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: 0) r1 1998 Annual Report'


i IT II       I HI]HGT U
II U
I                          FPL             Group                     m (Dollarsin millions, except per share amounts)
HI]HGT FPL Group m (Dollars in millions, except per share amounts)
For the Years Ended December 31,                                                                                                                   1998                    1997      % Change FINANCIAL RESULTS Operating Revenues S.............................................................................................................
For the Years Ended December 31, FINANCIAL RESULTS Operating Revenues S.............................................................................................................
Operating Income
Operating Income Net Income S.............................................................................................................
                                                                                                                                              $6,661
Earnings Per Share (basic and assuming dilution)
                                                                                                                                              $1,252
Cash Flows From Operating Activities Total Assets 1998
                                                                                                                                                                          $6,369
$6,661
                                                                                                                                                                          $1,228 4.6 2.0 I)
$1,252
Net Income                                                                                                                                         $664                    $618            7.4 S.............................................................................................................
$664
Earnings Per Share (basic and assuming dilution)                                                                                                 $3.85                    $3.57            7.8 Cash Flows From Operating Activities                                                                                                           $1,743                    $1,597            9.1 Total Assets                                                                                                                                  $12,029                   $12,449            (3.4)
$3.85
COMMON STOCK DATA Average Shares Outstanding (millions)                                                                                                             172.5                   173.1            (0.3)
$1,743
Dividends Per Share                                                                                                                               $2.00                   $1.92            4.2 Book Value Per Share                                                                                                                           $29.76                     $28.03            6.2 M ark et....................Price           Per............Share................(high.............-low
$12,029 COMMON STOCK DATA Average Shares Outstanding (millions) 172.5 Dividends Per Share  
                                                            ................                                  )                   $ .... ..... ....6 ....
$2.00 Book Value Per Share  
Market Price Per Share (high-low)                                                                                                 $729/16 - $561116
$29.76 M ark et....................Price Per............Share................(high.............-low  
                                                                                                                                                                    $60-$425/8 OPERATING                                     DATA S.......................................................................................................................................................................
)  
FPL Energy Sales (millions kwh)                                                                                                               89,362                     82,734             8.0 FPL Customer Accounts (average; thousands)
$.............6....
Employees (year end) 3,680 10,375 3,616 10,039 1.8 3.3 I)
Market Price Per Share (high-low)  
$729/16 - $561116 1997
% Change
$6,369
$1,228
$618
$3.57
$1,597
$12,449 4.6 2.0 7.4 7.8 9.1 (3.4) 173.1
$1.92
$28.03
$60-$425/8 (0.3) 4.2 6.2 8.0 1.8 3.3 OPERATING DATA S.......................................................................................................................................................................
FPL Energy Sales (millions kwh) 89,362 82,734 FPL Customer Accounts (average; thousands) 3,680 3,616 Employees (year end) 10,375 10,039 I)
I) i IT I I


me of the nation'sr largest providers of electrici                               plqted services.
me of the nation'sr largest providers of electrici plqted Its principal subsidiary, Florida Power & Light CompaS/@'r serves more than seven million people along the eastern seaboard and the southern portion of Florida. FPL Energy, Inc.,
Its principal subsidiary, Florida Power & Light CompaS/@'r serves more than seven million people along the eastern seaboard and the southern portion of Florida. FPL Energy, Inc.,
FPL Group's energy generating subsidiary, is a leader in producing electricity from clean and renewable fuels. FPL Energy owns and operates power plants in the U.S. and abroad, representing nearly 1,900 megawatts.
* FPL Group's energy generating subsidiary, is a leader in producing Table of Contents electricity from clean and renewable fuels. FPL Energy owns Letter to Shareholders 2
services.
and operates power plants in the U.S. and abroad, representing Review of Operations nearly 1,900 megawatts.                                                                         6 Financial and Operating Statistics 22
Table of Contents Letter to Shareholders 2
                                                *<Vici<     Ti 4zlWrU Independent Auditors' Report 28 Management's Report 28 Financial Statements L
Review of Operations 6
29
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                                                      *STh4itI                  Company Officers
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Financial and Operating Statistics 22 Independent Auditors' Report 28 Management's Report 28 Financial Statements 29 Company Officers 47 Board of Directors 48 Investor Information 49
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Nineteen ninety-eight I
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Jmues.. Broodheod Chitirmaon d Chief Executive Officer a
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was a year of outstanding accomplishments for FPL Group in which we achieved record operating and financial results.
was a year of outstanding accomplishments for FPL Group in which we achieved record operating and financial results.
We also continued to strengthen
We also continued to strengthen our principal subsidiary, Florida Power & Light Company; significantly expanded our energy  
* Reductions of debt and            e The Turkey Point plant south our principal subsidiary, Florida preferred stock further              of Miami became the first Power & Light Company;           strengthened our balance sheet.      nuclear facility in the country significantly expanded our energy                                     to receive three consecutive
,perations outside of Florida  
      ,perations outside of Florida   EXCELLENT PERFORMANCE                "superior" ratings from the
'--through our subsidiary, FPL Energy; and divested unrelated businesses. These accomplish ments and our continued focus on enhancing our capabilities as a high performance organization position us well for profitable growth in the years ahead.
'--through our subsidiary, FPL       AT FLORIDA POWER 6s LIGHT            Nuclear Regulatory Commission.
RECORD FINANCIAL RESULTS Our financial results were exceptional in 1998.
Energy; and divested unrelated       Florida Power & Light con        The St. Lucie nuclear units on businesses. These accomplish     tinued to increase its productivity, Hutchinson Island established a ments and our continued focus     improve reliability, and provide    company record for continuous on enhancing our capabilities as better service to its customers. operation and improved their a high performance organization                                       NRC ratings as well.
S Net income reached an all-time high of $664 million, an increase of 7.4% from the previous year.
position us well for profitable     The percentage of time our growth in the years ahead.       plants were available to produce      . The overall strength of our power reached the highest levels     nuclear operations in 1998 was RECORD FINANCIAL RESULTS          in the history of our company, Our financial results were  and unplanned outages dropped                                         $3
Earnings per share increased
                                                                                            $363.33 $3.57 exceptional in 1998.              to an all-time low.
-iearly 8% to a record $3.85.
                                                                                $2.91 $3                  $.8 S Net income reached an          <:Our fossil fuel plant availabili all-time high of $664 million,    ty of 94% is among the best of an increase of 7.4% from the      any large fossil fleet in America.
* Reductions of debt and preferred stock further strengthened our balance sheet.
previous year.
EXCELLENT PERFORMANCE AT FLORIDA POWER 6s LIGHT Florida Power & Light con tinued to increase its productivity, improve reliability, and provide better service to its customers.
                                        *Nuclear plant availability of Earnings per share increased  93% also was an all-time high and           94 95 96 97 98
The percentage of time our plants were available to produce power reached the highest levels in the history of our company, and unplanned outages dropped to an all-time low.  
    -iearly 8% to a record $3.85. well above the industry average.         Earnings per Share (basic and assuming dilution)
<: Our fossil fuel plant availabili ty of 94% is among the best of any large fossil fleet in America.
    &#xfd;     www.fplgroup.com
* Nuclear plant availability of 93% also was an all-time high and well above the industry average.
e The Turkey Point plant south of Miami became the first nuclear facility in the country to receive three consecutive "superior" ratings from the Nuclear Regulatory Commission.
The St. Lucie nuclear units on Hutchinson Island established a company record for continuous operation and improved their NRC ratings as well.
. The overall strength of our nuclear operations in 1998 was
$3 63.33 $3.57 $3
$2.91 $3
$.8 94 95 96 97 98 Earnings per Share (basic and assuming dilution)
&#xfd; www.fplgroup.com


reflected by the 'World Association of Nuclear Operators' "perform ance index," which ranked Turkey Point number one and St. Lucie number three out of 36 multiple-unit nuclear sites in the United States.
One of our top priorities in 1998 was to improve service reliability, and we did so dra matically, reducing by 27% the amount of time our customers were without power. FPL's reliability now exceeds the national average by 41%.
Our safety record improved 20% compared to 1997, and the number of incidents is well below the industry average.
We continued to improve our productivity as operating and maintenance costs per kilo watt-hour declined for the eighth Debt/Preferred Fx L Capitalurs$1 Stock Reduction $408 Expendlitures $617 FPL Energy Investments $313 Common Stock Repurchases $62 Common Stock Dividends $345 Uses of Cash in 1998
($ millions) consecutive year. We have reduced these costs 33%
since 1990.
Our success in controlling costs has helped keep down the price FPL customers pay for electricity.
The price of FPL's residential elec tricity is 9% lower today than in the mid-1980s. During the same period, the Consumer Price Index has risen 56%.
GROWTH AT FPL ENERGY Early last year we formed FPL Energy to consolidate our electric operations outside of Florida. FPL Energy is an independent power producer with plants in operation, under construction, or being developed in 11 states and two foreign countries.
FPL Energy's improved operating results significantly contributed to the growth in FPL Group's earnings per share.
Earnings grew from enhanced project performance and the addition of more than 600 net megawatts of natural gas, wind, and geothermal generation projects. The company now owns about 1,900 net megawatts of gen erating capacity, almost all being sold under long-term contracts.
225%
225%
160%
160%
I) reflected by the 'World Association          consecutive year. We have of Nuclear Operators' "perform                reduced these costs 33%
Industry*
ance index," which ranked                    since 1990.                                    Industry* FPL Group Turkey Point number one and                                                                Total Return 1990-98 St. Lucie number three out of                    Our success in controlling costs          Dow Jones Electric Utilities Index 36 multiple-unit nuclear sites                has helped keep down the price in the United States.                        FPL customers pay for electricity.      These additions added to The price of FPL's residential elec FPL Energy's position as a One of our top priorities              tricity is 9% lower today than in  leading clean electricity provider.
FPL Group Total Return 1990-98 Dow Jones Electric Utilities Index I)
in 1998 was to improve service                the mid-1980s. During the same      Nearly 95% of its generation is reliability, and we did so dra                period, the Consumer Price Index    derived from natural gas, wind, matically, reducing by 27% the                has risen 56%.                      solar, or geothermal plants. It amount of time our customers                                                      is the largest developer of wind were without power. FPL's                    GROWTH AT FPL ENERGY                generation in the U.S.
These additions added to FPL Energy's position as a leading clean electricity provider.
reliability now exceeds the                        Early last year we formed FPL national average by 41%.                      Energy to consolidate our electric  *> Also, FPL Energy has already operations outside of Florida. FPL  added significantly to its genera Our safety record improved              Energy is an independent power      tion fleet in 1999. In January and 20% compared to 1997, and                    producer with plants in operation,  February, plans were announced the number of incidents is well              under construction, or being        for the development of 1,250 below the industry average.                  developed in 11 states and two      megawatts of natural gas-fired foreign countries.                  power plants - a 1,000-megawatt We continued to improve                                                    plant in Texas to begin operation our productivity as operating                    FPL Energy's improved            in mid-2000 and a 248-megawatt and maintenance costs per kilo                operating results significantly    plant in Washington to be pro watt-hour declined for the eighth            contributed to the growth in        ducing power by mid-2001.
Nearly 95% of its generation is derived from natural gas, wind, solar, or geothermal plants. It is the largest developer of wind generation in the U.S.  
FPL Group's earnings per share.
*> Also, FPL Energy has already added significantly to its genera tion fleet in 1999. In January and February, plans were announced for the development of 1,250 megawatts of natural gas-fired power plants - a 1,000-megawatt plant in Texas to begin operation in mid-2000 and a 248-megawatt plant in Washington to be pro ducing power by mid-2001.
FPL Energy is positioned to be Earnings grew from enhanced      a significant clean-energy provider project performance and the        in emerging non-regulated power Debt/Preferred FxLCapitalurs$1 Expendlitures $617              Stock Reduction $408 addition of more than 600 net      generation markets.
FPL Energy is positioned to be a significant clean-energy provider in emerging non-regulated power generation markets.
megawatts of natural gas, wind, FPL Energy Investments $313  and geothermal generation          OTHER DEVELOPMENTS Common Stock                                      projects. The company now owns          In 1998 we completed the Repurchases $62                Common Stock Dividends $345        about 1,900 net megawatts of gen    sale of our citrus subsidiary, erating capacity, almost all being  Turner Foods, and, in January Uses of Cash in 1998
OTHER DEVELOPMENTS In 1998 we completed the sale of our citrus subsidiary, Turner Foods, and, in January 1999 we reached an agreement A1 1998 Annual Report i
($millions)                      sold under long-term contracts. 1999 we reached an agreement               A1 1998 Annual Report i


previously served C' LOOKING as CEO of Scottish Hydro-Electric plc, became president and a director of FPL Group.
C' LOOKING AHEAD to sell our cable TV interests.
AHEAD                  During his very success ful tenure at the UK                             L6 top~k
These transactions essentially complete our program of divest ing unrelated businesses that vere acquired in the 1980s.
                                                                                        ~y~p(lltrI based company Roger demonstrated excellent strategic and operational skills as well as a management style highly compatible with               During that period we saw to sell our cable TV interests. FPL Group. We welcome him             the power industry undergo These transactions essentially    to our organization.                   continuous change as federal complete our program of divest                                            and state governments intro ing unrelated businesses that          During the 1990s we have         duced new forms of regulation vere acquired in the 1980s.      consistently focused on reducing       governing the generation, costs, improving quality and           transmission, and sale of One disappointment in 1998    customer focus, increasing speed       electricity. While the precise was the decline in our stock price and flexibility, and investing out     final shape of the industry is during the last quarter of the    side of Florida in environmentally     unclear, the comprehensive year. This was due primarily to    favored generation technologies.       strategic plan we adopted to uncertainty created by the staff  We have made enormous strides         meet these competitive challenges of the Florida Public Service      in all of these areas and, as a       has served us well and will Commission (and later by the      consequence, FPL Group is one of       continue to do so in the future.
One disappointment in 1998 was the decline in our stock price during the last quarter of the year. This was due primarily to uncertainty created by the staff of the Florida Public Service Commission (and later by the Office of Public Counsel) regard ing FPL's electricity rates. We are confident this matter of rates will be resolved expeditiously.
Office of Public Counsel) regard  the largest, cleanest, most efficient, ing FPL's electricity rates. We    and financially sound providers are confident this matter of rates of electricity in the country.
OUTLOOK FOR THE FUTURE Nothing is more important to long-term success than capable management. Earlier this year, we added a new member to our already strong senior manage ment team. Roger Young, who previously served as CEO of Scottish Hydro-Electric plc, became president and a director of FPL Group.
will be resolved expeditiously.
During his very success ful tenure at the UK based company Roger demonstrated excellent strategic and operational skills as well as a management style highly compatible with FPL Group. We welcome him to our organization.
At the same time we have pro     James L. Broadhead OUTLOOK FOR THE FUTURE            vided returns to our shareholders       Chairmanand Chief Executive Officer Nothing is more important      that are well above the industry       March 3, 1999 to long-term success than capable  average. Since 1990 our stock has management. Earlier this year,    produced an annualized return we added a new member to our      of nearly 16%, exceeding the already strong senior manage      12.7% annualized return of the ment team. Roger Young, who        Dow Jones Electric Utilities Index.
During the 1990s we have consistently focused on reducing costs, improving quality and customer focus, increasing speed and flexibility, and investing out side of Florida in environmentally favored generation technologies.
<    tv w w.Dfplgroup.com
We have made enormous strides in all of these areas and, as a consequence, FPL Group is one of the largest, cleanest, most efficient, and financially sound providers of electricity in the country.
At the same time we have pro vided returns to our shareholders that are well above the industry average. Since 1990 our stock has produced an annualized return of nearly 16%, exceeding the 12.7% annualized return of the Dow Jones Electric Utilities Index.
top~k L6 ~y~p(lltrI During that period we saw the power industry undergo continuous change as federal and state governments intro duced new forms of regulation governing the generation, transmission, and sale of electricity. While the precise final shape of the industry is unclear, the comprehensive strategic plan we adopted to meet these competitive challenges has served us well and will continue to do so in the future.
James L. Broadhead Chairman and Chief Executive Officer March 3, 1999 tv w w.Dfplgroup.com


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90 90                           90 98                          90 98 Electricity Sales                   Customers                       Usaqe Per (billion kilowatt-hours)         (average; thousands)             Customer (kilowatt hours)
90 90 90 98 Electricity Sales Customers (billion kilowatt-hours)
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1998 Annual Report C-
1998 Annual Report C-


