respectively. Securities held in the special use funds are carried at
estimated fair value. The nuclear decommissioning fund consists of
approximately 40% equity securities and 60% municipal, government,
corporate and mortgage- and other asset-backed debt securities with a
weighted-average maturity of approximately ten years. The storm fund
primarily consists of municipal debt securities with a weighted-average
maturity of approximately four years. The cost of securities sold is
determined on the specific identification method. The funds had
approximate realized gains of $32 million and approximate realized losses
of $22 million in 1999, $24 million and $4 million in 1998 and $3 million
and $2 million in 1997, respectively. The funds had unrealized gains of
approximately $286 million and $210 million at December 31, 1999 and 1998,
respectively; the unrealized losses at those dates were approximately $17
million and $2 million. The proceeds from the sale of securities in 1999,
1998 and 1997 were approximately $2.7 billion, $1.2 billion and $800
million, respectively.
4. Common Stock
Common Stock Dividend Restrictions - FPL Group's charter does not limit the
dividends that may be paid on its common stock. As a practical matter, the
ability of FPL Group to pay dividends on its common stock is dependent upon
dividends paid to it by its subsidiaries, primarily FPL. FPL's charter and
a mortgage securing FPL's first mortgage bonds contain provisions that,
under certain conditions, restrict the payment of dividends and other
distributions to FPL Group. These restrictions do not currently limit
FPL's ability to pay dividends to FPL Group. In 1999, 1998 and 1997, FPL
paid, as dividends to FPL Group, its net income available to FPL Group on a
one-month lag basis.
Employee Stock Ownership Plan (ESOP) - The employee thrift plans of FPL
Group include a leveraged ESOP feature. Shares of common stock held by the
Trust for the thrift plans (Trust) are used to provide all or a portion of
the employers' matching contributions. Dividends received on all shares,
along with cash contributions from the employers, are used to pay principal
and interest on an ESOP loan held by FPL Group Capital. Dividends on
shares allocated to employee accounts and used by the Trust for debt
service are replaced with an equivalent amount of shares of common stock at
prevailing market prices.
ESOP-related compensation expense of approximately $21 million in 1999 and
$19 million in each of the years 1998 and 1997 was recognized based on the
fair value of shares allocated to employee accounts during the period.
Interest income on the ESOP loan is eliminated in consolidation. ESOP-
related unearned compensation included as a reduction of shareholders'
equity at December 31, 1999 was approximately $233 million, representing 8
million unallocated shares at the original issue price of $29 per share.
The fair value of the ESOP-related unearned compensation account using the
closing price of FPL Group stock as of December 31, 1999 was approximately
$344 million.
Long-Term Incentive Plan - As of December 31, 1999, 9 million shares of
common stock are reserved and available for awards to officers and
employees of FPL Group and its subsidiaries under FPL Group's long-term
incentive plan. Restricted stock is issued at market value at the date of
grant, typically vests within four years and is subject to, among other
things, restrictions on transferability. Performance share awards are
typically payable at the end of a three- or four-year performance period
and are subject to risk of forfeiture if the specified performance criteria
is not met within the restriction period. The changes in share awards
under the incentive plan are as follows:
Restricted Performance
Stock Shares (a) Options (a)
Balances, December 31, 1996 .......... 166,300 311,527 -
Granted ............................ 71,000(b) 212,011(c) -
Paid/released ...................... - (70,008) -
Forfeited .......................... (17,750) (10,942) -
Balances, December 31, 1997 .......... 219,550 442,588 -
Granted ............................ 19,500(b) 178,518(c) -
Paid/released ...................... - (80,920) -
Forfeited .......................... (22,250) (29,566) -
Balances, December 31, 1998 .......... 216,800 510,620 -
Granted ............................ 210,100(b) 294,662(c) 1,300,000(d)
Paid/released ...................... - (78,640) -
Forfeited .......................... (13,500) (80,027) (200,000)
Balances, December 31, 1999 .......... 413,400 646,615 1,100,000(e)
____________________
(a) Performance shares and options resulted in approximately 253,000, 128,000 and 132,000 assumed incremental shares of
common stock outstanding for purposes of computing diluted earnings per share in 1999, 1998 and 1997, respectively.
These incremental shares did not change basic earnings per share.
(b) The weighted-average grant date fair value of restricted stock granted in 1999, 1998 and 1997 was $53.21, $61.89
and $55.25, respectively.
(c) The weighted-average grant date fair value of performance shares granted in 1999, 1998 and 1997 was $61.19, $59.19
and $45.63, respectively.
(d) The weighted-average grant date fair value of options granted in 1999 was $51.59. The exercise price of each
option granted in 1999 equaled the market price of FPL Group stock on the date of grant.
(e) Exercise prices for options outstanding as of December 31, 1999, ranged from $51.16 to $54.38 with a weighted-
average exercise price of $51.59 and a weighted-average remaining contractual life of 8.6 years. As of December
31, 1999, there were no exercisable options. Of the options outstanding as of December 31, 1999, 225,000 vest in
2000, 475,000 in 2001, 200,000 in 2002 and 200,000 in 2003.
FAS 123, "Accounting for Stock-Based Compensation," encourages a fair value
based method of accounting for stock-based compensation. FPL Group,
however, uses the intrinsic value based method of accounting as permitted
by the statement. Stock-based compensation expense was approximately $13
million, $10 million and $8 million in 1999, 1998 and 1997, respectively.
Compensation expense for restricted stock and performance shares is the
same under the fair value and the intrinsic value based methods. Had
compensation expense for the options been determined as prescribed by the
fair value based method, FPL Group's net income and earnings per share
would have been $696 million and $4.06, respectively.
The fair value of the options granted in 1999 were estimated on the date of
the grant using the Black-Scholes option-pricing model with a 3.81%
weighted-average expected dividend yield, 17.88% weighted-average expected
volatility, 5.46% weighted-average risk-free interest rate and a weighted-
average expected term of 9.3 years.
Other - Each share of common stock has been granted a Preferred Share
Purchase Right (Right), at a price of $120, subject to adjustment, in the
event of certain attempted business combinations. The Rights will cause
substantial dilution to a person or group attempting to acquire FPL Group
on terms not approved by FPL Group's board of directors.
5. Preferred Stock
FPL Group's charter authorizes the issuance of 100 million shares of serial
preferred stock, $0.01 par value. None of these shares is outstanding.
FPL Group has reserved 3 million shares for issuance upon exercise of
preferred share purchase rights which expire in June 2006. Preferred stock
of FPL consists of the following: (a)
December 31, 1999
Shares Redemption December 31,
Outstanding Price 1999 1998
(millions)
Cumulative, $100 Par Value, without sinking fund requirements,
authorized 15,822,500 shares:
4 1/2% Series ........................................... 100,000 $101.00 $ 10 $ 10
4 1/2% Series A ......................................... 50,000 $101.00 5 5
4 1/2% Series B ......................................... 50,000 $101.00 5 5
4 1/2% Series C ......................................... 62,500 $103.00 6 6
4.32% Series D .......................................... 50,000 $103.50 5 5
4.35% Series E .......................................... 50,000 $102.00 5 5
6.98% Series S .......................................... 750,000 $103.49(b) 75 75
7.05% Series T .......................................... 500,000 $103.52(b) 50 50
6.75% Series U .......................................... 650,000 $103.37(b) 65 65
Total preferred stock of FPL .................................. 2,262,500 $226 $226
____________________
(a) FPL's charter authorizes the issuance of 5 million shares of subordinated preferred stock, no par value. None of
these shares is outstanding. There were no issuances or redemptions of preferred stock in 1999, 1998 and 1997.
(b) Not callable prior to 2003.