Foreost
Foreost  
                                                                                                $990 96 97 Capital Expenditures Florida Power It Light Company SLig               t Com pany                                                 ($millions) achieved record levels of performance while reducing costs, improving quality, and enhancing customer service and satisfaction.
$990 96 97 Capital Expenditures Florida Power It Light Company SLig t Com pany
CUSTOMER GROWTH 1 FPL added almost 65,000           the second half of the decade, two at the Martin customer accounts in 1998, representing an increase site and the third at a site to be selected.
($
0M 1.8%, a rate faster than most other electric utili Wies in the country. Over the next five years the     ENERGY TRADING
millions) achieved record levels of performance while reducing costs, improving quality, and enhancing customer service and satisfaction.
* The Energy Marketing and population in the area served by FPL is projected   Trading (EMT) division completed its first full year to grow by almost 600,000 people.                    of operation in 1998, supporting FPL's power gener ation facilities by procuring gas, as well as marketing INCREASED USAGE        Average energy usage among  and trading electricity. EMT's expanded presence in customers has increased throughout the 19 9 0s,      energy markets produced approximately $65 million reflecting a 20% increase in the average home size  in fuel and power savings for FPL customers in in FPL's service area and greater use of personal    1998, up from less than $5 million in 1996. EMT computers and other devices that run on electricity. has grown to rank among the top 10 physical power marketers and gas buyers in the U.S.
CUSTOMER GROWTH 1 FPL added almost 65,000 customer accounts in 1998, representing an increase 0M 1.8%, a rate faster than most other electric utili Wies in the country. Over the next five years the population in the area served by FPL is projected to grow by almost 600,000 people.
ADDING CAPACITY      4, FPL will meet future growth through expanding its system capacity by about      NEW EMPLOYEES
INCREASED USAGE Average energy usage among customers has increased throughout the 19 90s, reflecting a 20% increase in the average home size in FPL's service area and greater use of personal computers and other devices that run on electricity.
* FPL added more than 250 3,100 MW, or about 17%, over the next ten            employees in 1998 to support increased activity, years. FPL will repower older oil-fired power        service enhancements and growth opportunities in plants with high-efficiency gas-fired combined      several areas, including EMT, sales and marketing, cycle generators. Plans call for adding 926 MW      information management and customer service.
ADDING CAPACITY 4, FPL will meet future growth through expanding its system capacity by about 3,100 MW, or about 17%, over the next ten years. FPL will repower older oil-fired power plants with high-efficiency gas-fired combined cycle generators. Plans call for adding 926 MW by repowering the Ft. Myers plant in 2001, followed by the Sanford plant in 2002. Three new gas combined-cycle units are planned for the second half of the decade, two at the Martin site and the third at a site to be selected.
by repowering the Ft. Myers plant in 2001,          Half of these new hires were recruited from colleges, followed by the Sanford plant in 2002. Three        bringing with them diversity and new ideas to help new gas combined-cycle units are planned for        the company succeed in a competitive environment.
ENERGY TRADING
* The Energy Marketing and Trading (EMT) division completed its first full year of operation in 1998, supporting FPL's power gener ation facilities by procuring gas, as well as marketing and trading electricity. EMT's expanded presence in energy markets produced approximately $65 million in fuel and power savings for FPL customers in 1998, up from less than $5 million in 1996. EMT has grown to rank among the top 10 physical power marketers and gas buyers in the U.S.
NEW EMPLOYEES
* FPL added more than 250 employees in 1998 to support increased activity, service enhancements and growth opportunities in several areas, including EMT, sales and marketing, information management and customer service.
Half of these new hires were recruited from colleges, bringing with them diversity and new ideas to help the company succeed in a competitive environment.
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                                          -YL enhar AOA 8l 97 Reducing r6598 Outage Time (average length of outages, minutes) 137 97     4 Improving Service Reliability (total outnge time per cuslomer; minutes) 1998 Annual Report
AOA 8l r65 97 98 Reducing Outage Time (average length of outages, minutes) 137 97 4
Improving Service Reliability (total outnge time per cuslomer; minutes) 1998 Annual Report
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,ed its system reliability while successfully responding to several significant events that tested the company's resources and preparedness.
,ed its system reliability while successfully responding to several significant events that tested the company's resources and preparedness.
INCREASED RELIABILITY       Power is       MORE TO COME      Plans for 1999 include available to customers 99.98% of the       the replacement or repair of 450 miles
INCREASED RELIABILITY Power is available to customers 99.98% of the  
  *ime, but FPL wants to make its service   of underground power lines and the even better. Reliability 2000 is an         trimming of vegetation from more than aggressive three-year, $400 million         8,000 miles of overhead lines, a 15%
*ime, but FPL wants to make its service even better. Reliability 2000 is an aggressive three-year, $400 million program launched in mid-1997 to enhance service quality and reliability.
program launched in mid-1997 to             increase from 1998.
Improvements in 1998 included a 27% reduction in the average time per year that a customer is without power, and a 20% improvement in the average time to restore service. Since the program started, FPL has cleared trees and vegetation from more than 7,500 miles of overhead power lines, replaced or upgraded 145 miles of underground cable and installed more than 500 radio-controlled devices that improve the maintenance of power line voltage. Other efforts include increased lightning arrestor installations to reduce momentary power outages and improved allocation of work crews during storms.
enhance service quality and reliability.
MORE TO COME Plans for 1999 include the replacement or repair of 450 miles of underground power lines and the trimming of vegetation from more than 8,000 miles of overhead lines, a 15%
Improvements in 1998 included a         WORKING SMARTER        -Applying the 27% reduction in the average time per       latest technology has also helped year that a customer is without power, and improve service quality. FPL began using a 20% improvement in the average time to    a technology called ThermovisionT11 to restore service. Since the program started, improve preventive maintenance and FPL has cleared trees and vegetation from   system reliability. Vans equipped with more than 7,500 miles of overhead power     infrared devices measure the temperature lines, replaced or upgraded 145 miles of   of power lines and distribution equip underground cable and installed more        ment, looking for "hot spots" that signal than 500 radio-controlled devices that      a potential problem. Data telemetry is improve the maintenance of power line      another technology application that voltage. Other efforts include increased    provides FPL's power dispatchers with lightning arrestor installations to reduce  "real-time" information about electricity momentary power outages and improved        loads, allowing power to be shifted as allocation of work crews during storms.      needed to prevent service interruptions.
increase from 1998.
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WORKING SMARTER
-Applying the latest technology has also helped improve service quality. FPL began using a technology called ThermovisionT11 to improve preventive maintenance and system reliability. Vans equipped with infrared devices measure the temperature of power lines and distribution equip ment, looking for "hot spots" that signal a potential problem. Data telemetry is another technology application that provides FPL's power dispatchers with "real-time" information about electricity loads, allowing power to be shifted as needed to prevent service interruptions.
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RESPONDING FASTER       On six     "superior" performance ratings    tomers. For example, voice occasions in 1998, President       from the Nuclear Regulatory        response units that route calls Clinton declared parts of Florida   Commission (NRC). The St.          to FPL's customer care centers as federal disaster areas due to   Lucie facility was recognized by  have been simplified, and the            ii tornadoes, a hurricane and trop     the NRC for improved perform      supporting telephone network ical storm, and wildfires. These   ance. Also, both plants earned    has been upgraded to increase and other events caused more       excellent rankings based on the    call-handling capability ten-fold.
RESPONDING FASTER On six occasions in 1998, President Clinton declared parts of Florida as federal disaster areas due to tornadoes, a hurricane and trop ical storm, and wildfires. These and other events caused more than one-third of FPL's 3.7 mil lion customers to suffer outages.
than one-third of FPL's 3.7 mil     World Association of Nuclear      The new system provides cus lion customers to suffer outages. Operators performance index,      tomers who call to report an Repair crews worked tirelessly     with Turkey Point achieving        outage with an "initial time of to restore power to most cus       the top ranking in the nation. restoration," or an "estimated tomers, generally within one         The nuclear division beat its goal time of restoration" in cases day, despite the size and difficult of reducing operations and main    requiring more extensive repairs.
Repair crews worked tirelessly to restore power to most cus tomers, generally within one day, despite the size and difficult working conditions.
working conditions.       FPL's     tenance costs per kilowatt-hour    In addition, customer service newly renovated command             to a penny, achieving a level of  representatives have completed center features a sophisticated     .98 cents per kwh in 1998.        intensive training to enhance storm monitoring and tracking                                           their knowledge of power distri system that enables the company     CUSTOMER CARE        FPL          bution equipment and their to better model a storm's           improved several key functions    overall effectiveness in handling impact, and plan and execute         that provide service to cus-      customer calls.
FPL's newly renovated command center features a sophisticated storm monitoring and tracking system that enables the company to better model a storm's impact, and plan and execute quicker service restoration.
quicker service restoration.
HIGH AVAILABILITY FPL's fleet of power plants again achieved excellent performance in 1998.
HIGH AVAILABILITY     FPL's fleet of power plants again achieved excellent performance in 1998.
Fossil plant availability reached 93.7% and nuclear plant avail ability was 93.1% -- record levels for FPL and among the best in the industry. This high level of performance is a result of a consistent emphasis on operational excellence through a standardized model that uti lizes process management and reliability techniques. High plant availability allowed FPL to reli ably meet peak energy demands in 1998 that surpassed 1997's summer peak on 43 days.
Fossil plant availability reached                                               Industry        9  94%
WORLD-CLASS PERFORMANCE The Turkey Point nuclear plant became the first U.S. nuclear plant to receive three consecutive "superior" performance ratings from the Nuclear Regulatory Commission (NRC). The St.
Avera e    90%
Lucie facility was recognized by the NRC for improved perform ance. Also, both plants earned excellent rankings based on the World Association of Nuclear Operators performance index, with Turkey Point achieving the top ranking in the nation.
93.7% and nuclear plant avail ability was 93.1% -- record levels for FPL and among the                                                   77% 78%
The nuclear division beat its goal of reducing operations and main tenance costs per kilowatt-hour to a penny, achieving a level of
best in the industry. This high level of performance is a result of a consistent emphasis on operational excellence through a standardized model that uti               9N 92    4A 9P        T8              90      92 94 96 98 Nuclear Plant Availability          Fossil Plant Availability lizes process management and reliability techniques. High plant availability allowed FPL to reli ably meet peak energy demands in 1998 that surpassed 1997's summer peak on 43 days.
.98 cents per kwh in 1998.
WORLD-CLASS PERFORMANCE The Turkey Point nuclear plant became the first U.S. nuclear plant to receive three consecutive 1998 Annual Report 10
CUSTOMER CARE FPL improved several key functions that provide service to cus-9N 92 9P 4 A T8 Nuclear Plant Availability tomers. For example, voice response units that route calls to FPL's customer care centers have been simplified, and the supporting telephone network has been upgraded to increase call-handling capability ten-fold.
The new system provides cus tomers who call to report an outage with an "initial time of restoration," or an "estimated time of restoration" in cases requiring more extensive repairs.
In addition, customer service representatives have completed intensive training to enhance their knowledge of power distri bution equipment and their overall effectiveness in handling customer calls.
Industry 9
94%
Avera e 90%
77%
78%
90 92 94 96 98 Fossil Plant Availability 1998 Annual Report 10 ii


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        ~lVI65~ TA*-Y c~r2--f Innovation drives success.
~lVI65~ TA*-Y Innovation drives success.
Employees are encouraged to be creative in using the latest technology to further enhance customer service, quality and overall performance.
Employees are encouraged to be creative in using the latest technology to further enhance customer service, quality and overall performance.
RETAIL ENERGY MARKETING           FPL       require reliable, high-quality electricity.
RETAIL ENERGY MARKETING FPL Energy Services is a retail energy marketer providing customized solutions to commercial, industrial, chain and government organizations. FPL Energy Services introduced its Energy Data Management (EDM) program in 1998, providing multi-site businesses with the expertise and information they need to reduce energy costs nationwide. The Internet-based service ensures the accura cy of utility-related bills through audits, improves the cost-effectiveness of bill processing, provides rate analysis and identifies energy efficiency measures.
Energy Services is a retail energy         FPL's power quality experts offer a marketer providing customized solutions to commercial, industrial, chain and variety of services, including the diagnosis of power problems, as well          A) government organizations. FPL Energy       as the installation of surge protectors Services introduced its Energy Data         and uninterruptible power supplies.
FPL Energy Services also began supply ing natural gas to businesses in Florida and several northeastern states, tapping FPUs experience as one of the largest natural gas buyers in the nation.
Management (EDM) program in 1998, providing multi-site businesses with the   BUSINESS CARE        FPL introduced a expertise and information they need to     dedicated sales and service field organiza reduce energy costs nationwide. The         tion and opened a Business Care Center Internet-based service ensures the accura   in 1998 to better meet the unique cy of utility-related bills through audits, requirements of the small- to medium improves the cost-effectiveness of bill     sized business customer. FPL's customer processing, provides rate analysis and     service telephone system identifies busi identifies energy efficiency measures.     ness callers and routes their calls to FPL Energy Services also began supply       highly trained FPL business specialists ing natural gas to businesses in Florida   who are equipped to provide prompt and several northeastern states, tapping   solutions to their energy-related needs.
POWER EXPERTS Due to the prolifera tion of high-tech electronic and computer systems that are sensitive to power fluctuations, businesses increasingly require reliable, high-quality electricity.
FPUs experience as one of the largest natural gas buyers in the nation.           ELECTRONIC PAYMENT           CheckFree is another program offered by FPL that POWER EXPERTS        Due to the prolifera  allows customers to log onto FPUs web tion of high-tech electronic and computer  site to get information about their bill systems that are sensitive to power        and pay it electronically. FPL received theJ) fluctuations, businesses increasingly      1998 Award for Excellence in Electronic 1998 Annual Report 12
FPL's power quality experts offer a variety of services, including the diagnosis of power problems, as well as the installation of surge protectors and uninterruptible power supplies.
A)
BUSINESS CARE FPL introduced a dedicated sales and service field organiza tion and opened a Business Care Center in 1998 to better meet the unique requirements of the small-to medium sized business customer. FPL's customer service telephone system identifies busi ness callers and routes their calls to highly trained FPL business specialists who are equipped to provide prompt solutions to their energy-related needs.
ELECTRONIC PAYMENT CheckFree is another program offered by FPL that allows customers to log onto FPUs web site to get information about their bill and pay it electronically. FPL received theJ) 1998 Award for Excellence in Electronic 1998 Annual Report 12