6. Debt
Long-term debt consists of the following:
December 31,
1999 1998
(millions)
FPL:
First mortgage bonds:
Maturing through 2004 - 5 3/8% to 6 7/8% ................................................. $ 350 $ 580
Maturing 2008 through 2016 - 5 7/8% to 7 7/8% ............................................ 650 641
Maturing 2023 through 2026 - 7% to 7 3/4% ................................................ 516 516
Medium-term notes - maturing 2003 - 5.79% ................................................ 70 70
Pollution control and industrial development series -
maturing 2020 through 2027 - 6.7% to 7.5% .............................................. 150 150
Pollution control, solid waste disposal and industrial development revenue bonds -
maturing 2020 through 2029 - variable, 3.4% and 3.6% average
annual interest rate, respectively ..................................................... 483 483
Unamortized discount - net ................................................................. (15) (19)
Total long-term debt of FPL .............................................................. 2,204 2,421
Less current maturities ................................................................ 125 230
Long-term debt of FPL, excluding current maturities .................................... 2,079 2,191
FPL Group Capital:
Debentures:
Maturing through 2004 - 6 7/8% ........................................................... 175 -
Maturing 2006 through 2013 - 7 3/8% to 7 5/8% (a)......................................... 1,225 125
Other long-term debt - 3.4% to 7.645% due various dates to 2018 ............................ 5 162
Unamortized discount ....................................................................... (6) (2)
Total long-term debt of FPL Group Capital ................................................ 1,399 285
Less current maturities ................................................................ - 129
Long-term debt of FPL Group Capital, excluding current maturities ...................... 1,399 156
Total long-term debt ......................................................................... $3,478 $2,347
____________________
(a) In December 1999, FPL Group Capital issued $400 million principal amount of 7 3/8% debentures, maturing in 2009.
Minimum annual maturities of long-term debt for FPL Group are approximately
$125 million, $170 million and $300 million for 2000, 2003 and 2004,
respectively. The amounts for FPL for the same periods are $125 million,
$170 million and $125 million, respectively. FPL Group and FPL have no
amounts due in 2001 and 2002.
Short-term debt at December 31, 1999 consists of commercial paper
borrowings with a year end weighted-average interest rate of 5.60% for FPL
Group (5.87% for FPL). Available lines of credit aggregated approximately
$2.4 billion ($880 million for FPL) at December 31, 1999, all of which were
based on firm commitments.
7. Income Taxes
The components of income taxes are as follows:
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1999 1998 1997 1999 1998 1997
(millions)
Federal:
Current ............................................. $511 $467 $308 $383 $492 $377
Deferred ............................................ (196) (215) (34) (88) (169) (83)
ITC and other - net ................................. (29) (27) (22) (21) (24) (22)
Total federal ................................... 286 225 252 274 299 272
State:
Current ............................................. 55 72 52 62 78 60
Deferred ............................................ (18) (18) - (9) (21) (3)
Total state ..................................... 37 54 52 53 57 57
Income taxes charged to operations - FPL............... 327 356 329
Credited to other income (deductions) - FPL ........... (3) (7) (8)
Total income taxes .................................... $323 $279 $304 $324 $349 $321
A reconciliation between the effective income tax rates and the applicable
statutory rates is as follows:
FPL Group FPL
Years Ended December 31, Years Ended December 31,
1999 1998 1997 1999 1998 1997
Statutory federal income tax rate ........................ 35.0% 35.0% 35.0% 35.0% 35.0% 35.0%
Increases (reductions) resulting from:
State income taxes - net of federal income tax benefit.. 2.4 3.7 3.7 3.8 3.7 3.9
Amortization of ITC .................................... (2.1) (2.5) (2.4) (2.3) (2.4) (2.3)
Amortization of deferred regulatory credit -
income taxes ......................................... (1.3) (1.8) (1.8) (1.5) (1.7) (1.8)
Adjustments of prior years' tax matters ................ (2.7) (6.3)(a) (2.7) (0.1) 0.1 (1.7)
Preferred stock dividends - FPL ........................ 0.5 0.5 0.7 - - -
Other - net ............................................ (0.2) 1.0 0.5 0.5 0.9 0.8
Effective income tax rate ................................ 31.6% 29.6% 33.0% 35.4% 35.6% 33.9%
____________________
(a) Includes the resolution of an audit issue with the Internal Revenue Service (IRS).
The income tax effects of temporary differences giving rise to consolidated
deferred income tax liabilities and assets are as follows:
FPL Group FPL
December 31, December 31,
1999 1998 1999 1998
(millions)
Deferred tax liabilities:
Property-related ................................................... $1,377 $1,493 $1,377 $1,493
Investment-related ................................................. 373 460 - -
Other .............................................................. 312 255 168 140
Total deferred tax liabilities ................................... 2,062 2,208 1,545 1,633
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss carryforward ..................... 170 102 - -
Unamortized ITC and deferred regulatory credit - income taxes ...... 119 136 119 136
Storm and decommissioning reserves ................................. 245 258 245 258
Other .............................................................. 472 473 379 352
Valuation allowance ................................................ (23) (16) - -
Net deferred tax assets .......................................... 983 953 743 746
Accumulated deferred income taxes .................................... $1,079 $1,255 $ 802 $ 887
The carryforward period for a capital loss from the disposition in a prior
year of an FPL Group Capital subsidiary expired at the end of 1996. The
amount of the deductible loss from this disposition was limited by IRS
rules. FPL Group is challenging the IRS loss limitation and the IRS is
disputing certain other positions taken by FPL Group. Tax benefits, if
any, associated with these matters will be reported in future periods when
resolved.
8. Jointly-Owned Electric Utility Plant
FPL owns approximately 85% of St. Lucie Unit No. 2, 20% of the St. Johns
River Power Park units and coal terminal and approximately 76% of Scherer
Unit No. 4. At December 31, 1999, FPL's gross investment in these units
was $1.174 billion, $328 million and $571 million, respectively;
accumulated depreciation was $710 million, $155 million and $266 million,
respectively.
FPL is responsible for its share of the operating costs, as well as
providing its own financing. At December 31, 1999, there was no
significant balance of construction work in progress on these facilities.
See Note 12 - Litigation.
9. Acquisition of Maine Assets
During the second quarter of 1999, FPL Energy completed the purchase of
Central Maine Power Company's (CMP) non-nuclear generating assets,
primarily fossil and hydro power plants, for $866 million. The purchase
price was based on an agreement, subject to regulatory approvals, reached
with CMP in January 1998. In October 1998, the FERC struck down
transmission rules that had been in effect in New England since the 1970s.
FPL Energy filed a lawsuit in November 1998 requesting a declaratory
judgment that CMP could not meet the essential terms of the purchase
agreement and, as a result, FPL Energy should not be required to complete
the transaction. FPL Energy believed these FERC rulings regarding
transmission constituted a material adverse effect under the purchase
agreement because of the significant decline in the value of the assets
caused by the rulings. The request for declaratory judgment was denied in
March 1999 and the acquisition was completed on April 7, 1999. The
acquisition was accounted for under the purchase method of accounting and
the results of operating the Maine plants have been included in the
consolidated financial statements since the acquisition date.
The FERC rulings regarding transmission, as well as the announcement of new
entrants into the market and changes in fuel prices since January 1998,
resulted in FPL Energy recording a $176 million pre-tax impairment loss to
write-down the fossil assets to their fair value, which was determined
based on a discounted cash flow analysis. The impairment loss reduced FPL
Group's 1999 results of operations and earnings per share by $104 million
and $0.61 per share, respectively.
Most of the remainder of the purchase price was allocated to the hydro
operations. The hydro plants and related goodwill are being amortized on a
straight-line basis over the 40-year term of the hydro plant operating
licenses.
10. Divestiture of Cable Investments
In January 1999, an FPL Group Capital subsidiary sold 3.5 million common
shares of Adelphia Communications Corporation (Adelphia) stock and in
October 1999 had its one-third ownership interest in a cable limited
partnership redeemed, resulting in after-tax gains of approximately $96
million and $66 million, respectively. Both investments had been accounted
for on the equity method.
11. Settlement of Litigation
In October 1999, FPL and the Florida Municipal Power Agency (FMPA) entered
into a settlement agreement pursuant to which FPL agreed to pay FMPA a cash
settlement; FPL agreed to reduce the demand charge on an existing power
purchase agreement; and FPL and FMPA agreed to enter into a new power
purchase agreement giving FMPA the right to purchase limited amounts of
power in the future at a specified price. FMPA agreed to dismiss the
lawsuit with prejudice, and both parties agreed to exchange mutual
releases. The settlement reduced FPL's 1999 net income by $42 million.