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eooumeY TW&#xfd;F DO4A4-.it +VIFA Commerce for its use of CheckFree. &#xfd;, A new On-line Pay Agent Locations system  
                                                  /
'OPAL) utilizes the latest technology to  
Commerce for its use of CheckFree. &#xfd;,A new On-line Pay Agent Locations system
'--allow customers to conveniently pay bills on line at more than 100 locations in Florida. The system automatically posts payments via the Internet to FPUs com puter system. OPAL is expected to reduce costs by $1 million annually and reduce customer calls to confirm bill payment by 300,000 each year. The OPAL system earned FPL the Ultra Award, presented annually by Public Utilities Fortnightly magazine and IBM, for "the most innovative application of information technology" among energy companies.
      'OPAL) utilizes the latest technology to
LARGEST EV FLEET FPL began operating the largest electric vehicle fleet in Florida - 41 cars and trucks and opened the state's largest charging station. FPL is committed to both pre serving the environment and expanding Sthe commercial viability of new electric technology applications.
'--allow     customers to conveniently pay bills on line at more than 100 locations in Florida. The system automatically posts payments via the Internet to FPUs com FPL Energy Services is constructing its first puter system. OPAL is expected to reduce district cooling facility located in downtown costs by $1 million annually and reduce Miami. This facility, scheduled to be opera customer calls to confirm bill payment tional in May 1999, will serve the north by 300,000 each year. The OPAL system downtown Miami business community. The earned FPL the Ultra Award, presented annually by Public Utilities Fortnightly     first customer will be the new state-of-the magazine and IBM, for "the most              art American Airlines Arena, home to the innovative application of information        Miami Heat professional basketball team.
/
technology" among energy companies.          The cooling facility, which will be owned and operated by FPL Energy Services, pro LARGEST EV FLEET        FPL began            duces chilled water at night when energy operating the largest electric vehicle      costs are lower, and stores it for use in air fleet in Florida - 41 cars and trucks        conditioning during the day. The chilled and opened the state's largest charging      water is then pumped through a distribution station. FPL is committed to both pre        system to serve local businesses.
FPL Energy Services is constructing its first district cooling facility located in downtown Miami. This facility, scheduled to be opera tional in May 1999, will serve the north downtown Miami business community. The first customer will be the new state-of-the art American Airlines Arena, home to the Miami Heat professional basketball team.
serving the environment and expanding Sthe    commercial viability of new electric technology applications.
The cooling facility, which will be owned and operated by FPL Energy Services, pro duces chilled water at night when energy costs are lower, and stores it for use in air conditioning during the day. The chilled water is then pumped through a distribution system to serve local businesses.
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Quality is a central cc of FPL Group's corporate culture as a high-performance organization.
Quality is a central cc of FPL Group's corporate culture as a high-performance organization.
SHOWCASING QUALITY           A strong commitment     failure. Employees from the Martin power plant to quality is reflected in the level of participation achieved a 60% reduction in visible emissions in the company's annual quality competition - the     from the plant's stacks through rebuilding certain President's Cup - and the accompanying Quality       components. This technique is being applied to Expo. A record 45 employee teams entered the President's Cup competition in 1998, and the Quality Expo featured more than 130 booths other FPL plants sites as well.
SHOWCASING QUALITY A strong commitment to quality is reflected in the level of participation in the company's annual quality competition - the President's Cup - and the accompanying Quality Expo. A record 45 employee teams entered the President's Cup competition in 1998, and the Quality Expo featured more than 130 booths displaying achievements in quality and safety.
LOWER COSTS T)
A WINNING TEAM A team of meter readers won the President's Cup competition with an impres sive demonstration of continuous improvement and customer focus. These dedicated employees, who already had a remarkable record of perform ance, further improved to only.92 errors for every 10,000 meters read. That's the equivalent of just one mistake per meter reader per month, making them the most accurate in the nation. Since 1995 FPL's meter readers have cut their error rate in half, while costs have been held at 1991 levels.
FPL has succeeded in maintain displaying achievements in quality and safety.        ing low electricity prices through a constant focus on reducing costs and improving quality. FPL A WINNING TEAM        A team of meter readers won    reduced its operations and maintenance costs the President's Cup competition with an impres        per kilowatt-hour for the eighth consecutive year sive demonstration of continuous improvement          in 1998 to a level one-third lower than they were and customer focus. These dedicated employees,        in 1990. FPL's residential rates are lower than who already had a remarkable record of perform        the U. S. average and are the lowest among the ance, further improved to only .92 errors for every  major investor-owned electric utilities in Florida.
PROBLEM SOLVERS Other President's Cup finalists had impressive stories as well. A team developed a predictive model for substation voltage regulators that resulted in a 59% reduc tion in power interruptions caused by regulator failure. Employees from the Martin power plant achieved a 60% reduction in visible emissions from the plant's stacks through rebuilding certain components. This technique is being applied to other FPL plants sites as well.
10,000 meters read. That's the equivalent of just    What's more, FPL is the only major utility in the one mistake per meter reader per month, making        state that has not asked for a base rate increase them the most accurate in the nation. Since 1995      in the 1990s.
LOWER COSTS FPL has succeeded in maintain ing low electricity prices through a constant focus on reducing costs and improving quality. FPL reduced its operations and maintenance costs per kilowatt-hour for the eighth consecutive year in 1998 to a level one-third lower than they were in 1990.
FPL's meter readers have cut their error rate in half, while costs have been held at 1991 levels.      HIGH PERFORMANCE         FPL's quality efforts are currently focused on strengthening its position PROBLEM SOLVERS        Other President's Cup        as a high performance organization that is finalists had impressive stories as well. A team      recognized as world class in all business aspects.
FPL's residential rates are lower than the U. S. average and are the lowest among the major investor-owned electric utilities in Florida.
developed a predictive model for substation          Departmental assessments based on the criteria voltage regulators that resulted in a 59% reduc      established for the Malcolm Baldrige National tion in power interruptions caused by regulator      Quality Award are being used to measure the             Ii 1998 Annual Report <4
What's more, FPL is the only major utility in the state that has not asked for a base rate increase in the 1990s.
HIGH PERFORMANCE FPL's quality efforts are currently focused on strengthening its position as a high performance organization that is recognized as world class in all business aspects.
Departmental assessments based on the criteria established for the Malcolm Baldrige National Quality Award are being used to measure the 1998 Annual Report <4 T)
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1.82 1.65 1,49 1.30 1.22 aW        90         92             94 Operations and Maintenance Expenses 96  98 Florida Power & Light Company
90 92 94 96 98 W Operations and Maintenance Expenses Florida Power & Light Company
((enls per kilowatt-hour) company's progress. The criteria include leader ship, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.               Malcolm                                          !
((enls per kilowatt-hour) company's progress. The criteria include leader ship, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.
Baldrige National BEST PRACTICES 4 The                   power delivery business Quality Award in early 1999.
BEST PRACTICES 4 The power delivery business unit implemented a comprehensive high perform ance organization plan identified as a "best prac tice" to be emulated by other appropriate business units. Under the plan, new employee engineers work in a variety of positions during their first 16-20 months on the job to learn all aspects of the organization before being named to a permanent position.
unit implemented a comprehensive high perform                 The foundation raises contributions to fund ance organization plan identified as a "best prac             the Baldrige Award program, created by tice" to be emulated by other appropriate business             Congress in 1987 in memory of the late Secretary units. Under the plan, new employee engineers                 of Commerce Malcolm Baldrige. The program work in a variety of positions during their first             seeks to enhance the competitiveness of U.S.
BALDRIGE FOUNDATION t FPL Group Chairman Uawnd Chief Executive Officer James L. Broadhead was named president of the Foundation for the Malcolm Baldrige National Quality Award in early 1999.
16-20 months on the job to learn all aspects                   businesses by promoting quality awareness. In of the organization before being named to                     1998 Congress approved extending the benefits a permanent position.                                         of the Baldrige program into the education and healthcare sectors. 0 FPL employees with Uawnd BALDRIGE FOUNDATION t FPL Group Chairman Chief Executive Officer James L. Broadhead was named president of the Foundation for the expertise in quality tools and techniques work with Florida schools and school systems to help improve the quality of education.
The foundation raises contributions to fund the Baldrige Award program, created by Congress in 1987 in memory of the late Secretary of Commerce Malcolm Baldrige. The program seeks to enhance the competitiveness of U.S.
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businesses by promoting quality awareness. In 1998 Congress approved extending the benefits of the Baldrige program into the education and healthcare sectors. 0 FPL employees with expertise in quality tools and techniques work with Florida schools and school systems to help improve the quality of education.
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UEFTT               O-o Cvh7 <,&#xfd;j FPL Group understands of corporate responsibility and environmental stewardship.
UEFTT O-o Cvh7  
ENVIRONMENTAL HONORS                 FPL's nine largest utilities in Florida,  hundred hatchlings emerge.
<,&#xfd;j FPL Group understands of corporate responsibility and environmental stewardship.
environmental performance                   FPL was recently ranked the clean  FPL facilities provide refuge for received special recognition in             est by the Legal Environmental      the endangered West Indian 1998 as the company became the             Assistance Foundation based on      manatee. Every winter hundreds first electric utility to earn the U.S. emissions that cause smog, acid Coast Guard's highest honor for excellence in marine environmen rain and global warming.
ENVIRONMENTAL HONORS FPL's environmental performance received special recognition in 1998 as the company became the first electric utility to earn the U.S.
Nationally, FPL's emission rate per of these gentle creatures seek warm waters discharged from            I)
Coast Guard's highest honor for excellence in marine environmen tal protection - the William M.
FPL's power plants.
Benkert Award. Activities hon ored by the Coast Guard include completion of a $1.5 million study to mitigate fuel spill impacts, programs to protect and preserve endangered species, and an oil spill prevention and response program.
tal protection - the William M.             kilowatt-hour for carbon dioxide Benkert Award. Activities hon               is among the lowest and has        KEEPING FIT      FPL Group ored by the Coast Guard include             declined since 1990. FPL's success  received the Gold Well Workforce completion of a $1.5 million study         reflects an increase in the use of  Award from the Wellness Council to mitigate fuel spill impacts,             gas combined-cycle technology,      of America for offering quality programs to protect and preserve           greater fuel efficiency and higher  on-site fitness centers and endangered species, and an oil spill       output from nuclear units.          health awareness programs prevention and response program.                                                for its employees.
CLEANEST UTILITY ': FPL is the largest electric utility in Florida, and its kilowatt-hour sales have increased by about one-third since 1990, reflecting customer growth and higher usage. FPL has successfully met this growth, while building on its sterling environmental record. Among the nine largest utilities in Florida, FPL was recently ranked the clean est by the Legal Environmental Assistance Foundation based on emissions that cause smog, acid rain and global warming.
PROTECTING NATURE        FPL CLEANEST UTILITY           ': FPL is the   supports many programs to pro      SAFETY FIRST      Safety is a critical largest electric utility in Florida,       tect endangered species and to      area of focus, and the company's and its kilowatt-hour sales have            promote the preservation of their   Safety 2000 initiative works to increased by about one-third                natural habitats. For example, the more aggressively and regularly since 1990, reflecting customer            cooling canals at the Turkey Point promote safety awareness among growth and higher usage. FPL                plant are one of only three nesting employees and customers. These has successfully met this growth,          areas in the country for the endan efforts are paying off. For exam while building on its sterling              gered North American saltwater      ple, distribution system workers environmental record. Among the            crocodile, where each year several  reduced the number of serious t) 1998 Annual Report   16
Nationally, FPL's emission rate per kilowatt-hour for carbon dioxide is among the lowest and has declined since 1990. FPL's success reflects an increase in the use of gas combined-cycle technology, greater fuel efficiency and higher output from nuclear units.
PROTECTING NATURE FPL supports many programs to pro tect endangered species and to promote the preservation of their natural habitats. For example, the cooling canals at the Turkey Point plant are one of only three nesting areas in the country for the endan gered North American saltwater crocodile, where each year several hundred hatchlings emerge.
FPL facilities provide refuge for the endangered West Indian manatee. Every winter hundreds of these gentle creatures seek warm waters discharged from FPL's power plants.
KEEPING FIT FPL Group received the Gold Well Workforce Award from the Wellness Council of America for offering quality on-site fitness centers and health awareness programs for its employees.
SAFETY FIRST Safety is a critical area of focus, and the company's Safety 2000 initiative works to more aggressively and regularly promote safety awareness among employees and customers. These efforts are paying off. For exam ple, distribution system workers reduced the number of serious 1998 Annual Report 16 I) t)


the importance injuries by 28%. Customer           involved in a program to mentor programs include a safety calendar   students in the local Indiantown contest in which children are       community. The program targets invited to submit drawings depict   a reduction in the drop-out rate ing safe practices with electricity. among a diverse minority student Another FPL-sponsored program       population. In Volusia County, focuses on helping the public       FPL's award-winning efforts
the importance injuries by 28%.
"- avoid contacting power lines.       include helping establish an educa The "Safety Six-Pack" series of     tional foundation that provides posters, brochures and stickers     direct support to schools, and is distributed mostly to businesses Career Connection that helps that operate equipment that could   students relate school experi contact power lines, such as cranes ence more directly to the          ',!:t &#xfd;,*C46e and backhoes.                       work environment. A team of 550 employees COMMUNITY SUPPORT           FPL     participated in the annual and its employees are involved       Race for the Cure in in a number of activities that help West Palm Beach, an improve the quality of life in the   event that benefits communities it serves. For exam     the Susan G. Komen ple, during the 1998 United Way       Breast Cancer campaign, employees pledged           Foundation. FPL more than $1.6 million, an 11%       had the largest corpo increase over 1997 while the         rate team in the race, showing company contributed another          its commitment to this important
Customer programs include a safety calendar contest in which children are invited to submit drawings depict ing safe practices with electricity.
    $630,000. Two dozen employ          cause to win the battle against ees of the Martin plant are          breast cancer.
Another FPL-sponsored program focuses on helping the public  
17   www.fplgroup.com
"- avoid contacting power lines.
The "Safety Six-Pack" series of posters, brochures and stickers is distributed mostly to businesses that operate equipment that could contact power lines, such as cranes and backhoes.
COMMUNITY SUPPORT FPL and its employees are involved in a number of activities that help improve the quality of life in the communities it serves. For exam ple, during the 1998 United Way campaign, employees pledged more than $1.6 million, an 11%
increase over 1997 while the company contributed another
$630,000.
Two dozen employ ees of the Martin plant are involved in a program to mentor students in the local Indiantown community. The program targets a reduction in the drop-out rate among a diverse minority student population.
In Volusia County, FPL's award-winning efforts include helping establish an educa tional foundation that provides direct support to schools, and Career Connection that helps students relate school experi ence more directly to the work environment.
A team of 550 employees participated in the annual Race for the Cure in West Palm Beach, an event that benefits the Susan G. Komen Breast Cancer Foundation. FPL had the largest corpo rate team in the race, showing its commitment to this important cause to win the battle against breast cancer.
17 www.fplgroup.com
',!:t &#xfd;,* C46e


r GROWLH         FPL                           Energy                     is       a     leading AHEAD           producer focused on clean energy generation. It significantly increased earnings contributions through new projects and improved operations.
r GROWLH FPL Energy is a
* FPL Energy's ownership interest in               than 90% of its projects. This hands power generation projects has more                 on approach enables FPL Energy to than doubled during the last two                   maximize the operating and financial years from less than 700 MW in 1996                 performance of its projects. 4 In fact, to nearly 1,900 MW in operation at                 performance enhancements at existing the end of 1998. Most of the output                 projects accounted for 60% of the from the projects is under long-term               earnings growth contribution made contract. Approximately 95% of this                 by FPL Energy in 1998 with the capacity is located in the United States           remainder coming from the addition and is focused in three main regions:               of new projects. For example, FPL the mid-Atlantic,     Energy enhanced the operating and I78             West and Northeast. financial performance of its Doswell Lg.                   During 1998, FPL     plant in 1998 through re-negotiation 991 1,240                       Energy added more     of its power purchase agreement with than 600 MW           Virginia Electric Power and restructur of capacity to       ing of its debt. FPL Energy has also its portfolio,       significantly improved the financial performance of its two solar facilities, HANDS-ON APPROACH     totalling 160 MW, that comprise the 96 9;798                      11FPL Energy active- world's largest solar generating station.
leading AHEAD producer focused on clean energy generation. It significantly increased earnings contributions through new projects and improved operations.
FPL Energy's                     ly manages more Growing Portfolio (net meeawatils inoperation; year end) 1998 Annual Report
* FPL Energy's ownership interest in than 90% of its projects. This hands power generation projects has more on approach enables FPL Energy to than doubled during the last two maximize the operating and financial years from less than 700 MW in 1996 performance of its projects. 4 In fact, to nearly 1,900 MW in operation at performance enhancements at existing the end of 1998. Most of the output projects accounted for 60% of the from the projects is under long-term earnings growth contribution made contract. Approximately 95% of this by FPL Energy in 1998 with the capacity is located in the United States remainder coming from the addition and is focused in three main regions:
of new projects. For example, FPL the mid-Atlantic, Energy enhanced the operating and I78 West and Northeast.
financial performance of its Doswell Lg.
During 1998, FPL plant in 1998 through re-negotiation 991 1,240 Energy added more of its power purchase agreement with than 600 MW Virginia Electric Power and restructur of capacity to ing of its debt. FPL Energy has also its portfolio, significantly improved the financial performance of its two solar facilities, HANDS-ON APPROACH totalling 160 MW, that comprise the 96 9;7 98 11 FPL Energy active-world's largest solar generating station.
FPL Energy's ly manages more Growing Portfolio (net meeawatils in operation; year end) 1998 Annual Report


International (Colombia, UK) 5%
International (Colombia, UK) 5%
Line 203: Line 300:
West 36%
West 36%
Mid-Atlanti 40%
Mid-Atlanti 40%
FPL Energy's Regional Focus independent power EARNINGS GROWTH           FPL Energy has substantially Northeast. In the first transaction, FPL Energy increased its earnings contributions to FPL Group,     acquired 50% ownership of two 300 MW gas and in 1998 was a significant contributor to earn       fired combined-cycle power plants in New Jersey ings growth. This trend is expected to continue         and Massachusetts. These clean energy plants into 1999 and 2000 with the addition of new pro         have long-term contracts to supply power to local jects to FPL Energy's portfolio and continued          utilities. FPL Energy assumed the full management operational and other profitability enhancements.      of these facilities effective in January 1998, assumed operating responsibility in early 1999, GAS EXPANSION        ., Gas-fired projects account    and expects to further enhance plant performance.
FPL Energy's Regional Focus independent power EARNINGS GROWTH FPL Energy has substantially increased its earnings contributions to FPL Group, and in 1998 was a significant contributor to earn ings growth. This trend is expected to continue into 1999 and 2000 with the addition of new pro jects to FPL Energy's portfolio and continued operational and other profitability enhancements.
for a significant portion of the growth in FPL              FPL Energy expects to complete the acquisition Energy's earnings contributions - about 60%            of the non-nuclear generating assets of Central in 1998 and 80% expected for 1999. This reflects        Maine Power Company (CMP) in early spring.
GAS EXPANSION., Gas-fired projects account for a significant portion of the growth in FPL Energy's earnings contributions - about 60%
FPL Energy's ownership of the 665 MW Doswell            The facilities consist of hydro, fossil and biomass plant in Virginia and the addition of gas-fired        plants with a combined capacity of 1,185 MW.
in 1998 and 80% expected for 1999. This reflects FPL Energy's ownership of the 665 MW Doswell plant in Virginia and the addition of gas-fired capacity throughout 1998.
capacity throughout 1998.                              Between the time of closing and the start of retail competition in Maine on March 1, 2000, CMP SYNERGY        FPL Group expanded the scope            will buy from FPL Energy all of the hydro output of its Power Generation Division in early 1998          and a specified minimum amount of the fossil out to include construction and operation of FPL            put. The acquisition of these assets will add hydro Energy's plants in addition to those of Florida        capacity to the company's clean energy portfolio.
SYNERGY FPL Group expanded the scope of its Power Generation Division in early 1998 to include construction and operation of FPL Energy's plants in addition to those of Florida Power & Light Company. This organizational structure allows FPL Energy to capitalize on FPL's world-class expertise in operating gas-fired combined-cycle power plants.
Power & Light Company. This organizational structure allows FPL Energy to capitalize on            GOING OPERATIONAL         <N The gas-fired Cherokee FPL's world-class expertise in operating gas-fired      plant began operations in mid-1998, providing combined-cycle power plants.                            power to Duke Energy under a long-term con tract. FPL Energy constructed this 100 MW plant ACQUISITIONS        In early 1998, FPL Energy          in South Carolina, drawing upon the world-class announced two major acquisitions in the                  expertise of the Power Generation Division. FPL's 19   www.fplenergy.coni
ACQUISITIONS In early 1998, FPL Energy announced two major acquisitions in the Northeast. In the first transaction, FPL Energy acquired 50% ownership of two 300 MW gas fired combined-cycle power plants in New Jersey and Massachusetts. These clean energy plants have long-term contracts to supply power to local utilities. FPL Energy assumed the full management of these facilities effective in January 1998, assumed operating responsibility in early 1999, and expects to further enhance plant performance.
FPL Energy expects to complete the acquisition of the non-nuclear generating assets of Central Maine Power Company (CMP) in early spring.
The facilities consist of hydro, fossil and biomass plants with a combined capacity of 1,185 MW.
Between the time of closing and the start of retail competition in Maine on March 1, 2000, CMP will buy from FPL Energy all of the hydro output and a specified minimum amount of the fossil out put. The acquisition of these assets will add hydro capacity to the company's clean energy portfolio.
GOING OPERATIONAL <N The gas-fired Cherokee plant began operations in mid-1998, providing power to Duke Energy under a long-term con tract. FPL Energy constructed this 100 MW plant in South Carolina, drawing upon the world-class expertise of the Power Generation Division. FPL's 19 www.fplenergy.coni


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SoinrWind 8% 18 Geothermal6%*


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FPL Energy's Clean Energy Focus Net Capacity by Source (megawatis in operation at year end) l! "
Energy Marketing and Trading division supports Cherokee and other FPL Energy facilities by selling available energy in wholesale markets and by procuring gas for its operations.
* The gas fired Termovalle project in Colombia went into operation in March 1998, adding 68 MW to FPL Energy's portfolio of operating projects. 4 Other portfolio additions in 1998 include a 25 MW wind generation project in Oregon that entered service in November, which FPL Energy constructed, and acquisitions of geothermal projects in California that added approximately 50 MW.
NEW TALENT + Expansion of FPL Energy's team of employees has strengthened the company's ability to identify, structure, construct, close, finance, and profitably manage and operate pro jects. The FPL Energy team today numbers about 600, more than double what it was in 1996.
MERCHANT PLANTS + Going forward FPL Energy plans to expand its development of merchant plants (those that don't sell their output under long-term contracts to utilities), particularly those fueled by gas. FPL Energy plans to expand its merchant activity through internal development of projects and by buying late stage development projects.
* In January 1999, FPL Energy announced plans to construct its first gas-fired merchant plant, a 248 MW facility near Seattle to be completed in 2001. In this transaction, FPL Energy acquired the development rights as a means to accelerate portfolio expan sion. + In February, EPL Energy acquired the rights to build, own, and operate a 1,000 MW gas-fired plant in Texas that is scheduled to begin operations in mid-2000. The plant's output will be sold primarily in the wholesale market.
INCREASING WIND PROJECTS 4 FPL Energy will complete the construction of wind energy projects in mid-1999 in Texas and Iowa, adding more than 100 MW to the portfolio. These state-of-the art facilities feature the latest wind turbine technology and are not only more efficient than older designs, but operate at lower wind speeds that are safer for birds. Today's wind turbines are capable of generating power for approximately 5 cents per kilowatt-hour, about half the cost of earlier turbines.
1998 Annual Report Wind 18 Soinr 8%
Geothermal6%*
Other 2%
Other 2%
FPL Energy's Clean Energy Focus Net Capacity by Source (megawatis inoperation at year end) l! "
Energy Marketing and Trading division supports      its merchant activity through internal Cherokee and other FPL Energy facilities by          development of projects and by buying late selling available energy in wholesale markets and    stage development projects.
* In January 1999, by procuring gas for its operations.
* The gas      FPL Energy announced plans to construct its fired Termovalle project in Colombia went into      first gas-fired merchant plant, a 248 MW facility operation in March 1998, adding 68 MW to FPL        near Seattle to be completed in 2001. In this Energy's portfolio of operating projects. 4 Other    transaction, FPL Energy acquired the development portfolio additions in 1998 include a 25 MW wind    rights as a means to accelerate portfolio expan generation project in Oregon that entered service    sion. + In February, EPL Energy acquired the in November, which FPL Energy constructed, and      rights to build, own, and operate a 1,000 MW acquisitions of geothermal projects in California    gas-fired plant in Texas that is scheduled to begin that added approximately 50 MW.                      operations in mid-2000. The plant's output will be sold primarily in the wholesale market.
NEW TALENT + Expansion of FPL Energy's team of employees has strengthened the company's          INCREASING WIND PROJECTS 4 FPL Energy will ability to identify, structure, construct, close,    complete the construction of wind energy projects finance, and profitably manage and operate pro      in mid-1999 in Texas and Iowa, adding more than jects. The FPL Energy team today numbers about      100 MW to the portfolio. These state-of-the art 600, more than double what it was in 1996.          facilities feature the latest wind turbine technology and are not only more efficient than older designs, MERCHANT PLANTS + Going forward FPL Energy          but operate at lower wind speeds that are safer plans to expand its development of merchant          for birds. Today's wind turbines are capable plants (those that don't sell their output under    of generating power for approximately 5 cents long-term contracts to utilities), particularly      per kilowatt-hour, about half the cost of those fueled by gas. FPL Energy plans to expand      earlier turbines.
1998 Annual Report


tuo 9-,MqU91 dj -alazal Financial and Operating Statistics For the Years Ended December 31,                                                           1998     1997       1996     1995       1994     1993       1988     1, SELECTED FINANCIAL DATA (MILLIONS)
tuo 9 -,MqU91 dj -alazal
Operating Revenues                                                               $6,661   $6,369    $6,037    $5,592    $5,423    $5,312      $4,729 Operating Expenses"'                                                             $5,409   $5,141    $4,866    $4,395    $4,274    $4,342      $3,845 Operating Income")                                                               $1,252   $1,228    $1,171    $1,197    $1,148      $969      $884 Net Income")                                                                       $664     $618      $579      $553      $519      $429      $448 Total Assets                                                                   $12,029 $12,449    $12,219  $12,459    $12,618  $13,078    $10,185 Long-Term Debt (excluding current maturities)                                           $2,347    $2,949    $3,144    $3,377    $3,864    $3,749    $3,254 Preferred Stock of FPL (excluding current maturities)                                             $226     $226      $331      $340        $545      $548      $526 FLORIDA POWER &b                                                   LIGHT COMPANY Operating Revenues (millions)                                                   $6,366   $6,132    $5,986    $5,530    $5,343    $5,224    $4,627 Energy Sales (millions of kwh)                                                   89,362   82,734    80,889    79,756    77,096    72,455    61,578 Customer Accounts -
 
Average (thousands)                                                       3,680     3,616      3,551    3,489      3,422    3,350      2,954 Peak Load, Winter (mw 60-minute)' 2'                                             16,802   13,047    16,490    18,096    16,563    12,594    12,372 Peak Load, Summer (mw 60-minute)                                                 17,897   16,613    16,064    15,813    15,179    15,266    12,382 Total Capability (summer peak, mw) 3'                                             18,509   18,715    18,538    18,153    18,146    16,698    16,008 Reserve Margin (summer peak, %)-")                                                     10       20          23        21          26      13          30 Net Energy for Load (%)
Financial and Operating Statistics For the Years Ended December 31, 1998 1997 1996 1995 1994 1993 1988 SELECTED FINANCIAL DATA (MILLIONS)
Oil Natural Gas 27 26 18 29 18 29 19 31 31 20 32 17 26 17 AT Nuclear                                                                       26        25          26        25          26       25          30 Net Purchased Power and Interchange                                             14       20          20        18          17      21          25 Coal                                                                             7         8          7        7          6        5            2 Capital Expenditures (including nuclear fuel and AFUDC)                                           $617     $551        $474      $669      $772    $1,109        $668 COMMON                             STOCK DATA Average Shares Outstanding (millions)14)                                             173      173         174      175        178      187        131 Earnings Per Share of Common Stock(')(4)(5)                                                       $3.85     $3.57      $3.33    $3.16      $2.91      $2.30      $3.42 Dividends Paid Per Share                                                           $2.00     $1.92      $1.84    $1.76      $1.88      $2.47      $2.18 Book Value Per Share (year end)                                                   $29.76   $28.03      $26.46    $25.12    $23.82    $21.57    $24.90 Market Price Per Share (year end)                                                 $6151   $59716        $46    $46-1/2      $35'/    $39'/      $31'/
Operating Revenues  
Market Price Per Share (high-low) $721/6-561&6                                             60-425h $48'/-41 '/ $46/2-34 $39'/,-26-/ $41-35'! $32'/2-27'/
$6,661 Operating Expenses"'  
Number of Shareholders (year end)                                                  55,149  60,493 67,580    74,169    82,021   85,787    70,296 Includes charges in 1993 for cost reduction program (S85 million after tax).
$5,409 Operating Income")  
(2) Winter peaks include November-December of current year and January-Marchof following year.
$1,252 Net Income")  
( Represents installed capability plus purchased power. Reserve margin is based on peak load net of load management.
$664 Total Assets  
"' Reflects a reduction of 9 million in 1998, 1997 and 1996, 10 million in 1995, and 11 million in 1994 of unallocatedshares held by the ESOP due to an accounting standard adopted effective January 1, 1994.
$12,029 Long-Term Debt (excluding current maturities)
Preferred Stock of FPL (excluding current maturities)
$226 FLORIDA POWER &b LIGHT COMPANY Operating Revenues (millions)  
$6,366 Energy Sales (millions of kwh) 89,362 Customer Accounts -
Average (thousands) 3,680 Peak Load, Winter (mw 60-minute)'2' 16,802 Peak Load, Summer (mw 60-minute) 17,897 Total Capability (summer peak, mw)3' 18,509 Reserve Margin (summer peak, %)-")
10 Net Energy for Load (%)
Oil 27 Natural Gas 26 Nuclear 26 Net Purchased Power and Interchange 14 Coal 7
Capital Expenditures (including nuclear fuel and AFUDC)  
$617 COMMON STOCK DATA Average Shares Outstanding (millions)14) 173 Earnings Per Share of Common Stock(')(4)(5)  
$3.85 Dividends Paid Per Share  
$2.00 Book Value Per Share (year end)  
$29.76 Market Price Per Share (year end)  
$6151 Market Price Per Share (high-low) $721/6-561&6 Number of Shareholders (year end) 55,149
$6,369
$5,141
$1,228
$618
$12,449
$6,037
$4,866
$1,171
$579
$12,219
$5,592
$4,395
$1,197
$553
$12,459
$5,423
$4,274
$1,148
$519
$12,618
$2,347
$2,949
$3,144
$3,377
$3,864
$226
$331
$6,132 82,734 3,616 13,047 16,613 18,715 20 18 29 25 20 8
$5,986 80,889 3,551 16,490 16,064 18,538 23 18 29 26 20 7
$551
$474 173
$3.57
$1.92
$28.03
$59716 60-425h 60,493
$5,312
$4,342
$969
$429
$13,078
$4,729
$3,845
$884
$448
$10,185
$3,749
$3,254
$340
$545
$548
$526
$5,530 79,756 3,489 18,096 15,813 18,153 21 19 31 25 18 7
$5,343 77,096 3,422 16,563 15,179 18,146 26 31 20 26 17 6
$5,224 72,455 3,350 12,594 15,266 16,698 13 32 17 25 21 5
$4,627 61,578 2,954 12,372 12,382 16,008 30 26 17 30 25 2
$669
$772
$1,109
$668 174 175 178
$3.33
$1.84
$26.46
$46
$48'/-41 '/
67,580
$3.16
$1.76
$25.12
$46-1/2
$46/2-34 74,169
$2.91
$1.88
$23.82
$35'/
$39'/,-26-/
82,021 Includes charges in 1993 for cost reduction program (S85 million after tax).
(2) Winter peaks include November-December of current year and January-March of following year.
( Represents installed capability plus purchased power. Reserve margin is based on peak load net of load management.  
"' Reflects a reduction of 9 million in 1998, 1997 and 1996, 10 million in 1995, and 11 million in 1994 of unallocated shares held by the ESOP due to an accounting standard adopted effective January 1, 1994.
(5) Basic and assuming dilution.
(5) Basic and assuming dilution.
1998 Annual Report 22
1998 Annual Report 22 AT 187 131
$2.30
$3.42
$2.47
$2.18
$21.57
$24.90
$39'/
$31'/
$41-35'! $32'/2-27'/
85,787 70,296 1,