12. Commitments and Contingencies
Commitments - FPL has made commitments in connection with a portion of its
projected capital expenditures. Capital expenditures for the construction or
acquisition of additional facilities and equipment to meet customer demand
are estimated to be approximately $3.1 billion for 2000 through 2002.
Included in this three-year forecast are capital expenditures for 2000 of
approximately $1.3 billion. As of December 31, 1999, FPL Energy has made
commitments totaling approximately $72 million, primarily in connection with
the development of an independent power project. FPL Group and its
subsidiaries, other than FPL, have guaranteed approximately $680 million of
purchased power agreement obligations, debt service payments and other
payments subject to certain contingencies.
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 the insurance available from private sources and
under an industry retrospective payment plan. In accordance with this Act,
FPL maintains $200 million of private liability insurance, which is the
maximum obtainable, and participates in a secondary financial protection
system under which it is subject to retrospective assessments of up to $363
million per incident at any nuclear utility reactor in the United States,
payable at a rate not to exceed $43 million per incident per year.
FPL participates in nuclear insurance mutual companies that provide $2.75
billion of limited insurance coverage 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
also participates in an insurance program that provides limited coverage
for replacement power costs if a nuclear plant is out of service because of
an accident. In the event of an accident at one of FPL's or another
participating insured's nuclear plants, FPL could be assessed up to $50
million in retrospective premiums.
In the event of a catastrophic loss at one of FPL's nuclear plants, the
amount of insurance available may not be adequate to cover property damage
and other expenses incurred. Uninsured losses, to the extent not recovered
through rates, would be borne by FPL and could have a material adverse
effect on FPL Group's and FPL's financial condition.
FPL self-insures the majority of its transmission and distribution (T&D)
property due to the high cost and limited coverage available from third-
party insurers. As approved by the FPSC, FPL maintains a funded storm and
property insurance reserve, which totaled approximately $216 million at
December 31, 1999, for T&D property storm damage or assessments under the
nuclear insurance program. During 1999, storm fund reserves were reduced
to recover the costs associated with three storms. Recovery from customers
of any losses in excess of the storm and property insurance reserve will
require the approval of the FPSC. FPL's available lines of credit include
$300 million to provide additional liquidity in the event of a T&D property
loss.
Contracts - FPL has entered into long-term purchased power and fuel
contracts. Take-or-pay purchased power contracts with the Jacksonville
Electric Authority (JEA) and with subsidiaries of The Southern Company
(Southern Companies) provide approximately 1,300 megawatts (mw) of power
through mid-2010 and 383 mw thereafter through 2021. FPL also has various
firm pay-for-performance contracts to purchase approximately 900 mw from
certain cogenerators and small power producers (qualifying facilities) with
expiration dates ranging from 2002 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 long-term
contracts for the transportation and supply of natural gas, coal and oil
with various expiration dates through 2021. FPL Energy has long-term
contracts for the transportation and storage of natural gas with expiration
dates ranging from 2005 through 2017, and a 24-month contract commencing in
mid-2000 for the supply of natural gas.
The required capacity and minimum payments through 2004 under these
contracts are estimated to be as follows:
2000 2001 2002 2003 2004
(millions)
FPL:
Capacity payments:
JEA and Southern Companies ............................................ $210 $210 $210 $200 $200
Qualifying facilities (a) ............................................. $370 $380 $400 $410 $425
Minimum payments, at projected prices:
Natural gas, including transportation ................................. $205 $235 $255 $255 $260
Coal .................................................................. $ 50 $ 45 $ 45 $ 20 $ 10
Oil ................................................................... $165 $165 $ 10 $ - $ -
FPL Energy:
Natural gas, including transportation and storage ..................... $ 20 $ 20 $ 20 $ 15 $ 15
_______________
(a) Includes approximately $42 million, $44 million, $47 million, $49 million and $50 million, respectively, for
capacity payments associated with two contracts that are currently in dispute. These capacity payments are subject
to the outcome of the related litigation. See Litigation.
Charges under these contracts were as follows:
1999 Charges 1998 Charges 1997 Charges
Energy/ Energy/ Energy/
Capacity Fuel Capacity Fuel Capacity Fuel
(millions)
FPL:
JEA and Southern Companies .................. $186(a) $132(b) $192(a) $138(b) $201(a) $153(b)
Qualifying facilities........................ $319(c) $121(b) $299(c) $108(b) $296(c) $128(b)
Natural gas, including transportation ....... $ - $373(b) $ - $280(b) $ - $413(b)
Coal ........................................ $ - $ 43(b) $ - $ 50(b) $ - $ 52(b)
Oil ......................................... $ - $115(b) $ - $ - $ - $ -
FPL Energy:
Natural gas transportation and storage ...... $ - $ 16 $ - $ 18 $ - $ 16
_______________
(a) Recovered through base rates and the capacity cost recovery clause (capacity clause).
(b) Recovered through the fuel and purchased power cost recovery clause.
(c) Recovered through the capacity clause.
Litigation - In 1997, FPL filed a complaint against the owners of two
qualifying facilities (plant owners) seeking an order declaring that FPL's
obligations under the power purchase agreements with the qualifying
facilities were rendered of no force and effect because the power plants
failed to accomplish commercial operation before January 1, 1997, as
required by the agreements. In 1997, the plant owners filed for bankruptcy
under Chapter XI of the U.S. Bankruptcy Code and entered into an agreement
with the holders of more than 70% of the bonds that partially financed the
construction of the plants. This agreement gives the holders of a majority
of the principal amount of the bonds (the majority bondholders) the right
to control, fund and manage any litigation against FPL and the right to
settle with FPL on any terms such majority bondholders approve, provided
that certain agreements are not affected and certain conditions are met.
In 1998, the plant owners (through the attorneys for the majority
bondholders) filed an answer denying the allegations in FPL's complaint and
asserting counterclaims for approximately $2 billion, consisting of all
capacity payments that could have been made over the 30-year term of the
power purchase agreements and three times their actual damages for alleged
violations of Florida antitrust laws by FPL, FPL Group and FPL Group
Capital, plus attorneys' fees. The trial court dismissed all of the
partnerships' antitrust claims. In 1999, the partnerships' motion for
summary judgment was denied; they have appealed.
A contract with Cedar Bay Generating Company, L.P. (Cedar Bay), a
qualifying facility, provides FPL with the right to dispatch the Cedar Bay
facility "in any manner it deems appropriate." Despite this contractual
right, Cedar Bay initiated an action in 1997 in the circuit court
challenging, among other things, the manner in which the facility had been
dispatched by FPL. Although the court granted summary judgment to FPL with
regard to Cedar Bay's claim that FPL's dispatch decisions violated the
express terms of the contract, it permitted a jury to hear Cedar Bay's
claim that such dispatch decisions violated an implied duty of good faith
and fair dealing. The jury awarded Cedar Bay approximately $13 million on
this claim. Thereafter, the court entered a declaration that FPL was, in
the future, to dispatch the Cedar Bay facility in accordance with certain
specified parameters. FPL expects to recover the amount of this judgment
through the capacity clause.
FPL has appealed both the jury award and the court's declaration. In 1999,
after FPL filed its notice of appeal in the Cedar Bay action, a lender, on
behalf of itself and a group of other Cedar Bay lenders, filed an action
against FPL in the circuit court alleging breach of contract, breach of an
implied duty of good faith and fair dealing, fraud, tortious interference
with contract and several other claims regarding the manner in which FPL
has dispatched the Cedar Bay facility. It seeks unspecified damages and
other relief. FPL has moved to dismiss all counts of this complaint.
In 1999, the Attorney General of the United States, on behalf of the U.S.
Environmental Protection Agency (EPA) brought an action against Georgia
Power Company and other subsidiaries of The Southern Company for injunctive
relief and the assessment of civil penalties for certain violations of the
Clean Air Act. Among other things, the EPA alleges Georgia Power Company
constructed and is continuing to operate Scherer Unit No. 4, in which FPL
owns a 76% interest, without obtaining proper permitting, and without
complying with performance and technology standards as required by the
Clean Air Act. The suit seeks injunctive relief requiring the installation
of such technology and civil penalties of up to $25,000 per day for each
violation from August 7, 1977 through January 30, 1997, and $27,000 per day
for each violation thereafter. Georgia Power has filed an answer to the
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.
FPL Group and FPL believe that they have meritorious defenses to the
litigation and are vigorously defending the suits. Accordingly, the
liabilities, if any, arising from the proceedings are not anticipated to
have a material adverse effect on their financial statements.
13. Subsequent Event
FPL FiberNet, LLC (FPL FiberNet) was formed in January 2000 to enhance the
value of FPL Group's fiber-optic network assets that were originally built
to support FPL operations. FPL's existing fiber-optic net assets with a
net book value of approximately $100 million were transferred to FPL
FiberNet in January 2000. FPL FiberNet will sell wholesale fiber-optic
network capacity to FPL and other new and existing customers, primarily
telephone, cable television, internet and other telecommunications
companies.
14. Segment Information
FPL Group's reportable segments include FPL, a regulated utility, and FPL
Energy, an unregulated energy generating subsidiary. Corporate and other
represents other business activities, other segments that are not
separately reportable and eliminating entries. For all years presented
approximately 98% of FPL Group's operating revenues were derived from the
sale of electricity in the United States. As of December 31, 1999 and
1998, less than 1% of long-lived assets were located in foreign countries.
FPL Group's segment information is as follows:
1999 1998 1997
(a) Corp. (a) Corp. (a) Corp.
FPL and FPL and FPL and
FPL Energy Other Total FPL Energy Other Total FPL Energy Other Total
(millions)
Operating revenues $ 6,057 $ 323 $ 58 $ 6,438 $ 6,366 $ 234 $ 61 $ 6,661 $ 6,132 $189 $ 48 $ 6,369
Interest expense .. $ 164 $ 44 $ 14 $ 222 $ 196 $ 84 $ 42 $ 322 $ 227 $ 49 $ 15 $ 291
Depreciation and
amortization .... $ 989 $ 34 $ 17 $ 1,040 $ 1,249 $ 31 $ 4 $ 1,284 $ 1,034 $ 22 $ 5 $ 1,061
Equity in earnings
of equity method
investees ....... $ - $ 50 $ - $ 50 $ - $ 39 $ - $ 39 $ - $ 12 $ 2 $ 14
Income tax expense
(benefit)(b) $ 324 $ (42) $ 41 $ 323 $ 349 $ 24 $(94) $ 279 $ 321 $ 5 $(22) $ 304
Net income (loss)(c) $ 576 $ (46) $167 $ 697 $ 616 $ 32 $ 16 $ 664 $ 608 $ 9 $ 1 $ 618
Significant noncash
items ........... $ 86 $ - $ - $ 86 $ 34 $ - $ - $ 34 $ 81 $420 $ - $ 501
Capital expenditures
and investments $ 924 $1,540 $ 15 $ 2,479 $ 617 $ 313 $ 16 $ 946 $ 551 $291 $ - $ 842
Total assets ...... $11,231 $2,212 $ (2) $13,441 $10,748 $1,092 $189 $12,029 $11,172 $912 $365 $12,449
Investment in equity
method investees $ - $ 166 $ - $ 166 $ - $ 165 $ - $ 165 $ - $ 74 $ 2 $ 76
____________________
(a) In 1999 and 1998, FPL Energy's interest expense was based on an assumed capital structure of 50% debt for operating
projects and 100% debt for projects under construction. FPL Energy's 1998 interest expense also includes the cost
of terminating an interest rate swap agreement. FPL Energy's 1997 interest expense was related to its outstanding
debt, which exceeded the assumed capital structure.
(b) FPL Group allocates income taxes to FPL Energy on a "separate return method" as if it were a tax paying entity.
(c) The following nonrecurring items affected 1999 net income: FPL settled litigation (see Note 11); FPL Energy
recorded an impairment loss (see Note 9); and Corporate and Other divested its cable investments (see Note 10).
15. Summarized Financial Information of FPL Group Capital
FPL Group Capital's debentures, when outstanding, are guaranteed by FPL
Group and included in FPL Group's consolidated balance sheets. Summarized
financial information of FPL Group Capital is as follows:
1999 1998 1997 1999 1998
(millions) (millions)
Operating revenues ........................ $380 $295 $237 Current assets ......... $ 640 $ 317
Operating expenses ........................ $533 $225 $186 Noncurrent assets ...... $2,627 $1,445
Gain on divestiture of cable investments .. $257 $ - $ - Current liabilities ..... $ 414 $ 310
Net income ................................ $138 $ 68 $ 27 Noncurrent liabilities .. $1,840 $ 703
16. Quarterly Data (Unaudited)
Condensed consolidated quarterly financial information for 1999 and 1998 is
as follows:
March 31 (a) June 30 (a) September 30 (a) December 31 (a)
(millions, except per share amounts)
FPL Group:
1999
Operating revenues ................ $ 1,412 $ 1,614 $ 1,892 $ 1,520
Operating income .................. $ 208 $ 135(b) $ 470 $ 107(c)
Net income ........................ $ 209(d) $ 77(b) $ 291 $ 120(c)(e)
Earnings per share(f) ............. $ 1.22(d) $ 0.45(b) $ 1.70 $ 0.71(c)(e)
Dividends per share ............... $ 0.52 $ 0.52 $ 0.52 $ 0.52
High-low common stock sales prices. $61 15/16-50 1/8 $ 60 1/2-52 7/8 $56 11/16-49 1/8 $ 52 1/2-41 1/8
1998
Operating revenues ................ $ 1,338 $ 1,692 $ 1,999 $ 1,632
Operating income .................. $ 218 $ 317 $ 528 $ 189
Net income ........................ $ 108 $ 176 $ 287 $ 93(g)
Earnings per share(f) ............. $ 0.63 $ 1.02 $ 1.66 $ 0.54(g)
Dividends per share ............... $ 0.50 $ 0.50 $ 0.50 $ 0.50
High-low common stock sales prices. $65 3/16-56 1/16 $65 5/8-58 11/16 $ 70-59 11/16 $ 72 9/16-60 1/2
FPL:
1999
Operating revenues ................ $ 1,359 $ 1,511 $ 1,769 $ 1,418
Operating income .................. $ 150 $ 207 $ 303 $ 86(c)
Net income ........................ $ 108 $ 167 $ 268 $ 48(c)
Net income available to FPL Group.. $ 104 $ 163 $ 264 $ 45(c)
1998
Operating revenues ................ $ 1,295 $ 1,634 $ 1,878 $ 1,559
Operating income .................. $ 159 $ 216 $ 314 $ 138
Net income ........................ $ 107 $ 167 $ 267 $ 90
Net income available to FPL Group.. $ 103 $ 163 $ 263 $ 87
____________________
(a) In the opinion of FPL Group and FPL, all adjustments, which consist of normal recurring accruals necessary to
present a fair statement of the amounts shown for such periods, have been made. Results of operations for an
interim period may not give a true indication of results for the year.
(b) Includes impairment loss on Maine assets.
(c) Includes the settlement of litigation between FPL and FMPA.
(d) Includes gain on the sale of an investment in Adelphia common stock.
(e) Includes gain on the redemption of a one-third ownership interest in a cable limited partnership.
(f) Basic and assuming dilution. The sum of the quarterly amounts may not equal the total for the year due to
rounding.
(g) Includes a loss on the sale of Turner Foods Corporation and the cost of terminating an agreement designed to fix
interest rates, partly offset by the favorable resolution of an audit issue with the IRS.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrants
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement which will be filed with the Securities and
Exchange Commission in connection with the 2000 Annual Meeting of
Shareholders (FPL Group's Proxy Statement) and is incorporated herein by
reference, or is included in Item I. Business - Executive Officers of the
Registrants.
FPL DIRECTORS(a)
James L. Broadhead. Mr. Broadhead, 64, is chairman and chief executive
officer of FPL and FPL Group. He is a director of Delta Air Lines, Inc.,
New York Life Insurance Company and The Pittston Company, and a trustee of
Cornell University. Mr. Broadhead has been a director of FPL and FPL Group
since 1989.