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS                                         FPSC staff, the FPSC issued a proposed order approving a settlement regarding FPL's allowed ROE, equity ratio During 1998, FPL Group, Inc. (FPL Group) achieved         and the special amortization program. Under the proposed net income and earnings per share growth of 7.4%               settlement, beginning in 1999 FPL's allowed ROE range and 7.8%, respectively, compared to 1997 growth               would be 10.2% to 12.2% with a midpoint of 11.2%.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS During 1998, FPL Group, Inc. (FPL Group) achieved net income and earnings per share growth of 7.4%
rates of 6.7% and 7.2%. The growth reflects better             FPL agreed to a maximum adjusted equity ratio of operating results from FPL Energy, Inc.'s (FPL Energy)         55.83% through 2000. The adjusted equity ratio reflected independent power projects, primarily from its                 a discounted amount for off-balance sheet obligations natural gas-fired projects.                                   under certain long-term purchase power contracts. See Florida Power & Light Company's (FPL) operating           Note 9 - Contracts. The proposed settlement also extended revenues and net income represent approximately 96%           the special amortization program through 2000 and and 93% of the corresponding amounts of FPL Group.             modified the program to include an additional fixed Approximately 20% of the 1998 growth in earnings per           amount of $140 million per year in addition to the share was provided by FPL. FPL's growth was primarily         variable amount. FPL continues to record a $30 million associated with an increase in total kilowatt-hour (kwh)       fixed nuclear amount under a previous FPSC order. In sales and lower interest charges and preferred stock           January 1999, several parties challenged the FPSC's dividends. Offsetting these items were higher depreciation     proposed order. In mid-February 1999, FPL withdrew and other operations and maintenance (O&M) expenses.           from the settlement agreement; the FPSC subsequently FPL's operating revenues consist primarily of revenues     approved this withdrawal and concluded the proceeding.
and 7.8%, respectively, compared to 1997 growth rates of 6.7% and 7.2%. The growth reflects better operating results from FPL Energy, Inc.'s (FPL Energy) independent power projects, primarily from its natural gas-fired projects.
from base rates, cost recovery clauses and franchise fees. FPL is authorized to continue to record special amortization
Florida Power & Light Company's (FPL) operating revenues and net income represent approximately 96%
__    Revenues from FPL's base rates were $3.7 billion, $3.5         through 1999 in accordance with the extension of the spe billion and $3.4 billion in 1998, 1997 and 1996, respectively. cial amortization program approved by the FPSC in 1997.
and 93% of the corresponding amounts of FPL Group.
There were no changes in base rates during those years.           In January 1999, the State of Florida Office of Public Revenues from cost recovery clauses and franchise fees         Counsel (Public Counsel) petitioned the FPSC to conduct represent a pass-through of costs and do not significantly     a full rate proceeding for FPL and requested that certain affect net income. Fluctuations in these revenues are         revenues be held subject to refund. Other parties have primarily driven by changes in energy sales, fuel prices       requested participation with Public Counsel. The FPSC is and capacity charges.                                         scheduled to address Public Counsel's request in March FPL's retail customer accounts increased 1.8% for           1999. FPL is unable to predict the outcome of this matter the third consecutive year. In 1998 and 1997, warmer           or any potential effect on its financial statements. See weather contributed to an increase in retail customer         Note 1 - Regulation.
Approximately 20% of the 1998 growth in earnings per share was provided by FPL. FPL's growth was primarily associated with an increase in total kilowatt-hour (kwh) sales and lower interest charges and preferred stock dividends. Offsetting these items were higher depreciation and other operations and maintenance (O&M) expenses.
usage of 4.8% and 1.2%, respectively. Together these               FPL Group's 1998 operating revenues reflect the receipt factors and changes in sales to other utilities contributed   by an independent power project of a settlement relating to an increase in FPL's total energy sales of 8.0%, 2.3%       to a contract dispute. Beginning in 1997, FPL Group's and 1.4% in 1998, 1997 and 1996, respectively.                 operating revenues, energy sales and fuel, purchased The Florida Public Service Commission (FPSC) regulates   power and interchange expense include the effects of FPL's retail sales, which represent approximately 95% of       consolidating some independent power projects.
FPL's operating revenues consist primarily of revenues from base rates, cost recovery clauses and franchise fees.
FPL Group's total operating revenues. FPL reported a                O&M expenses increased in 1998, primarily as a retail regulatory return on common equity (ROE) of             result of additional costs associated with improving 12.6%, 12.3% and 12.1% in 1998, 1997 and 1996,               the service reliability of FPL's distribution system. Partly respectively. FPL's allowed ROE range for 1996 through         offsetting the higher distribution expenses were lower 1998 was 11% to 13% with a midpoint of 12%. In               nuclear maintenance costs and conservation clause
Revenues from FPL's base rates were $3.7 billion, $3.5 billion and $3.4 billion in 1998, 1997 and 1996, respectively.
"*--  December 1998, after negotiations between FPL and the           expenses. Conservation clause expenses are essentially
There were no changes in base rates during those years.
    <      twvvv.fplgroup.coin
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.
FPL's retail customer accounts increased 1.8% for the third consecutive year. In 1998 and 1997, warmer weather contributed to an increase in retail customer usage of 4.8% and 1.2%, respectively. Together these factors and changes in sales to other utilities contributed to an increase in FPL's total energy sales of 8.0%, 2.3%
and 1.4% in 1998, 1997 and 1996, respectively.
The Florida Public Service Commission (FPSC) regulates FPL's retail sales, which represent approximately 95% of FPL Group's total operating revenues. FPL reported a retail regulatory return on common equity (ROE) of 12.6%, 12.3% and 12.1% in 1998, 1997 and 1996, respectively. FPL's allowed ROE range for 1996 through 1998 was 11% to 13% with a midpoint of 12%. In December 1998, after negotiations between FPL and the FPSC staff, the FPSC issued a proposed order approving a settlement regarding FPL's allowed ROE, equity ratio and the special amortization program. Under the proposed settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2% with a midpoint of 11.2%.
FPL agreed to a maximum adjusted equity ratio of 55.83% through 2000. The adjusted equity ratio reflected a discounted amount for off-balance sheet obligations under certain long-term purchase power contracts. See Note 9 - Contracts. The proposed settlement also extended the special amortization program through 2000 and modified the program to include an additional fixed amount of $140 million per year in addition to the variable amount. FPL continues to record a $30 million fixed nuclear amount under a previous FPSC order. In January 1999, several parties challenged the FPSC's proposed order. In mid-February 1999, FPL withdrew from the settlement agreement; the FPSC subsequently approved this withdrawal and concluded the proceeding.
FPL is authorized to continue to record special amortization through 1999 in accordance with the extension of the spe cial amortization program approved by the FPSC in 1997.
In January 1999, the State of Florida Office of Public Counsel (Public Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and requested that certain revenues be held subject to refund. Other parties have requested participation with Public Counsel. The FPSC is scheduled to address Public Counsel's request in March 1999. FPL is unable to predict the outcome of this matter or any potential effect on its financial statements. See Note 1 - Regulation.
FPL Group's 1998 operating revenues reflect the receipt by an independent power project of a settlement relating to a contract dispute. Beginning in 1997, FPL Group's operating revenues, energy sales and fuel, purchased power and interchange expense include the effects of consolidating some independent power projects.
O&M expenses increased in 1998, primarily as a result of additional costs associated with improving the service reliability of FPL's distribution system. Partly offsetting the higher distribution expenses were lower nuclear maintenance costs and conservation clause expenses. Conservation clause expenses are essentially t wvvv.fplgroup.coin


a pass-through and do not affect net income. In 1997, additional costs associated with the conservation clause and higher distribution system maintenance costs were (Turner) assets. Turner was an agricultural subsidiary of FPL Group Capital Inc (FPL Group Capital) which                4I owned and operated citrus groves in Florida. The loss partially offset by a slight decline in nuclear refueling   of Turner's revenues as a result of the sale will not and lower payroll-related costs.                             have a significant effect on FPL Group's future The increases in depreciation and amortization           operating revenues or net income.
a pass-through and do not affect net income. In 1997, additional costs associated with the conservation clause and higher distribution system maintenance costs were partially offset by a slight decline in nuclear refueling and lower payroll-related costs.
expense are primarily the result of the FPSC-approved           FPL Group's 1998 lower effective income tax rate special amortization program. Pursuant to the FPSC           reflects adjustments relating to prior years' tax matters, approved special amortization program, FPL records as       including the resolution of an audit issue with the Internal depreciation and amortization expense a fixed amount         Revenue Service. The effective income tax rates in 1997 of $30 million per year for nuclear assets. FPL also         and 1996 reflect increased amortization of FPL's deferred records under this program variable amortization based       investment tax credits due to the special amortization on the actual level of retail base revenues compared to     program and adjustments relating to prior years' a fixed amount. The variable amounts recorded in 1998,       tax matters.
The increases in depreciation and amortization expense are primarily the result of the FPSC-approved special amortization program. Pursuant to the FPSC approved special amortization program, FPL records as depreciation and amortization expense a fixed amount of $30 million per year for nuclear assets. FPL also records under this program variable amortization based on the actual level of retail base revenues compared to a fixed amount. The variable amounts recorded in 1998, 1997 and 1996 were $348 million, $169 million and  
1997 and 1996 were $348 million, $169 million and               The electric utility industry is facing increasing
$130 million, respectively. These variable amounts include, as depreciation and amortization expense,  
$130 million, respectively. These variable amounts           competitive pressure. FPL currently faces competition include, as depreciation and amortization expense,           from other suppliers of electrical energy to wholesale
$161 million, $169 million and $20 million, respectively, for amortization of regulatory assets. The remaining variable amounts were applied against nuclear and fossil production assets. Amortization of debt reacquisition costs, a regulatory asset, was completed in 1998. In addition to amounts recorded under the special amortization program in 1998, 1997 and 1996, FPL amortized  
$161 million, $169 million and $20 million, respectively,   customers and from alternative energy sources and for amortization of regulatory assets. The remaining         self-generation for other customer groups, primarily variable amounts were applied against nuclear and fossil     industrial customers. In 1998, operating revenues from production assets. Amortization of debt reacquisition       wholesale and industrial customers combined represented costs, a regulatory asset, was completed in 1998. In addition to amounts recorded under the special amortization program in 1998, 1997 and 1996, FPL amortized approximately 4% of FPL's total operating revenues.
$24 million, $22 million and $28 million, respectively, of plant-related regulatory assets deferred since FPL's last rate case in 1984. Amortization of plant-related regulatory assets was completed in 1998. In 1998 and 1997, the FPSC approved higher depreciation rates for certain assets which resulted in additional depreciation of $26 million and $31 million, respectively.
Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict what 4'
The 1998 increase in interest charges reflects the cost of terminating agreements designed to fix interest rates. This was partially offset by lower interest charges and preferred stock dividends at FPL, which reflect the impact of reducing debt and preferred stock balances.
$24 million, $22 million and $28 million, respectively,     impact would result from a change to a more competitive of plant-related regulatory assets deferred since FPL's     environment or when such a change might occur. Various last rate case in 1984. Amortization of plant-related       states, other than Florida, have either enacted legislation regulatory assets was completed in 1998. In 1998 and         or are pursuing initiatives designed to deregulate the 1997, the FPSC approved higher depreciation rates for       production and sale of electricity. Deregulation related certain assets which resulted in additional depreciation     activities are also being pursued on the federal level. See of $26 million and $31 million, respectively.               Note 1 - Regulation. Deregulation of the electricity utility The 1998 increase in interest charges reflects the       market presents both opportunities and risks for FPL cost of terminating agreements designed to fix interest     Energy. Opportunities exist for the selective acquisition rates. This was partially offset by lower interest charges   of generation assets that are being divested under and preferred stock dividends at FPL, which reflect the     deregulation plans and for the construction and operation impact of reducing debt and preferred stock balances.       of efficient plants that can sell low-cost power in competitive FPL Group has reduced these balances, net of commercial     markets. However, market-based pricing, competitive paper increases, over the past three years by $1.0 billion. sources of supply and the reduced availability of long-term In 1997, additional debt was assumed as a result of FPL     power sales agreements may result in fluctuations in Energy's portfolio restructuring and expansion resulting     revenues and earnings. Substantially all of the energy in higher interest charges at FPL Group.                     produced by FPL Energy's independent power projects Improved results in 1998 from independent power         is sold through long-term power sales agreements partnerships contributed to an increase in the non-operating with utilities.
FPL Group has reduced these balances, net of commercial paper increases, over the past three years by $1.0 billion.
line other-net. Also reflected in other-net is the December AI FPL Group is continuing to work to resolve the potential 1998 loss from the sale of Turner Foods Corporation's       impact of the year 2000 on the processing of information 1998 Annual Report 24
In 1997, additional debt was assumed as a result of FPL Energy's portfolio restructuring and expansion resulting in higher interest charges at FPL Group.
Improved results in 1998 from independent power partnerships contributed to an increase in the non-operating line other-net. Also reflected in other-net is the December 1998 loss from the sale of Turner Foods Corporation's (Turner) assets. Turner was an agricultural subsidiary of FPL Group Capital Inc (FPL Group Capital) which owned and operated citrus groves in Florida. The loss of Turner's revenues as a result of the sale will not have a significant effect on FPL Group's future operating revenues or net income.
FPL Group's 1998 lower effective income tax rate reflects adjustments relating to prior years' tax matters, including the resolution of an audit issue with the Internal Revenue Service. The effective income tax rates in 1997 and 1996 reflect increased amortization of FPL's deferred investment tax credits due to the special amortization program and adjustments relating to prior years' tax matters.
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 1998, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues.
Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict what impact would result from a change to a more competitive environment or when such a change might occur. Various states, other than Florida, have either enacted legislation or are pursuing initiatives designed to deregulate the production and sale of electricity. Deregulation related activities are also being pursued on the federal level. See Note 1 - Regulation. Deregulation of the electricity 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 low-cost power in competitive markets. However, market-based pricing, competitive sources of supply and the reduced availability of long-term power sales agreements may result in fluctuations in revenues and earnings. Substantially all of the energy produced by FPL Energy's independent power projects is sold through long-term power sales agreements with utilities.
FPL Group is continuing to work to resolve the potential impact of the year 2000 on the processing of information 1998 Annual Report 24 4I 4'
AI


by its computer systems. A multi-phase plan has been           to mitigate both internal risks and potential risks in FPL
by its computer systems. A multi-phase plan has been developed consisting of inventorying potential problems, assessing what will be required to address each potential problem, taking the necessary action to fix each problem, testing to see that the action taken did result in year 2000 readiness and implementing the required solution. The inventory and assessment of the information technology infrastructure, computer applications and computerized processes embedded in operating equipment has been completed and approximately 80% of the necessary modifications have been tested and implemented. FPL Group's efforts to assess the year 2000 readiness of third parties include surveying important suppliers.
"* developed consisting of inventorying potential problems,       Group's supply chain. Contingency plans are expected assessing what will be required to address each potential     to be completed by mid-1999, allowing the second half problem, taking the necessary action to fix each problem,     of 1999 for communication and training. In addition testing to see that the action taken did result in year 2000   to preparing internal contingency plans, FPL also readiness and implementing the required solution. The         participated in the development of the state's electric inventory and assessment of the information technology       grid contingency plans and expects to participate in infrastructure, computer applications and computerized       national drills during 1999 that are designed to test processes embedded in operating equipment has been             various operating risk scenarios.
Meetings are being conducted with sole source and certain suppliers. Results of our supplier readiness assessment are being considered in the development of our contin gency plans to help ensure that critical supplies are not interrupted, that large customers are able to receive power and that transactions with or processed by financial institutions will occur as intended. FPL Group is on schedule with its multi-phase plan and all phases are expected to be completed by mid-1999, except for confirmatory testing at St. Lucie Unit No. 1, which will be completed during a scheduled refueling outage beginning October 1999. The estimated cost of addressing year 2000 issues is not expected to exceed $50 million, of which approximately 40% had been spent through December 31, 1998. Approximately 80% of the total estimate is for the multi-phase plan. The remainder is an estimate for project and inventory contingencies. The majority of these costs represent the redeployment of existing resources and, therefore, are not expected to have a significant effect on O&M expenses.
completed and approximately 80% of the necessary                   In June 1998, the Financial Accounting Standards modifications have been tested and implemented. FPL           Board (FASB) issued Statement of Financial Accounting Group's efforts to assess the year 2000 readiness of         Standards No. (FAS) 133, "Accounting for Derivative third parties include surveying important suppliers.         Instruments and Hedging Activities." The statement Meetings are being conducted with sole source and certain     establishes accounting and reporting standards requiring suppliers. Results of our supplier readiness assessment       that every derivative instrument (including certain derivative are being considered in the development of our contin         instruments embedded in other contracts) be recorded in gency plans to help ensure that critical supplies are not     the balance sheet as either an asset or liability measured interrupted, that large customers are able to receive power   at its fair value. The statement requires that changes in and that transactions with or processed by financial         the derivative's fair value be recognized currently in institutions will occur as intended. FPL Group is on         earnings unless specific hedge accounting criteria are schedule with its multi-phase plan and all phases are         met. FPL Group is currently assessing the effect, if any, expected to be completed by mid-1999, except for             on its financial statements of implementing FAS 133.
At this time, FPL Group believes that the most reasonably likely worst case scenarios relating to the year 2000 could include a temporary disruption of service to customers, caused by a potential disruption in fuel supply, water supply and telecommunications, as well as transmission grid disruptions caused by other companies whose electrical systems are interconnected with FPL. FPL Group's year 2000 contingency planning is currently underway to address risk scenarios at the operating level (such as generation, transmission and distribution), as well as at the business level (such as customer service, "procurement and accounting). These plans are intended to mitigate both internal risks and potential risks in FPL Group's supply chain. Contingency plans are expected to be completed by mid-1999, allowing the second half of 1999 for communication and training. In addition to preparing internal contingency plans, FPL also participated in the development of the state's electric grid contingency plans and expects to participate in national drills during 1999 that are designed to test various operating risk scenarios.
confirmatory testing at St. Lucie Unit No. 1, which will     FPL Group will be required to adopt the standard in 2000.
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of 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 is currently assessing the effect, if any, on its financial statements of implementing FAS 133.
be completed during a scheduled refueling outage beginning       In January 1999, an FPL Group Capital subsidiary October 1999. The estimated cost of addressing year           sold 3.5 million common shares of Adelphia Communi 2000 issues is not expected to exceed $50 million, of         cations Corporation stock resulting in an after-tax gain which approximately 40% had been spent through               of approximately $96 million. An agreement was also December 31, 1998. Approximately 80% of the total             reached to sell FPL Group Capital's one-third interest in estimate is for the multi-phase plan. The remainder is       a limited partnership. While the terms have not been an estimate for project and inventory contingencies. The       finalized, the sale of the limited partnership interest is majority of these costs represent the redeployment of         expected to have a positive effect on FPL Group's existing resources and, therefore, are not expected to       results of operations.
FPL Group will be required to adopt the standard in 2000.
have a significant effect on O&M expenses.
In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communi cations Corporation stock resulting in an after-tax gain of approximately $96 million. An agreement was also reached to sell FPL Group Capital's one-third interest in a limited partnership. While the terms have not been finalized, the sale of the limited partnership interest is expected to have a positive effect on FPL Group's results of operations.
At this time, FPL Group believes that the most reasonably likely worst case scenarios relating to the year 2000 could   LIQUIDITY AND CAPITAL RESOURCES include a temporary disruption of service to customers, caused by a potential disruption in fuel supply, water             FPL Group's primary capital requirements consist supply and telecommunications, as well as transmission        of expenditures to meet increased electricity usage and grid disruptions caused by other companies whose              customer growth of FPL. Capital expenditures of FPL for electrical systems are interconnected with FPL. FPL            the 1999-2001 period are expected to be approximately Group's year 2000 contingency planning is currently          $2.8 billion, including $910 million in 1999. The underway to address risk scenarios at the operating level      increase in FPL Group's 1998 capital expenditures reflects (such as generation, transmission and distribution), as      the investment in two power plants in the Northeast, well as at the business level (such as customer service,      while the increase in FPL's 1998 capital expenditures is "procurementand accounting). These plans are intended        primarily the result of improving distribution system 25     www.fplgroup.com
LIQUIDITY AND CAPITAL RESOURCES FPL Group's primary capital requirements consist of expenditures to meet increased electricity usage and customer growth of FPL. Capital expenditures of FPL for the 1999-2001 period are expected to be approximately  
$2.8 billion, including $910 million in 1999. The increase in FPL Group's 1998 capital expenditures reflects the investment in two power plants in the Northeast, while the increase in FPL's 1998 capital expenditures is primarily the result of improving distribution system 25 www.fplgroup.com