Dennis P. Coyle. Mr. Coyle, 61, is general counsel and secretary of FPL
and FPL Group. He is a director of Adelphia Communications Corporation.
Mr. Coyle has been a director of FPL since 1990.
Paul J. Evanson. Mr. Evanson, 58, is the president of FPL. He is a
director of Lynch Interactive Corporation. Mr. Evanson has been a director
of FPL since 1992 and a director of FPL Group since 1995.
Lewis Hay, III. Mr. Hay, 44, is senior vice president, finance and chief
financial officer of FPL and vice president, finance and chief financial
officer of FPL Group. Mr. Hay has been a director of FPL since 1999.
Lawrence J. Kelleher. Mr. Kelleher, 52, is senior vice president, human
resources of FPL and vice president, human resources of FPL Group. Mr.
Kelleher has been a director of FPL since 1990.
Armando J. Olivera. Mr. Olivera, 50, is senior vice president, power
systems of FPL. Mr. Olivera has been a director of FPL since 1999.
Thomas F. Plunkett. Mr. Plunkett, 60, is president of FPL's nuclear
division. Mr. Plunkett has been a director of FPL since 1996.
Antonio Rodriguez. Mr. Rodriguez, 57, is senior vice president, power
generation of FPL. Mr. Rodriguez has been a director of FPL since 1999.
____________________
(a) Directors are elected annually and serve until their resignation,
removal or until their respective successors are elected. Each
director's business experience during the past five years is noted
either here or in the Executive Officers table in Item 1. Business -
Executive Officers of the Registrants.
Item 11. Executive Compensation
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference, provided
that the Compensation Committee Report and Performance Graph which are
contained in FPL Group's Proxy Statement shall not be deemed to be
incorporated herein by reference.
FPL - The following table sets forth FPL's portion of the compensation paid
during the past three years to FPL's chief executive officer and the other
four most highly-compensated persons who served as executive officers of
FPL at December 31, 1999.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
Other Number of Long-Term All
Annual Restricted Securities Incentive Other
Compen- Stock Underlying Plan Compen-
Name and Principal Position Year Salary Bonus sation Awards(a) Options Payouts(b) sation(c)
.
James L. Broadhead 1999 $943,000 $895,850 $18,809 $2,412,005 250,000 $1,083,272 $12,658
Chairman of the Board and 1998 847,875 937,125 9,809 - - 1,788,731 12,009
Chief Executive Officer 1997 846,000 824,850 9,813 - - 1,402,140 11,286
of FPL and FPL Group
Paul J. Evanson 1999 628,500 616,900 8,656 1,278,900 150,000 458,985 13,539
President of FPL 1998 592,500 546,900 2,785 - - 704,304 13,746
1997 564,300 423,200 2,646 - - 306,741 15,233
Dennis P. Coyle 1999 399,832 259,891 7,964 964,802 100,000 236,783 10,259
General Counsel and 1998 357,000 257,040 595 - - 368,079 9,737
Secretary of FPL 1997 353,628 198,904 3,600 - - 310,021 10,653
and FPL Group
Thomas F. Plunkett 1999 340,000 219,100 10,088 255,780 100,000 179,564 10,146
President, Nuclear 1998 302,500 177,900 3,482 - - 103,481 10,344
Division of FPL 1997 275,000 123,200 3,482 - - 82,128 11,899
Lawrence J. Kelleher 1999 306,475 220,662 10,213 964,802 100,000 177,346 10,661
Senior Vice President, 1998 267,750 194,119 3,108 - - 267,694 9,724
Human Resources of FPL 1997 258,500 147,768 3,273 538,150 - 222,173 11,655
and Vice President, Human
Resources of FPL Group
____________________
(a) At December 31, 1999, Mr. Broadhead held 146,800 shares of restricted common stock with a value of $6,284,875. Of
these, 96,800 shares were awarded in 1991 for the purpose of financing Mr. Broadhead's supplemental retirement plan
and will offset lump sum benefits that would otherwise be payable to him in cash upon retirement. See Retirement
Plans. The remaining 50,000 shares vest in 2001. At December 31, 1999, Mr. Evanson held 25,000 shares of
restricted common stock with a value of $1,070,313 that vest as to 6,250 shares in each of the years 2000, 2001,
2002 and 2003; Mr. Coyle held 20,000 shares of restricted common stock with a value of $856,250 that vest as to
5,000 shares in each of the years 2000, 2001, 2002 and 2003; Mr. Plunkett held 20,000 shares of restricted common
stock with a value of $856,250, 5,000 shares of which were granted in 1999 and vest as to 1,250 shares in each of the
years 2000, 2001, 2002 and 2003; and Mr. Kelleher held 30,000 shares of restricted common stock with a value of
$1,284,375, 20,000 shares of which were granted in 1999 and vest as to 5,000 shares in each of the years 2000,
2001, 2002 and 2003. Dividends at normal rates are paid on restricted common stock.
(b) Payouts are in cash (for payment of income taxes) and shares of common stock, valued at the closing price on the
last business day preceding payout. Messrs. Evanson and Plunkett deferred their payouts under FPL Group's Deferred
Compensation Plan.
(c) For 1999, represents employer matching contributions to employee thrift plans and employer contributions for life
insurance as follows:
Thrift Match Life Insurance
Mr. Broadhead ....................... $7,167 $5,491
Mr. Evanson ......................... 7,600 5,939
Mr. Coyle ........................... 7,167 3,092
Mr. Plunkett ........................ 7,600 2,546
Mr. Kelleher ........................ 7,167 3,494
Long-Term Incentive Plan Awards - In 1999, performance awards, shareholder
value awards and stock option awards under FPL Group's Long-Term Incentive
Plan were made to the executive officers named in the Summary Compensation
Table as set forth in the following tables.
LONG-TERM INCENTIVE PLAN AWARD
Estimated Future Payouts
Number of Performance Period Under Non-Stock Price-Based Plans
Name Shares Until Payout Target(#) Maximum(#)
James L. Broadhead ................ 19,687 1/1/99 - 12/31/02 19,687 31,499
Paul J. Evanson ................... 7,874 1/1/99 - 12/31/02 7,874 12,598
Dennis P. Coyle ................... 4,553 1/1/99 - 12/31/02 4,553 7,285
Thomas F. Plunkett ................ 3,651 1/1/99 - 12/31/02 3,651 5,842
Lawrence J. Kelleher .............. 3,291 1/1/99 - 12/31/02 3,291 5,266
Shown in the preceding table, the performance share awards are payable at
the end of the four-year performance period. The amount of the payout is
determined by multiplying the participant's target number of shares by his
average level of attainment, expressed as a percentage, which may not
exceed 160%, of his targeted awards under the Annual Incentive Plans for
each of the years encompassed by the award period. Annual incentive
compensation is based on the attainment of net income goals for FPL and FPL
Group, which are established by the Compensation Committee of FPL Group's
Board of Directors (the Committee) at the beginning of the year. The
amounts earned on the basis of this performance measure are subject to
reduction based on the degree of achievement of other corporate and
business unit performance measures, and in the discretion of the Committee.
Mr. Broadhead's annual incentive compensation for 1999 was based on the
achievement of FPL Group's net income goals and the following performance
measures for FPL (weighted 75%) and the non-utility and/or new businesses
(weighted 25%) and upon certain qualitative factors. For FPL, the
incentive performance measures were financial indicators (weighted 50%) and
operating indicators (weighted 50%). The financial indicators were
operations and maintenance costs, capital expenditure levels, net income,
regulatory return on equity and operating cash flow. The operating
indicators were service reliability as measured by the frequency and
duration of service interruptions and service unavailability, system
performance as measured by availability factors for the fossil power
plants, WANO index for nuclear power plants, employee safety, number of
significant environmental violations, customer satisfaction survey results,
load management installed capability and conservation programs' annual
installed capacity. For the non-utility and/or new businesses, the
performance measures were total combined return on equity; non-utility net
income and return on equity; corporate and other net income; employee
safety; number of significant environmental violations; and the development
of a plan to meet five-year growth objectives. The qualitative factors
included measures to position the Corporation for greater competition and
initiating other actions that significantly strengthen the Corporation and
enhance shareholder value.
Estimated Future Payouts
Number of Performance Period Under Non-Stock Price-Based Plans
Name Shares Until Payout Target(#) Maximum(#)
James L. Broadhead ................ 13,423 1/1/99 - 12/31/01 13,423 21,477
Paul J. Evanson ................... 6,749 1/1/99 - 12/31/01 6,749 10,798
Dennis P. Coyle ................... 3,415 1/1/99 - 12/31/01 3,415 5,464
Thomas F. Plunkett ................ 2,738 1-1-99 - 12/31/01 2,738 4,381
Lawrence J. Kelleher .............. 2,468 1/1/99 - 12/31/01 2,468 3,948
Shown in the preceding table, the shareholder value share awards are
payable at the end of the three-year performance period. The amount of the
payout is determined by multiplying the participant's target number of
shares by a factor derived by dividing the average annual total shareholder
return of FPL Group (price appreciation of FPL Group common stock plus
dividends) by the total shareholder return of the Dow Jones Electric
Utilities Index companies over the three-year performance period. This
payment may not exceed 160% of targeted awards.
Option Grants in Last Fiscal Year
Individual Grants
Number of Percent of
Securities Total Options
Underlying Granted to Exercise or
Options Employees in Base Price Expiration Grant Date
Name Granted(a) Fiscal Year Per Share Date Present Value(b)
James L. Broadhead ......... 250,000 19.2% $51.156 2/15/06 $2,247,027
Paul J. Evanson ............ 150,000 11.5% $51.156 2/15/09 $1,515,497
Dennis P. Coyle ............ 100,000 7.7% $51.156 2/15/09 $1,010,331
Thomas F. Plunkett ......... 100,000 7.7% $51.156 2/15/09 $1,010,331
Lawrence J. Kelleher ....... 100,000 7.7% $51.156 2/15/09 $1,010,331
___________________
(a) Options granted are non-qualified stock options. Mr. Broadhead's options will be exercisable on November 28, 2001.
All other stock options will become exercisable 25% per year and be fully exercisable after four years. All
options were granted at an exercise price per share of 100% of the fair market value of FPL Group, Inc. common
stock on the date of grant.
(b) The values shown reflect standard application of the Black-Scholes pricing model. Volatility is equal to 18.08%
and yield is equal to 3.81%. The interest rate is equal to the U.S. Treasury Strip Rate on the date of grant with
a term equal to that of the option (5.19% for the 7-year options expiring 2/15/06 and 5.40% for the 10-year options
expiring 2/15/09). The values do not take into account risk factors such as non-transferability or risk of
forfeiture.
The preceding table sets forth information concerning individual grants of
common stock options during fiscal year 1999 to the executive officers
named in the Summary Compensation Table. Such awards are also listed in
the Summary Compensation Table in the column entitled Number of Securities
Underlying Options.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at Fiscal Year-End Fiscal Year-End
Shares
Acquired on Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
James L. Broadhead 0 $0 0 250,000 $0 $0
Paul J. Evanson 0 $0 0 150,000 $0 $0
Dennis P. Coyle 0 $0 0 100,000 $0 $0
Thomas F. Plunkett 0 $0 0 100,000 $0 $0
Lawrence J. Kelleher 0 $0 0 100,000 $0 $0
The preceding table sets forth information, with respect to the named
officers, concerning the exercise of stock options during the fiscal year,
and unexercised options held at the end of the fiscal year. The named
officers did not exercise any stock options during 1999, and held no
exercisable options at the end of the year. All of the unexercisable
options shown in the preceding table were granted in 1999. At December 31,
1999, the fair market value of the underlying securities (based on the
closing share price of FPL Group, Inc. Common Stock reported on the NYSE of
$42.8125 per share) did not exceed the exercise or base price of the
options, therefore the options were not in-the-money at fiscal year-end.
Retirement Plans - FPL Group maintains a non-contributory defined benefit
pension plan and a supplemental executive retirement plan which covers FPL
employees. The following table shows the estimated annual benefits,
calculated on a straight-line annuity basis, payable upon retirement in
1999 at age 65 after the indicated years of service.
PENSION PLAN TABLE
Eligible Average Years of Service
Annual Compensation 10 20 30 40 50
$ 300,000 ............................................. $ 58,809 $117,606 $ 146,414 $ 154,909 $ 157,297
400,000 ............................................. 78,809 157,606 196,414 207,409 209,797
500,000 ............................................. 98,809 197,606 246,414 259,909 262,297
600,000 ............................................. 118,809 237,606 296,414 312,409 314,797
700,000 ............................................. 138,809 277,606 346,414 364,909 367,297
800,000 ............................................. 158,809 317,606 396,414 417,409 419,797
900,000 ............................................. 178,809 357,606 446,414 469,909 472,297
1,000,000 ............................................. 198,809 397,606 496,414 522,409 524,797
1,100,000 ............................................. 218,809 437,606 546,414 574,909 577,297
1,200,000 ............................................. 238,809 477,606 596,414 627,409 629,797
1,300,000 ............................................. 258,809 517,606 646,414 679,909 682,297
1,400,000 ............................................. 278,809 557,606 696,414 732,409 734,797
1,500,000 ............................................. 298,809 597,606 746,414 784,909 787,297
1,600,000 ............................................. 318,809 637,606 796,414 837,409 839,797
1,700,000 ............................................. 338,809 677,606 846,414 889,909 892,297
1,800,000 ............................................. 358,809 717,606 896,414 942,409 944,797
1,900,000 ............................................. 378,809 757,606 946,414 994,909 997,297
2,000,000 ............................................. 398,809 797,606 996,414 1,047,409 1,049,797
2,100,000 ............................................. 418,809 837,606 1,046,414 1,099,909 1,102,297
2,200,000 ............................................. 438,809 877,606 1,096,414 1,152,409 1,154,797
2,300,000 ............................................. 458,809 917,606 1,146,414 1,204,909 1,207,297
2,400,000 ............................................. 478,809 957,606 1,196,414 1,257,409 1,259,797
The compensation covered by the plans includes annual salaries and bonuses
of certain officers of FPL Group and annual salaries of officers of FPL, as
shown in the respective Summary Compensation Tables, but no other amounts
shown in those tables. The estimated credited years of service for the
executive officers named in the Summary Compensation Table are: Mr.
Broadhead, 11 years; Mr. Evanson, 7 years; Mr. Coyle, 10 years; Mr.
Plunkett, 9 years and Mr. Kelleher, 32 years. Amounts shown in the table
reflect deductions to partially cover employer contributions to social
security.
A supplemental retirement plan for Mr. Broadhead provides for a lump-sum
retirement benefit equal to the then present value of a joint and survivor
annuity providing annual payments to him or his surviving beneficiary equal
to 61% to 70% of his average annual compensation for the three years prior
to his retirement between age 62 (1998) and age 65 (2001), reduced by the
then present value of the annual amount of payments to which he is entitled
under all other pension and retirement plans of FPL Group and former
employers. This benefit is further reduced by the then value of 96,800
shares of restricted common stock which vest in 2001. Upon a change of
control of FPL Group (as defined below under Employment Agreements), the
restrictions on the restricted stock lapse and the full retirement benefit
becomes payable. Upon termination of Mr. Broadhead's employment agreement
(also described below) without cause, the restrictions on the restricted
stock lapse and he becomes fully vested under the supplemental retirement
plan.
A supplemental retirement plan for Mr. Coyle provides for benefits, upon
retirement at age 62 (2000) or more, based on two times his credited years
of service. A supplemental retirement plan for Mr. Evanson provides for
benefits based on two times his credited years of service up to age 65 and
one times his credited years of service thereafter. A supplemental
retirement plan for Mr. Plunkett provides for benefits, upon retirement at
age 62 or more, based on two times his credited years of service up to age
65 and one times his credited years of service thereafter.
In 1998, the vesting schedule attached to 10,000 shares of restricted
common stock held by C.O. Woody, then President of the Power Generation
Division of FPL, was amended to coincide with Mr. Woody's planned
retirement in June 1999. As a consequence of the amended vesting schedule,
Mr. Woody was indebted to FPL for a period of less than two weeks in June
1999 for $147,133 in taxes owed upon vesting of the shares.