reliability. FPL Group Capital and its subsidiaries have guaranteed approximately $305 million of purchase power agreement obligations, debt service payments and as an increase to asset balances and as a liability.
reliability. FPL Group Capital and its subsidiaries have guaranteed approximately $305 million of purchase power agreement obligations, debt service payments and other payments subject to certain contingencies. FPL Energy is a party to a contract to purchase all of Central Maine Power Company's non-nuclear generation assets for $846 million. The contract is subject to a civil action initiated by FPL Energy. See Note 9 - Commitments and Contingencies.
Under that proposal, it is anticipated that there will        A) be no effect on cash flows and, because of the regulatory other payments subject to certain contingencies. FPL         treatment, there will be no significant effect on net Energy is a party to a contract to purchase all of Central   income. The matter has been restudied by the FASB and Maine Power Company's non-nuclear generation assets         another exposure draft is scheduled to be issued in 1999.
Debt maturities of FPL Group's subsidiaries will require cash outflows of approximately $671 million through 2003, including $359 million in 1999. It is anticipated that cash requirements for FPL's capital expenditures, energy-related investments and debt maturities in 1999 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 common stock, or for investment. Any temporary cash needs will be met by short-term bank borrowings.
for $846 million. The contract is subject to a civil action     FPL's charter and mortgage contain provisions which, initiated by FPL Energy. See Note 9 - Commitments           under certain conditions, restrict the payment of divi and Contingencies.                                           dends and the issuance of additional unsecured debt, Debt maturities of FPL Group's subsidiaries will         first mortgage bonds and preferred stock. Given FPL's require cash outflows of approximately $671 million         current financial condition and level of earnings, expected through 2003, including $359 million in 1999. It is         financing activities and dividends are not affected by anticipated that cash requirements for FPL's capital         these limitations.
In January 1999, FPL Group Capital redeemed $125 million of its 7 518% debentures. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate  
expenditures, energy-related investments and debt maturities in 1999 will be satisfied with internally generated funds and debt issuances. Any internally           MARKET RISK SENSITIVITY generated funds not required for capital expenditures and current maturities may be used to reduce outstanding         Substantially all financial instruments and positions debt or common stock, or for investment. Any temporary       held by FPL Group described below are held for purposes cash needs will be met by short-term bank borrowings.        other than trading.
In January 1999, FPL Group Capital redeemed $125 million         Interest rate risk - The special use funds of FPL of its 7 518% debentures. Bank lines of credit currently     include restricted funds set aside to cover the cost of available to FPL Group and its subsidiaries aggregate
$1.9 billion.
$1.9 billion.
storm damage and for the decommissioning of FPL's nuclear power plants. A portion of these funds is invested A)
During 1998, FPL Group repurchased 1.0 million shares of common stock under the 10 million share repurchase program. As of December 31, 1998, FPL Group may repurchase an additional 8.3 million shares under this program.
During 1998, FPL Group repurchased 1.0 million          in fixed income debt securities carried at their market shares of common stock under the 10 million share            value of approximately $650 million and $640 million at repurchase program. As of December 31, 1998, FPL            December 31, 1998 and 1997, respectively. Adjustments Group may repurchase an additional 8.3 million              to market value result in a corresponding adjustment to shares under this program.                                  the related liability accounts based on current regulatory FPL self-insures for damage to certain transmission    treatment. Because the funds set aside for storm damage and distribution properties and maintains a funded storm    could be needed at any time, the related investments are reserve to reduce the financial impact of storm losses.      generally more liquid and, therefore, are less sensitive to The balance of the storm fund reserve at December 31,        changes in interest rates. The nuclear decommissioning 1998 was $259 million. Bank lines of credit of $300 mil      funds, in contrast, are generally invested in longer-term lion, included in the $1.9 billion above, are also available securities, as decommissioning activities are not expected if needed to provide cash for storm restoration costs. The  to begin until at least 2012. Market risk associated with FPSC has indicated that it would consider future storm      all of these securities is estimated as the potential loss in losses in excess of the funded reserve for possible          fair value resulting from a hypothetical 10% increase in recovery from customers.                                    interest rates and amounts to $17 million and $19 million In 1996, the FASB issued an exposure draft on            at December 31, 1998 and 1997, respectively.
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.
accounting for obligations associated with the retirement        The fair value of FPL Group's long-term debt is of long-lived assets. The method proposed by the FASB in    also affected by changes in interest rates. The following the exposure draft would require the present value of        presents the sensitivity of the fair value of debt and estimated future cash flows to decommission FPL's nuclear power plants and dismantle its fossil plants to be recorded interest rate swap agreements to a hypothetical 10%
The balance of the storm fund reserve at December 31, 1998 was $259 million. Bank lines of credit of $300 mil lion, included in the $1.9 billion 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.
decrease in interest rates:                                     1i 1998 Annual Report 2
In 1996, the FASB issued an exposure draft on accounting for obligations associated with the retirement of long-lived assets. The method proposed by the FASB in the exposure draft would require the present value of estimated future cash flows to decommission FPL's nuclear power plants and dismantle its fossil plants to be recorded as an increase to asset balances and as a liability.
Under that proposal, it is anticipated that there will be no effect on cash flows and, because of the regulatory treatment, there will be no significant effect on net income. The matter has been restudied by the FASB and another exposure draft is scheduled to be issued in 1999.
FPL's charter and mortgage contain provisions which, under certain conditions, restrict the payment of divi dends 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.
MARKET RISK SENSITIVITY Substantially all financial instruments and positions held by FPL Group 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 $650 million and $640 million at December 31, 1998 and 1997, 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. Market risk associated with all of these securities is estimated as the potential loss in fair value resulting from a hypothetical 10% increase in interest rates and amounts to $17 million and $19 million at December 31, 1998 and 1997, respectively.
The fair value of FPL Group's long-term debt is also affected by changes in interest rates. The following presents the sensitivity of the fair value of debt and interest rate swap agreements to a hypothetical 10%
decrease in interest rates:
1998 Annual Report 2
A)
A)
1i


(Millions of Dollars)
(Millions of Dollars)
December 31,                                                   1998                                             1997 Hypothetical                                      Hypothetical Carrying        Fair  Increase in                    Carrying  Fair     Increase in Value         Value  Fair Value"'                     Value  Value    Fair Valuelal Long-term debt                                  $2,706      $2,797b" $ 63                           $3,147   $3,236h" $ 103 Interest rate swap agreements                    $    -      $    -    $      -                      $    -  $ 31c) $        6 "Calculatedbased on the change in discounted cash flow.
December 31, Long-term debt Interest rate swap agreements Carrying Value
$2,706 1998 Hypothetical Fair Increase in Value Fair Value"'  
$2,797b" 63 Carrying Value
$3,147 1997 Hypothetical Fair Increase in Value Fair Valuelal
$3,236h"  
$ 103 31c) 6 "Calculated based on the change in discounted cash flow.
Based on quoted market prices for these or similar issues.
Based on quoted market prices for these or similar issues.
Based on the estimated cost to terminate the agreements. The agreements were terminated in 1998.
Based on the estimated cost to terminate the agreements. The agreements were terminated in 1998.
While a decrease in interest rates would increase the               cost of fuel is recovered through the fuel and purchased fair value of debt, it is unlikely that events that would                 power cost recovery clause (fuel clause), with no effect on result in a realized loss will occur.                                      earnings. FPL's Energy Marketing & Trading Division buys Equity price risk - Included in the special use funds of              and sells wholesale energy commodities, such as natural gas FPL are marketable equity securities carried at their market              and electric power. The division primarily procures natural value of approximately $556 million and $367 million at                    gas for FPL's own use in power generation and sells excess December 31, 1998 and 1997, respectively. A hypothetical                  electric power. Substantially all of the results of these 10% decrease in the prices quoted by stock exchanges                      activities are passed through to customers in the fuel or would result in a $56 million and $37 million reduction                    capacity cost recovery clauses. The level of trading activity in fair value and corresponding adjustment to the related                is expected to grow as FPL seeks to manage the risk liability accounts based on current regulatory treatment                  associated with fluctuating fuel prices and increase value at December 31, 1998 and 1997, respectively.                              from its own power generation. At December 31, 1998, Other risks - Under current cost-based regulation, FPL's              there were no material open positions in these activities.
While a decrease in interest rates would increase the fair value of debt, it is unlikely that events that would result in a realized loss will occur.
<2     www.fplgroup.com
Equity price risk - Included in the special use funds of FPL are marketable equity securities carried at their market value of approximately $556 million and $367 million at December 31, 1998 and 1997, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges would result in a $56 million and $37 million reduction in fair value and corresponding adjustment to the related liability accounts based on current regulatory treatment at December 31, 1998 and 1997, respectively.
Other risks - Under current cost-based regulation, FPL's cost of fuel is recovered through the fuel and purchased power cost recovery clause (fuel clause), with no effect on earnings. FPL's Energy Marketing & Trading Division buys and sells wholesale energy commodities, such as natural gas and electric power. The division primarily procures natural gas for FPL's own use in power generation and sells excess electric power. Substantially all of the results of these activities are passed through to customers in the fuel or capacity cost recovery clauses. The level of trading activity is expected to grow as FPL seeks to manage the risk associated with fluctuating fuel prices and increase value from its own power generation. At December 31, 1998, there were no material open positions in these activities.
<2 www.fplgroup.com


MANAGEMENT'S REPORT The management of FPL Group is responsible for the integrity INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders, FPL Group, Inc.:
MANAGEMENT'S REPORT The management of FPL Group is responsible for the integrity and objectivity of the financial information and representations contained in the consolidated financial statements and other sections of this Annual Report. The consolidated financial statements, which in part are based on informed judgments and estimates made by management, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis.
                                                                                                                                        'T and objectivity of the financial information and representations contained in the consolidated financial statements and other           We have audited the consolidated balance sheets of FPL sections of this Annual Report. The consolidated financial         Group, Inc. and subsidiaries as of December 31, 1998 and 199; statements, which in part are based on informed judgments           and the related consolidated statements of income, shareholders' and estimates made by management, have been prepared in             equity, and cash flows for each of the three years in the period conformity with generally accepted accounting principles           ended December 31, 1998. These financial statements are the applied on a consistent basis.                                     responsibility of the company's management. Our responsibility To aid in carrying out this responsibility, management           is to express an opinion on these financial statements based maintains a system of internal accounting control, which is         on our audits.
To aid in carrying out this responsibility, management maintains a system of internal accounting control, which is established after weighing the cost of such controls against the benefits derived. The overall system of internal accounting control, in the opinion of management, provides reasonable assurance that the assets of FPL Group and its subsidiaries are safeguarded and transactions are executed in accordance with management's authorization and are properly recorded for the preparation of financial statements. In addition, management believes the overall system of internal accounting control provides reasonable assurance that material errors or irregularities would be prevented or detected on a timely basis by employees in the normal course of their duties. Due to the inherent limitations of the effectiveness of any system of internal accounting control, management cannot provide absolute assurance that the objectives of internal accounting control will be met. The system of internal accounting control is supported by written policies and guidelines, the selection and training of qualified employees, an organizational structure that provides an appropriate division of responsibility and a program of internal auditing. To further enhance the internal accounting control environment, management has prepared and distributed to all employees a Code of Conduct which states management's policy on conflict of interest and ethical conduct.
established after weighing the cost of such controls against           We conducted our audits in accordance with generally the benefits derived. The overall system of internal accounting     accepted auditing standards. Those standards require that control, in the opinion of management, provides reasonable          we plan and perform the audit to obtain reasonable assurance assurance that the assets of FPL Group and its subsidiaries are     about whether the financial statements are free of material safeguarded and transactions are executed in accordance with       misstatement. An audit includes examining, on a test basis, management's authorization and are properly recorded for the        evidence supporting the amounts and disclosures in the preparation of financial statements. In addition, management       financial statements. An audit also includes assessing the believes the overall system of internal accounting control provides accounting principles used and significant estimates made reasonable assurance that material errors or irregularities would   by management, as well as evaluating the overall financial be prevented or detected on a timely basis by employees in the     statement presentation. We believe that our audits provide normal course of their duties. Due to the inherent limitations of A) a reasonable basis for our opinion.
FPL Group's independent auditors, Deloitte & Touche LLP, are engaged to express an opinion on FPL Group's financial statements. Their report is based on procedures believed by them to provide a reasonable basis to support such an opinion.
the effectiveness of any system of internal accounting control,       In our opinion, such consolidated financial statements pre management cannot provide absolute assurance that the objectives   sent fairly, in all material respects, the financial position of FPL of internal accounting control will be met. The system of internal Group, Inc. and subsidiaries at December 31, 1998 and 1997, accounting control is supported by written policies and             and the results of their operations and their cash flows for each guidelines, the selection and training of qualified employees,     of the three years in the period ended December 31, 1998 an organizational structure that provides an appropriate division   in conformity with generally accepted accounting principles.
of responsibility and a program of internal auditing. To further enhance the internal accounting control environment, management has prepared and distributed to all employees a Code of Conduct which states management's policy on conflict of interest and ethical conduct.                           Deloitte & Touche LLP FPL Group's independent auditors, Deloitte & Touche LLP,         Certified Public Accountants are engaged to express an opinion on FPL Group's financial         Miami, Florida statements. Their report is based on procedures believed by         February 12, 1999 them to provide a reasonable basis to support such an opinion.
The Board of Directors pursues its oversight responsibility for financial reporting and accounting through its Audit Committee.
The Board of Directors pursues its oversight responsibility for financial reporting and accounting through its Audit Committee.
This Committee, which is comprised entirely of outside directors, meets periodically with management, the internal auditors and the independent auditors to make inquiries as to the manner in which the responsibilities of each are being discharged. The independent auditors and the internal audit staff have free access to the Committee without management's presence to discuss auditing, internal accounting control and financial reporting matters.                                                                             I) 1998 Annual Report
This Committee, which is comprised entirely of outside directors, meets periodically with management, the internal auditors and the independent auditors to make inquiries as to the manner in which the responsibilities of each are being discharged. The independent auditors and the internal audit staff have free access to the Committee without management's presence to discuss auditing, internal accounting control and financial reporting matters.
* Consolidated Statements of Income FPL Group, Inc.
INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders, FPL Group, Inc.:
(In millions, except per share amounts)
We have audited the consolidated balance sheets of FPL Group, Inc. and subsidiaries as of December 31, 1998 and 199; and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
Years Ended December 31,                                         1998                          1997                    1996 OPERATING REVENUES                                           $_6,661                       $6,369                  $-6,037 OPERATING EXPENSES Fuel, purchased power and interchange                           2,244                         2,255                  2,131 Other operations and maintenance                               1,284                         1,231                  1,189 Depreciation and amortization                                   1,284                         1,061                      960 Taxes other than income taxes                                     597                           594                      586 Total operating expenses                                   5,409                         5,141                  4,866 OPERATING INCOME                                               1,252                       J1,2-28                  1,171 OTHER INCOME (DEDUCTIONS)
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.
Interest charges                                                 (322)                         (291)                   (267)
In our opinion, such consolidated financial statements pre sent fairly, in all material respects, the financial position of FPL Group, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
Preferred stock dividends - FPL                                    (15)                           (19)                   (24)
Deloitte & Touche LLP Certified Public Accountants Miami, Florida February 12, 1999 I) 1998 Annual Report  
Other - net                                                        28                              4                     (7)
'T A)
Total other deductions - net                                (309)                        (306)                   (298)
 
<      INCOME BEFORE INCOME TAXES                                       943                           92 .2                  873 INCOME TAXES                                                     279                           30 34                  294 NET INCOME                                                   $  664                       $ 61 8                  $ 579 Earnings per share of common stock (basic and assuming dilution)                           $ 3.85                         $ 3.5'7                $ 3.33 Dividends per share of common stock                           $ 2.00                         $ 1.972                $ 1.84 Average number of common shares outstanding                       173                           1,73                    174 The accompanying Notes to ConsolidatedFinancialStatements are an integral part of these statements.
Consolidated Statements of Income FPL Group, Inc.
2     www.fplgroup.com
Years Ended December 31, OPERATING REVENUES 1998
$_6,661 OPERATING EXPENSES Fuel, purchased power and interchange 2,244 Other operations and maintenance 1,284 Depreciation and amortization 1,284 Taxes other than income taxes 597 Total operating expenses 5,409 OPERATING INCOME 1,252 OTHER INCOME (DEDUCTIONS)
Interest charges Preferred stock dividends - FPL Other - net Total other deductions - net (322)
(15) 28 (309)
(In millions, except per share amounts) 1997
$6,369 2,255 1,231 1,061 594 5,141 J1,2-28 1996
$-6,037 2,131 1,189 960 586 4,866 1,171 (291)
(267)
(19)
(24) 4 (7)
(306)
(298)
INCOME BEFORE INCOME TAXES 943 92 INCOME TAXES 279 30 NET INCOME 664  
$ 61 Earnings per share of common stock (basic and assuming dilution)  
$ 3.85  
$ 3.5 Dividends per share of common stock  
$ 2.00  
$ 1.9 Average number of common shares outstanding 173 1,
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
.2
'7 72 73 2
www.fplgroup.com 873 294
$ 579 8
$ 3.33
$ 1.84 174 34


Consolidated Balance Sheets FPL Group, Inc.
Consolidated Balance Sheets FPL Group, Inc.
December 31,                                                       1998 (Millions of Dollars)                            A) 1997 PROPERTY, PLANT AND EOUIPMENT Electric utility plant in service and other property           $17,592                       $17,430 Nuclear fuel under capital lease - net                               146                           186 Construction work in progress                                       214                             204 Less accumulated depreciation and amortization                   (9,397)                        (8,466)
December 31, 1998 PROPERTY, PLANT AND EOUIPMENT Electric utility plant in service and other property  
Total property, plant and equipment - net                   8,555
$17,592 Nuclear fuel under capital lease - net 146 Construction work in progress 214 Less accumulated depreciation and amortization (9,397)
                                                                ----                              9,354 CURRENT ASSETS Cash and cash equivalents                                           187                             54 Customer receivables, net of allowances of $8 and $9               559                             501 Materials, supplies and fossil fuel inventory - at average cost     282                             302 Deferred clause expenses                                             82                           122 Other                                                               156                             122 Total current assets                                         1,266                           1,101 OTHER ASSETS Special use funds of FPL                                         1,206                           1,007 Other investments                                                   391                             282 Other                                                               611                             705 Total other assets                                           2,208                           1,994 TOTAL ASSETS                                                   $12,029                       $12,449 A)
Total property, plant and equipment - net 8,555 CURRENT ASSETS Cash and cash equivalents 187 Customer receivables, net of allowances of $8 and $9 559 Materials, supplies and fossil fuel inventory - at average cost 282 Deferred clause expenses 82 Other 156 Total current assets 1,266 OTHER ASSETS Special use funds of FPL 1,206 Other investments 391 Other 611 Total other assets 2,208 TOTAL ASSETS
$12,029 (Millions of Dollars)
A) 1997
$17,430 186 204 (8,466) 9,354 54 501 302 122 122 1,101 1,007 282 705 1,994
$12,449 A)
I) 1998 Annual Report 30
I) 1998 Annual Report 30


Consolidated Balance Sheets FPL Group, Inc.
Consolidated Balance Sheets FPL Group, Inc.
(Millions of Dollars)
(Millions of Dollars)
December 31,                                                     1998                                   1997 CAPITALIZATION Common shareholders' equity                                 $ 5,126                                 $ 4,845 Preferred stock of FPL without sinking fund requirements                                           226                                     226 Long-term debt                                                 2,347                                   2,949 Total capitalization                                       7,699                                   8,020 CURRENT LIABILITIES Short-term debt                                                   110                                   134 Current maturities of long-term debt                               359                                   198 Accounts payable                                                   338                                   368 Customers' deposits                                               282                                     279 Accrued interest and taxes                                         191                                   180 Deferred clause revenues                                           89                                     61 Other                                                             272                                     279 Total current liabilities                                 1,641                                   1,499 OTHER LIABILITIES AND DEFERRED CREDITS Accumulated deferred income taxes                               1,255                                 1,473 Deferred regulatory credit - income taxes                         148                                   166 Unamortized investment tax credits                               205                                     229 Storm and property insurance reserve                             259                                     252 Other                                                             822                                   810 Total other liabilities and deferred credits               2,689                                 .2,930 Commitments and Contingencies TOTAL CAPITALIZATION AND LIABILITIES                         $12,029                                 $12,449 The accompanying Notes to ConsolidatedFinancialStatements are an integral part of these statements.
December 31, 1998 1997 CAPITALIZATION Common shareholders' equity  
$ 5,126  
$ 4,845 Preferred stock of FPL without sinking fund requirements 226 226 Long-term debt 2,347 2,949 Total capitalization 7,699 8,020 CURRENT LIABILITIES Short-term debt 110 134 Current maturities of long-term debt 359 198 Accounts payable 338 368 Customers' deposits 282 279 Accrued interest and taxes 191 180 Deferred clause revenues 89 61 Other 272 279 Total current liabilities 1,641 1,499 OTHER LIABILITIES AND DEFERRED CREDITS Accumulated deferred income taxes 1,255 1,473 Deferred regulatory credit - income taxes 148 166 Unamortized investment tax credits 205 229 Storm and property insurance reserve 259 252 Other 822 810 Total other liabilities and deferred credits 2,689  
.2,930 Commitments and Contingencies TOTAL CAPITALIZATION AND LIABILITIES  
$12,029  
$12,449 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Swww.fplgroup.com
Swww.fplgroup.com


Consolidated Statements of Cash Flows FPL Group, Inc.
Consolidated Statements of Cash Flows FPL Group, Inc.
(Millions of Dollars)
(Millions of Dollars)
Years Ended December 31,                                                                                                                                                                               1998         1997                     1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income                                                                                                                                                                                         $ 664         $ 618                   $ 579 Adjustments to reconcile net income to net cash provided by operating activities:
Years Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income  
Depreciation and amortization                                                                                                                                                           1,284         1,061                       960 Decrease in deferred income taxes and related regulatory credit                                                                                                                                                         (237)           (30)                     (76)
$ 664  
Increase (decrease) in accrued interest and taxes                                                                                                                                           11           (79)                     39 Other - net                                                                                                                                                                                 21             27                       90 Net cash provided by operating activities                                                                                                                                                       1,743         1,597                   1,592 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL                                                                                                                                                                           (617)         (551)                     (474)
$ 618  
Independent power investments                                                                                                                                                                         (521)         (291)                     (52)
$ 579 Adjustments to reconcile net income to net cash provided by operating activities:
Distributions and loan repayments from partnerships and joint ventures                                                                                                                                                             304             53                       41 Proceeds from sale of assets                                                                                                                                                                           135             43                       69 Other - net                                                                                                                                                                                             (96)           (51)                   (110)
Depreciation and amortization 1,284 1,061 960 Decrease in deferred income taxes and related regulatory credit (237)
Net cash used in investing activities                                                                                                                                                             (795)         (797)                     (526)
(30)
CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt                                                                                                                                                                             343             42 Retirement of long-term debt and preferred stock                                                                                                                                                       (727)         (717)                     (338)
(76)
Increase (decrease) in short-term debt                                                                                                                                                                 (24)         113                     (179)
Increase (decrease) in accrued interest and taxes 11 (79) 39 Other - net 21 27 90 Net cash provided by operating activities 1,743 1,597 1,592 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL (617)
Repurchase of common stock                                                                                                                                                                             (62)           (48)                     (82)
(551)
Dividends on common stock                                                                                                                                                                             (345)         (332)                     (320)
(474)
Other - net                                                                                                                                                                                             -              -                        3 Net cash used in financing activities                                                                                                                                                             (815)         (942)                   (916)
Independent power investments (521)
Net increase (decrease) in cash and cash equivalents                                                                                                                                                   133         (142)                     150 Cash and cash equivalents at beginning of year                                                                                                                                                           54           196                       46 Cash and cash equivalents at end of year                                                                                                                                                           $ 187         $ 54                     $ 196 Supplemental Disclosures of Cash Flow Information Cash paid for interest                                                                                                                                                                             $ 308         $ 287                   $ 248 Cash paid for income taxes                                                                                                                                                                         $ 463         $ 434                   $ 381 Supplemental Schedule of Noncash Investing and Financing Activities Additions to capital lease obligations                                                                                                                                                             $    34       $ 81                     $    86 Debt assumed for property additions                                                                                                                                                                 $    -        $ 420                   $    33 The accompanying Notes to ConsolidatedFinancialStatements are an integral part of these statements.                                                                                                                                                         Ij 1998 Annual Report 32
(291)
(52)
Distributions and loan repayments from partnerships and joint ventures 304 53 41 Proceeds from sale of assets 135 43 69 Other - net (96)
(51)
(110)
Net cash used in investing activities (795)
(797)
(526)
CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 343 42 Retirement of long-term debt and preferred stock (727)
(717)
(338)
Increase (decrease) in short-term debt (24) 113 (179)
Repurchase of common stock (62)
(48)
(82)
Dividends on common stock (345)
(332)
(320)
Other - net 3
Net cash used in financing activities (815)
(942)
(916)
Net increase (decrease) in cash and cash equivalents 133 (142) 150 Cash and cash equivalents at beginning of year 54 196 46 Cash and cash equivalents at end of year  
$ 187 54  
$ 196 Supplemental Disclosures of Cash Flow Information Cash paid for interest  
$ 308  
$ 287  
$ 248 Cash paid for income taxes  
$ 463  
$ 434  
$ 381 Supplemental Schedule of Noncash Investing and Financing Activities Additions to capital lease obligations 34 81 86 Debt assumed for property additions  
$ 420 33 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
Ij 1998 Annual Report 32


Statements of Shareholders' Equity FPL Group, Inc.
Statements of Shareholders' Equity FPL Group, Inc.
(In Millions)
(In Millions)
Accumulated Common Stock "a         Additional                         Other                          Common Aggregate      Paid-In       Unearned Comprehensive             Retained     Shareholders' Shares        Par Value      Capital    Compensation        Income          Earnings         Equity Balances, December 31, 1995                 185i        $ 2          $3,420          $ (287)          $    -        $ 1,259 Net income                                                                                                             579 Repurchase of common stock                   (2)                        (82)
Common Stock "a Aggregate Shares Par Value Additional Paid-In Capital Unearned Compensation Accumulated Other Comprehensive Income Common Retained Shareholders' Earnings Equity Balances, December 31, 1995 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other Balances, December 31, 1996 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other comprehensive income Other Balances, December 31, 1997 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other comprehensive income Other Balances, December 31, 1998 185i
Dividends on common stock                                                                                 -            (320)
$ 2 (2) 183k (1) 182""
Earned compensation under ESOP                                               8          15 S..
(1) 181"1:
                                                                              ...(1)
$2
Other Balances, December 31, 1996                 183k                      3,345            (272)                          1,518 Net income                                                                                                             618 Repurchase of common stock                   (1)                        (48)
$3,420 (82) 8 S.....(1 )
Dividends on common stock                                                                                 -            (332)
3,345 (48) 6 3,302 (62) 13
Earned compensation under ESOP                                               6            8 Other comprehensive income                                                                               1 Other 3,302          (264)              1          1,804 Balances, December 31, 1997                 182""
$3,252
Net income                                                                                                             664 Repurchase of common stock                   (1)                        (62)
$ (287) 15 (272)
Dividends on common stock                                                                                             (345)
$ 1,259 579 (320) 1,518 618 (332) 8 (264) 1 1
Earned compensation under ESOP                                             13          12 Other comprehensive income Other 181"1:       $2         $3,252         $(252)           $    1       $2,123 Balances, December 31, 1998 S.01 par value, authorized - 300,000,000 shares; outstanding 180,712,435 and 181,762,385 at December 31, 1998 and 1997, respectively.
1,804 664 (345) 12
Outstandingand unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8.5 million, 8.9 million and 9.3 million at December 31, 1998, 1997 and 1996, respectively&#xfd; The accompanying Notes to ConsolidatedFinancialStatements are an integral part of these statements.
$(252) 1  
3   wwwv.fplgroup.com
$2,123 S.01 par value, authorized - 300,000,000 shares; outstanding 180,712,435 and 181,762,385 at December 31, 1998 and 1997, respectively.
Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8.5 million, 8.9 million and 9.3 million at December 31, 1998, 1997 and 1996, respectively&#xfd; The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3 wwwv.fplgroup.com


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996                                                                                           1)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996
: 1.  
: 1.  


==SUMMARY==
==SUMMARY==
OF SIGNIFICANT ACCOUNTING                           market-based rates for energy production and other services AND REPORTING POLICIES provided to retail customers. Similar initiatives are also Basis of Presentation- FPL Group, Inc.'s (FPL Group)       being pursued on the federal level. Although the legislation operations are conducted primarily through Florida Power       and initiatives vary substantially, common areas of focus
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), a rate-regulated public utility, and     include when market-based pricing will be available for FPL Energy, Inc. (FPL Energy). FPL supplies electric service   wholesale and retail customers, what existing prudently to approximately 3.7 million customers throughout most         incurred costs in excess of the market-based price will be of the east and lower west coasts of Florida. FPL Energy       recoverable and whether generation assets should be invests in independent power projects which consist of         separated from transmission, distribution and other assets.
& Light Company (FPL), a rate-regulated public utility, and FPL Energy, Inc. (FPL Energy). FPL supplies electric service to approximately 3.7 million customers throughout most of the east and lower west coasts of Florida. FPL Energy invests in independent power projects which consist of controlled and consolidated entities and non-controlling ownership interests in joint ventures.
controlled and consolidated entities and non-controlling       It is generally believed transmission and distribution ownership interests in joint ventures.                          activities would remain regulated.
The consolidated financial statements of FPL Group include the accounts of its respective majority-owned and controlled subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The consolidated financial statements of FPL Group             In the event that FPL's generating operations are no include the accounts of its respective majority-owned and       longer subject to the provisions of FAS 71, portions of controlled subsidiaries. All significant intercompany balances   the existing regulatory assets and liabilities that relate to and transactions have been eliminated in consolidation.         generation would be written off unless regulators specify Certain amounts included in prior years' consolidated           an alternative means of recover), or refund. The principal financial statements have been reclassified to conform           regulatory assets and liabilities are as follows:
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.
to the current year's presentation. The preparation of                                                             (Millions of Dollars) financial statements requires the use of estimates and           December 31,                                      1998        1997 assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could Assets (included in other assets):
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.
Unamortized debt reacquisition costs .....
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 non-regulated entities.
Plant-related deferred costs .............
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.
S S
Various states, other than Florida, have either enacted legislation or are pursuing initiatives 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 1) 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.
                                                                                                                                $ 171
It is generally believed transmission and distribution activities would remain regulated.
                                                                                                                                $ 24 A) differ from those estimates.                                      Nuclear maintenance reserve Regulation - FPL is subject to regulation by the Florida        cumulative effect adjustment ..........                   $ 14 Public Service Commission (FPSC) and the Federal Energy            Deferred Department of Energy Regulatory Commission (FERC). Its rates are designed to              assessm ent ........................         S 44        $ 48 recover the cost of providing electric service to its customers Liabilities:
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 recover), or refund. The principal regulatory assets and liabilities are as follows:
including a reasonable rate of return on invested capital.        Deferred regulatory credit - income taxes       $148        $166 As a result of this cost-based regulation, FPL follows the        Unamortized investment tax credits .......       $ 205        $ 229 accounting practices set forth in Statement of Financial          Storm and property insurance reserve .....       $ 259       $ 252 Accounting Standards No. (FAS) 71, "Accounting for the Effects of Certain Types of Regulation." FAS 71 indicates            The storm and property insurance reserve is primarily that regulators can create assets and impose liabilities that  related to transmission and distribution properties. The would not be recorded by non-regulated entities.                amounts presented above exclude clause-related regulatory Regulatory assets and liabilities represent probable future    assets and liabilities that are recovered or refunded over revenues that will be recovered from or refunded to            twelve-month periods. These amounts are included in current customers through the ratemaking process. The continued        assets and liabilities in the consolidated balance sheets.
December 31, Assets (included in other assets):
applicability of FAS 71 is assessed at each reporting period. Further, other aspects of the business, such as generation Various states, other than Florida, have either enacted    assets and long-term power purchase commitments, would legislation or are pursuing initiatives designed to deregulate  need to be reviewed to assess their recoverability in a changed the production and sale of electricity. By allowing            regulatory environment. Since there is no deregulation customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to proposal currently under consideration in Florida, FPL is unable to predict what impact would result from a change I) 1998 Annual Report     34
Unamortized debt reacquisition costs.....
Plant-related deferred costs.............
Nuclear maintenance reserve cumulative effect adjustment..........
Deferred Department of Energy assessm ent........................
Liabilities:
Deferred regulatory credit - income taxes Unamortized investment tax credits.......
Storm and property insurance reserve.....
(Millions of Dollars) 1998 1997 S
S S 44
$148
$ 205
$ 259
$ 171
$ 24
$ 14
$ 48
$166
$ 229
$ 252 The storm and property insurance reserve is primarily related to transmission and distribution properties. 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 what impact would result from a change A)
I) 1998 Annual Report 34