FPL Group sponsors a split-dollar life insurance plan for certain of FPL's
and FPL Group's senior officers. Benefits under the split-dollar plan are
provided by universal life insurance policies purchased by FPL Group. If
the officer dies prior to retirement, the officer's beneficiaries generally
receive two and one-half times the officer's annual salary at the time of
death. If the officer dies after retirement, the officer's beneficiaries
receive between 50% to 100% of the officer's final annual salary. Each
officer is taxable on the insurance carrier's one-year term rate for his
life insurance coverage.
Employment Agreements - FPL Group has an employment agreement with Mr.
Broadhead that provides for automatic one-year extensions after 2000 unless
either party elects not to extend. The agreement provides for a minimum
base salary of $765,900 per year, subject to increases based upon corporate
and individual performance and increases in cost-of-living indices, plus
annual and long-term incentive compensation opportunities at least equal to
those currently in effect. If FPL Group terminates Mr. Broadhead's
employment without cause, he is entitled to receive a lump-sum payment of
two years' compensation. Compensation is measured by the then current base
salary plus the average of the preceding two years' annual incentive
awards. He would also be entitled to receive all amounts accrued under all
performance share grants in progress, prorated for the year of termination
and assuming achievement of the targeted award, and to full vesting of his
benefits under his supplemental retirement plan.
FPL Group and FPL have entered into employment agreements with certain
officers, including the individuals named in the Summary Compensation
Table, to become effective in the event of a change of control of FPL
Group, which is defined as the acquisition of beneficial ownership of 20%
of the voting power of FPL Group, certain changes in FPL Group's board of
directors, or approval by the shareholders of the liquidation of FPL Group
or of certain mergers or consolidations or of certain transfers of FPL
Group's assets. These agreements are intended to assure FPL Group and FPL
of the continued services of key officers. The agreements provide that
each officer shall be employed by FPL Group or one of its subsidiaries in
his then current position, with compensation and benefits at least equal to
the then current base and incentive compensation and benefit levels, for an
employment period of four and, in certain cases, five years after a change
in control occurs.
In the event that the officer's employment is terminated (except for death,
disability or cause) or if the officer terminates his employment for good
reason, as defined in the agreement, the officer is entitled to severance
benefits in the form of a lump-sum payment equal to the compensation due
for the remainder of the employment period or for two years, whichever is
longer. Such benefits would be based on the officer's then base salary
plus an annual bonus at least equal to the average bonus for the two years
preceding the change of control. The officer is also entitled to the
maximum amount payable under all long-term incentive compensation grants
outstanding, continued coverage under all employee benefit plans,
supplemental retirement benefits and reimbursement for any tax penalties
incurred as a result of the severance payments.
Director Compensation - All of the directors of FPL are salaried employees
of FPL Group and its subsidiaries and do not receive any additional
compensation for serving as a director.
Item 12. Security Ownership of Certain Beneficial Owners and Management
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference.
FPL - FPL Group owns 100% of FPL's common stock. FPL's directors and
executive officers beneficially own shares of FPL Group's common stock as
follows:
Name Number of Shares (a)
James L. Broadhead ...................................................................... 243,640(b)(c)
Dennis P. Coyle ......................................................................... 63,469(b)(c)(d)
Paul J. Evanson ......................................................................... 96,170(b)(c)(d)
Lewis Hay, III .......................................................................... 25,134(b)(c)
Lawrence J. Kelleher .................................................................... 69,562(b)(c)(d)
Armando J. Olivera ...................................................................... 42,676(b)(c)(d)
Thomas F. Plunkett ...................................................................... 55,261(b)(c)(d)
Antonio Rodriguez ....................................................................... 6,171(b)
All directors and executive officers as a group ......................................... 708,939(b)(c)(d)(e)
____________________
(a) Information is as of January 31, 2000, except for executive officers' holdings under the thrift plans and the
Supplemental Executive Retirement Plan, which are as of December 31, 1999. Unless otherwise indicated, each person
has sole voting and sole investment power.
(b) Includes 15,625, 3,876, 4,335, 84, 1,292, 195, 549 and 111 phantom shares for Messrs. Broadhead, Coyle, Evanson,
Hay, Kelleher, Olivera, Plunkett and Rodriguez, respectively, and a total of 28,967 phantom shares for all
directors and officers as a group, credited to a Supplemental Matching Contribution Account under the Supplemental
Executive Retirement Plan.
(c) Includes 146,800, 20,000, 25,000, 25,000, 30,000, 10,000 and 20,000 shares of restricted stock as to which Messrs.
Broadhead, Coyle, Evanson, Hay, Kelleher, Olivera and Plunkett, respectively, and a total 311,800 shares of
restricted stock for all directors and officers as a group, have voting but not investment power.
(d) Includes options held by Messrs. Coyle, Evanson, Kelleher, Olivera and Plunkett to purchase 25,000, 37,500, 25,000,
12,500 and 25,000 shares, respectively, and options to purchase a total of 162,500 shares for all directors and
officers as a group.
(e) Less than 1% of FPL Group's common stock outstanding.
Section 16(a) Beneficial Ownership Reporting Compliance - FPL's directors
and executive officers are required to file initial reports of ownership
and reports of changes of ownership of FPL Group common stock with the
Securities and Exchange Commission. Based upon a review of these filings
and written representations from FPL directors and executive officers, all
required filings were timely made in 1999.
Item 13. Certain Relationships and Related Transactions
FPL Group - The information required by this Item will be included in FPL
Group's Proxy Statement and is incorporated herein by reference.
FPL - None
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements Page(s)
Independent Auditors' Report 16
FPL Group:
Consolidated Statements of Income 17
Consolidated Balance Sheets 18
Consolidated Statements of Cash Flows 19
Consolidated Statements of Shareholders' Equity 20
FPL:
Consolidated Statements of Income 21
Consolidated Balance Sheets 22
Consolidated Statements of Cash Flows 23
Consolidated Statements of Shareholder's Equity 24
Notes to Consolidated Financial Statements 25-38
2. Financial Statement Schedules - Schedules are omitted as not
applicable or not required.
3. Exhibits including those Incorporated by Reference
Exhibit FPL
Number Description Group FPL
*3(i)a Restated Articles of Incorporation of FPL Group dated December 31, 1984, x
as amended through December 17, 1990 (filed as Exhibit 4(a) to Post-
Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*3(i)b Amendment to FPL Group's Restated Articles of Incorporation dated June 27, x
1996 (filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1996,
File No. 1-8841)
*3(i)c Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as x
Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No.
1-3545)
*3(i)d Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992 x
(filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)e Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992 x
(filed as Exhibit 3(i)c to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)f Amendment to FPL's Restated Articles of Incorporation dated March 12, 1993 x
(filed as Exhibit 3(i)d to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)g Amendment to FPL's Restated Articles of Incorporation dated June 16, 1993 x
(filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)h Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993 x
(filed as Exhibit 3(i)f to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
*3(i)i Amendment to FPL's Restated Articles of Incorporation dated November 30, x
1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31,
1993, File No. 1-3545)
*3(ii)a Bylaws of FPL Group dated November 15, 1993 (filed as Exhibit 3(ii) to Form x
10-K for the year ended December 31, 1993, File No. 1-8841)
FPL
Group FPL
*3(ii)b Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated x
May 1, 1992, File No. 1-3545)
*4(a) Form of Rights Agreement, dated as of July 1, 1996, between FPL Group x
and the First National Bank of Boston (filed as Exhibit 4 to Form 8-K
dated June 17, 1996, File No. 1-8841)
*4(b) Mortgage and Deed of Trust dated as of January 1, 1944, and Ninety-nine x x
Supplements thereto between FPL and Bankers Trust Company and The
Florida National Bank of Jacksonville (now First Union National Bank of
Florida), Trustees (as of September 2, 1992, the sole trustee is Bankers
Trust Company) (filed as Exhibit B-3, File No. 2-4845; Exhibit 7(a),
File No. 2-7126; Exhibit 7(a), File No. 2-7523; Exhibit 7(a), File No.
2-7990; Exhibit 7(a), File No. 2-9217; Exhibit 4(a)-5, File No. 2-10093;
Exhibit 4(c), File No. 2-11491; Exhibit 4(b)-1, File No. 2-12900;
Exhibit 4(b)-1, File No. 2-13255; Exhibit 4(b)-1, File No. 2-13705;
Exhibit 4(b)-1, File No. 2-13925; Exhibit 4(b)-1, File No. 2-15088;
Exhibit 4(b)-1, File No. 2-15677; Exhibit 4(b)-1, File No. 2-20501;
Exhibit 4(b)-1, File No. 2-22104; Exhibit 2(c), File No. 2-23142; Exhibit
2(c), File No. 2-24195; Exhibit 4(b)-1, File No. 2-25677; Exhibit 2(c),
File No. 2-27612; Exhibit 2(c), File No. 2-29001; Exhibit 2(c), File
No. 2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c), File No.
2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File No. 2-41312;
Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-46502; Exhibit
2(c), File No. 2-48679; Exhibit 2(c), File No. 2-49726; Exhibit 2(c),
File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No.
2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228;
Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File
No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No.
2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767;
Exhibit 4(b), File No. 2-71542; Exhibit 4(b), File No. 2-73799; Exhibits
4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c), File No. 2-77629;
Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment
No. 5 to Form S-8, File No. 33-18669; Exhibit 99(a) to Post-Effective
Amendment No. 1 to Form S-3, File No. 33-46076; Exhibit 4(b) to Form
10-K for the year ended December 31, 1993, File No. 1-3545; Exhibit
4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545;
Exhibit 4(b) to Form 10-Q for the quarter ended June 30, 1995, File
No. 1-3545; Exhibit 4(a) to Form 10-Q for the quarter ended March 31,
1996, File No. 1-3545; Exhibit 4 to Form 10-Q for the quarter ended
June 30, 1998, File No. 1-3545; and Exhibit 4 to Form 10-Q for the
quarter ended March 31, 1999, File No. 1-8841)
*4(c) Indenture, dated as of June 1, 1999, between FPL Group Capital Inc and x
The Bank of New York, as Trustee (filed as Exhibit 4(a) to Form 8-K
Dated July 16, 1999, File No. 1-8841)
*4(d) Guarantee Agreement between FPL Group, Inc. (as guarantor) and x
The Bank of New York (as Guarantor Trustee) dated as of June 1, 1999
(filed as Exhibit 4(b) to Form 8-K dated July 16, 1999, File No. 1-8841)
10(a) FPL Group Supplemental Executive Retirement Plan, amended and restated x
effective April 1, 1997
10(b) Amendments # 1 and 2 effective January 1, 1998 to FPL Group Supplemental x
Executive Retirement Plan, amended and restated effective April 1, 1997
10(c) Amendment #3 effective January 1, 1999, to FPL Group Supplemental x
Executive Retirement Plan, amended and restated effective April 1, 1997
*10(d) FPL Group Amended and Restated Supplemental Executive Retirement Plan for x
James L. Broadhead effective January 1, 1990 (filed as Exhibit 99(d) to
Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(e) Supplement to the FPL Group Supplemental Executive Retirement Plan x
as it applies to Paul J. Evanson effective January 1, 1996 (filed as
Exhibit 10(b) to Form 10-K for the year ended December 31, 1996, File
No. 1-8841)
*10(f) Supplement to the FPL Group Supplemental Executive Retirement Plan as x
it applies to Thomas F. Plunkett (filed as Exhibit 10(e) to Form 10-K
for the year ended December 31, 1997, File No. 1-8841)
*10(g) FPL Group Long-Term Incentive Plan of 1985, as amended (filed as Exhibit x
99(h) to Post-Effective Amendment No. 5 to Form S-8, File No. 33-18669)
*10(h) Long-Term Incentive Plan 1994 (filed as Exhibit 4(d) to Form S-8, File x
No. 33-57673)
10(i) Annual Incentive Plan x
*10(j) FPL Group, Inc. Deferred Compensation Plan, amended and restated effective x
January 1, 1995 (filed as Exhibit 99 to Form S-8, File No. 1-8841)
*10(k) FPL Group Executive Long Term Disability Plan effective January 1, 1995 x
(filed as Exhibit 10(g) to Form 10-K for the year ended December 31,
1995, File No. 1-8841)
FPL
Group FPL
*10(l) Employment Agreement between FPL Group and James L. Broadhead, amended and x
restated as of May 10, 1999 (filed as Exhibit 10(a) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(m) Employment Agreement between FPL Group and Dennis P. Coyle, amended and x
restated as of May 10, 1999 (filed as Exhibit 10(b) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(n) Employment Agreement between FPL Group and Paul J. Evanson, amended and x
restated as of May 10, 1999 (filed as Exhibit 10(c) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(o) Employment Agreement between FPL Group and Lewis Hay, III, dated x
as of September 13, 1999 (filed as Exhibit 10(d) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(p) Employment Agreement between FPL Group and Lawrence J. Kelleher, amended x
and restated as of May 10, 1999 (filed as Exhibit 10(e) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(q) Employment Agreement between FPL Group and Thomas F. Plunkett, amended and x
restated as of May 10, 1999 (filed as Exhibit 10(f) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(r) Employment Agreement between FPL Group and Michael W. Yackira, amended and x
restated as of May 10, 1999 (filed as Exhibit 10(g) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
*10(s) FPL Group, Inc. Non-Employee Directors Stock Plan dated as of March 17, x
1997 (filed as Appendix A to FPL Group's 1997 Proxy Statement, File No.
1-8841)
12(a) Computation of Ratio of Earnings to Fixed Charges x
12(b) Computation of Ratios x
21 Subsidiaries of the Registrant x
23 Independent Auditors' Consent x x
27 Financial Data Schedule x x
____________________
* Incorporated herein by reference
(b) Reports on Form 8-K - none
FPL GROUP, INC. SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FPL Group, Inc.
JAMES L. BROADHEAD
------------------
James L. Broadhead
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer and Director)
Date: February 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated
Signature and Title as of February 28, 2000:
LEWIS HAY, III
- --------------
Lewis Hay, III
Vice President, Finance and Chief Financial Officer
(Principal Financial Officer)
K. MICHAEL DAVIS
- ----------------
K. Michael Davis
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Directors:
H. JESSE ARNELLE WILLARD D. DOVER
- ---------------- ----------------
H. Jesse Arnelle Willard D. Dover
SHERRY S. BARRAT ALEXANDER W. DREYFOOS JR.
- ---------------- -------------------------
Sherry S. Barrat Alexander W. Dreyfoos Jr.
ROBERT M. BEALL, II PAUL J. EVANSON
- ------------------- ---------------
Robert M. Beall, II Paul J. Evanson
J. HYATT BROWN DREW LEWIS
- -------------- ----------
J. Hyatt Brown Drew Lewis
ARMANDO M. CODINA FREDERIC V. MALEK
- ----------------- -----------------
Armando M. Codina Frederic V. Malek
MARSHALL M. CRISER PAUL R. TREGURTHA
- ------------------ -----------------
Marshall M. Criser Paul R. Tregurtha
- -----------
B. F. Dolan
FLORIDA POWER & LIGHT COMPANY SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Florida Power & Light Company
PAUL J. EVANSON
---------------
Paul J. Evanson
President and Director
Date: February 28, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature and Title as of February 28, 2000:
JAMES L. BROADHEAD
- ------------------
James L. Broadhead
Chairman of the Board
(Principal Executive Officer and Director)
LEWIS HAY, III
- --------------
Lewis Hay, III
Senior Vice President, Finance and Chief Financial Officer
(Principal Financial Officer and Director)
K. MICHAEL DAVIS
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K. Michael Davis
Vice President, Accounting,
Controller and Chief Accounting Officer
(Principal Accounting Officer)
Directors:
DENNIS P. COYLE THOMAS F. PLUNKETT
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Dennis P. Coyle Thomas F. Plunkett
LAWRENCE J. KELLEHER ANTONIO RODRIGUEZ
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Lawrence J. Kelleher Antonio Rodriguez
ARMANDO J. OLIVERA
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Armando J. Olivera