'*  to a more competitive environment or when such a               $169 million and $130 million, respectively. These variable change might occur.                                             amounts include, as depreciation and amortization expense, FPL's allowed return on equity (ROE) range for 1996         $161 million, $169 million and $20 million, respectively, through 1998 was 11% to 13% with a midpoint of 12%.             for amortization of regulatory assets. The remaining In December 1998, after negotiations between FPL and the       variable amounts were applied against nuclear and fossil FPSC staff, the FPSC issued a proposed order approving a       production assets.
to a more competitive environment or when such a change might occur.
settlement regarding FPL's allowed ROE, equity ratio and             Revenues and Rates - FPL's retail and wholesale utility the special amortization program. Under the proposed           rate schedules are approved by the FPSC and the FERC, settlement, beginning in 1999 FPL's allowed ROE range           respectively. FPL records unbilled base revenues for the would be 10.2% to 12.2% with a midpoint of 11.2%. FPL           estimated amount of energy delivered to customers but not agreed to a maximum adjusted equity ratio of 55.83%             yet billed. Unbilled base revenues are included in customer through 2000. The adjusted equity ratio reflected a             receivables and amounted to $152 million and $154 mil discounted amount for off-balance sheet obligations under       lion at December 31, 1998 and 1997, respectively.
FPL's allowed return on equity (ROE) range for 1996 through 1998 was 11% to 13% with a midpoint of 12%.
certain long-term purchase power contracts. See Note           Substantially all of the energy produced by FPL Energy's 9 - Contracts. The proposed settlement also extended the       independent power projects is sold through long-term special amortization program through 2000 and modified         power sales agreements with utilities and revenue is the program to include an additional fixed amount of $140       recorded on an as-billed basis.
In December 1998, after negotiations between FPL and the FPSC staff, the FPSC issued a proposed order approving a settlement regarding FPL's allowed ROE, equity ratio and the special amortization program. Under the proposed settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2% with a midpoint of 11.2%. FPL agreed to a maximum adjusted equity ratio of 55.83%
million per year in addition to the variable amount. FPL             FPL's revenues include amounts resulting from cost continues to record a $30 million fixed nuclear amount         recovery clauses, certain revenue taxes and franchise fees.
through 2000. The adjusted equity ratio reflected a discounted amount for off-balance sheet obligations under certain long-term purchase power contracts. See Note 9 - Contracts. The proposed settlement also extended the special amortization program through 2000 and modified the program to include an additional fixed amount of $140 million per year in addition to the variable amount. FPL continues to record a $30 million fixed nuclear amount under a previous FPSC order. In January 1999, several parties challenged the FPSC's proposed order. In mid February 1999, FPL withdrew from the settlement agreement; the FPSC subsequently approved this withdrawal and concluded the proceeding. FPL is authorized to continue to record special amortization through 1999 in accordance with the extension of the special amortization program approved by the FPSC in 1997.
under a previous FPSC order. In January 1999, several           Cost recovery clauses, which are designed to permit full parties challenged the FPSC's proposed order. In mid           recovery of certain costs and provide a return on certain February 1999, FPL withdrew from the settlement agreement;     assets utilized by these programs, include substantially the FPSC subsequently approved this withdrawal and             all fuel, purchased power and interchange expenses, concluded the proceeding. FPL is authorized to continue         conservation- and environmental-related expenses and to record special amortization through 1999 in accordance       certain revenue taxes. Revenues from cost recovery clauses with the extension of the special amortization program         are recorded when billed; FPL achieves matching of costs approved by the FPSC in 1997.                                   and related revenues by deferring the net under or over In January 1999, the State of Florida Office of Public     recovery. Any under recovered costs or over recovered Counsel (Public Counsel) petitioned the FPSC to conduct         revenues are collected from or returned to customers in a full rate proceeding for FPL and requested that certain       subsequent periods.
In January 1999, the State of Florida Office of Public Counsel (Public Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and requested that certain revenues be held subject to refund. Other parties have requested participation with Public Counsel. The FPSC is scheduled to address Public Counsel's request in March 1999. FPL Group is unable to predict the outcome of this matter or any potential effect on its financial statements.
revenues be held subject to refund. Other parties have               Electric Plant, Depreciation and Amortization - The requested participation with Public Counsel. The FPSC           cost of additions to units of utility property of FPL is is scheduled to address Public Counsel's request in March       added to electric utility plant. The cost of units of utility 1999. FPL Group is unable to predict the outcome of this       property retired, less net salvage, is charged to accumulated matter or any potential effect on its financial statements.     depreciation. Maintenance and repairs of property as FPL amortized the plant-related deferred costs as           well as replacements and renewals of items determined approved by the FPSC and recorded $24 million, $22 million       to be less than units of utility property are charged to and $28 million in 1998, 1997 and 1996, respectively.           other operations and maintenance (O&M) expenses.
FPL amortized the plant-related deferred costs as approved by the FPSC and recorded $24 million, $22 million and $28 million in 1998, 1997 and 1996, respectively.
Pursuant to the FPSC-approved special amortization              At December 31, 1998, the generating, transmission, program, FPL recorded as depreciation and amortization          distribution and general facilities of FPL represented expense a fixed amount of $30 million per year for nuclear      approximately 46%, 13%, 34% and 7%, respectively, assets. FPL also records under this program variable            of FPL's gross investment in electric utility plant in amortization based on the actual level of retail base revenues  service. Substantially all electric utility plant of FPL compared to a fixed amount. The variable amounts                is subject to the lien of a mortgage securing FPL's first recorded in 1998, 1997 and 1996 were $348 million,              mortgage bonds.
Pursuant to the FPSC-approved special amortization program, FPL recorded as depreciation and amortization expense a fixed amount of $30 million per year for nuclear assets. FPL also records under this program variable amortization based on the actual level of retail base revenues compared to a fixed amount. The variable amounts recorded in 1998, 1997 and 1996 were $348 million,
35     www.fp1group.comn
$169 million and $130 million, respectively. These variable amounts include, as depreciation and amortization expense,
$161 million, $169 million and $20 million, respectively, for amortization of regulatory assets. The remaining variable amounts were applied against nuclear and fossil production assets.
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 $152 million and $154 mil lion at December 31, 1998 and 1997, 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.
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 is added to electric utility plant. The cost of 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, 1998, the generating, transmission, distribution and general facilities of FPL represented approximately 46%, 13%, 34% 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.
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Depreciation of electric property is primarily provided on a straight-line average remaining life basis. FPL includes decommissioning studies with the FPSC. These studies assume prompt dismantlement for the Turkey Point Units            A) in depreciation expense a provision for fossil plant             Nos. 3 and 4 with decommissioning activities commencing in dismantlement and nuclear plant decommissioning. For             2012 and 2013, respectively. St Lucie Unit No. 1 will be substantially all of FPL's property, depreciation and fossil     mothballed beginning in 2016 with decommissioning activi fuel plant dismantlement studies are performed and filed         ties integrated with the prompt dismantlement of St. Lucie with the FPSC at least ever), four years. The most recent       Unit No. 2 beginning in 2023. These studies also assume that depreciation studies were approved by the FPSC effective         FPL will be storing spent fuel on site pending removal to a for 1998. That approval has since been challenged and           U.S. Government facilitvw The studies indicate FPL's portion hearings have been requested. Fossil fuel plant dismantle       of the ultimate costs of decommissioning its four nuclear ment studies were filed in September 1998 and will be            units, including costs associated with spent fuel storage, to be effective January 1, 1999. The weighted annual composite         $73 billion. The updated studies, which are pending FPSC depreciation rate for FPLs electric plant in service was         approval, indicate there is an estimated reserve deficiency at approximately 4.4% for 1998, 4.3% for 1997 and 4.1%,             December 31, 1998, of approximately $535 million. FPL is for 1996, excluding the effects of decommissioning and           proposing to maintain the current approved annual decom dismantlement. Further, these rates exclude the special and     missioning accrual at $85 million per year and to recover the plant-related deferred cost amortization. See Regulation.        reserve deficiency through the special amortization program.
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 ever), four years. The most recent depreciation studies were approved by the FPSC effective for 1998. That approval has since been challenged and hearings have been requested. Fossil fuel plant dismantle ment studies were filed in September 1998 and will be effective January 1, 1999. The weighted annual composite depreciation rate for FPLs electric plant in service was approximately 4.4% for 1998, 4.3% for 1997 and 4.1%,
Nuclear Fuel - FPL leases nuclear fuel for all four of its   See Regulation. The annual accrual will be adjusted once the nuclear units. Nuclear fuel lease expense was $83 million,       amount of deficiency is approved and recovery through the
for 1996, excluding the effects of decommissioning and dismantlement. Further, these rates exclude the special and plant-related deferred cost amortization. See Regulation.
$85 million and $94 million in 1998, 1997 and 1996,             amortization program has been completed.
Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units. Nuclear fuel lease expense was $83 million,  
respectively. Included in this expense was an interest               Similarly, FPL accrues the cost of dismantling its fossil component of $9 million, $9 million and $10 million in           fuel plants over the expected service life of each unit. Fossil 1998, 1997 and 1996, respectively. Nuclear fuel lease payments and a charge for spent nuclear fuel disposal are dismantlement expense was $17 million in each of the years 1998, 1997 and 1996, and is included in depreciation and A) charged to fuel expense on a unit of production method.           amortization expense. FPL's portion of the ultimate cost to These costs are recovered through the fuel and purchased          dismantle its fossil units is $521 million. At December 31, power cost recovery clause (fuel clause). Under certain          1998 and 1997, the accumulated provision for fossil disman circumstances of lease termination, FPL is required to            tlement totaled $185 million and $162 million, respectively, purchase all nuclear fuel in whatever form at a purchase price    and is included in accumulated depreciation. The dismantle designed to allow the lessor to recover its net investment cost  ment studies filed in 1998 indicated an estimated reserve in the fuel, which totaled $146 million at December 31, 1998. deficiency of $38 million which FPL is proposing to recover For ratemaking, these leases are classified as operating leases. through the special amortization program. See Regulation.
$85 million and $94 million in 1998, 1997 and 1996, respectively. Included in this expense was an interest component of $9 million, $9 million and $10 million in 1998, 1997 and 1996, respectively. Nuclear fuel lease payments and a charge for spent nuclear fuel disposal are charged to fuel expense on a unit of production method.
For financial reporting, the capital lease obligation is recorded    Restricted trust funds for the payment of future expendi at the amount due in the event of lease termination.              tures to decommission FPL's nuclear units are included in Decommissioning and Dismantlement of Generating              special use funds of FPL. At December 31, 1998 and 1997, Plant - FPL accrues nuclear decommissioning costs over the        decommissioning fund assets were $1.046 billion and $850 expected service life of each unit. Nuclear decommissioning      million, respectively. Securities held in the decommissioning studies are performed at least every five years and are sub      fund are carried at market value with market adjustments mitted to the FPSC for approval. Decommissioning expense          resulting in a corresponding adjustment to the accumulated accruals included in depreciation and amortization expense,      provision for nuclear decommissioning. See Note 3 - Special were $85 million in each of the years 1998, 1997 and 1996.        Use Funds. Contributions to the funds are based on current At December 31, 1998 and 1997, the accumulated provi              period decommissioning expense. Additionally, fund earnings, sion for nuclear decommissioning totaled $1.205 billion and      net of taxes are reinvested in the funds. The tax effects of
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 $146 million at December 31, 1998.
$998 million, respectively, and is included in accumulated depreciation. In October 1998, FPL filed updated nuclear amounts not yet recognized for tax purposes are included in accumulated deferred income taxes.                                 A, 1998 Annual Report 36
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 sub mitted to the FPSC for approval. Decommissioning expense accruals included in depreciation and amortization expense, were $85 million in each of the years 1998, 1997 and 1996.
At December 31, 1998 and 1997, the accumulated provi sion for nuclear decommissioning totaled $1.205 billion and
$998 million, respectively, and is included in accumulated depreciation. 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. St Lucie Unit No. 1 will be mothballed beginning in 2016 with decommissioning activi ties 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 facilitvw The studies indicate FPL's portion of the ultimate costs of decommissioning its four nuclear units, including costs associated with spent fuel storage, to be
$73 billion. The updated studies, which are pending FPSC approval, indicate there is an estimated reserve deficiency at December 31, 1998, of approximately $535 million. FPL is proposing to maintain the current approved annual decom missioning accrual at $85 million per year and to recover the reserve deficiency through the special amortization program.
See Regulation. The annual accrual will be adjusted once the amount of deficiency is approved and recovery through the amortization program has been completed.
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 1998, 1997 and 1996, and is included in depreciation and amortization expense. FPL's portion of the ultimate cost to dismantle its fossil units is $521 million. At December 31, 1998 and 1997, the accumulated provision for fossil disman tlement totaled $185 million and $162 million, respectively, and is included in accumulated depreciation. The dismantle ment studies filed in 1998 indicated an estimated reserve deficiency of $38 million which FPL is proposing to recover through the special amortization program. See Regulation.
Restricted trust funds for the payment of future expendi tures to decommission FPL's nuclear units are included in special use funds of FPL. At December 31, 1998 and 1997, decommissioning fund assets were $1.046 billion and $850 million, respectively. 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.
1998 Annual Report 36 A)
A)
A,


In 1996, the Financial Accounting Standards Board               and joint ventures, essentially all of which are accounted (FASB) issued an exposure draft on accounting for obligations       for under the equity method.
In 1996, the Financial Accounting Standards Board (FASB) issued an exposure draft on accounting for obligations associated with the retirement of long-lived assets. The method proposed by the FASB in the exposure draft would require the present value of estimated future cash flows to decommission FPL's nuclear power plants and dismantle its fossil power plants to be recorded as an increase to asset balances and as a liability. Under that proposal, it is anticipated that there will be no effect on cash flows and, because of the regulatory treatment, there will be no significant effect on net income. The matter has been restudied by the FASB and another exposure draft is scheduled to be issued in 1999.
associated with the retirement of long-lived assets. The                 Cash Equivalents - Cash equivalents consist of short method proposed by the FASB in the exposure draft would             term, highly liquid investments with original maturities of require the present value of estimated future cash flows to         three months or less.
Accrual for Nuclear Maintenance Costs - 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. Any difference between the estimated and actual costs are included in O&M expenses when known.
decommission FPL's nuclear power plants and dismantle its               Short-Term Debt - The year end weighted-average interest fossil power plants to be recorded as an increase to asset         rate on short-term debt at December 31, 1998 was 5.2%.
Construction Activity - In accordance with an FPSC rule, FPL is not permitted to capitalize interest or a return on com mon equity during construction, except for projects that cost in excess of 1/2% of the plant in service balance and will require than one year to complete. The FPSC allows construc tion projects below that threshold as an element of rate base.
balances and as a liability. Under that proposal, it is anticipated     Retirement of Long-Term Debt - The excess of FPL's that there will be no effect on cash flows and, because of the     reacquisition cost over the book value of long-term debt is regulatory treatment, there will be no significant effect on net   deferred and amortized to expense ratably over the remain income. The matter has been restudied by the FASB and               ing life of the original issue, which is consistent with its another exposure draft is scheduled to be issued in 1999.           treatment in the ratemaking process. Through this amorti Accrual for Nuclear Maintenance Costs - Estimated nuclear     zation and amounts recorded under the special amortization maintenance costs for each nuclear unit's next planned outage       program, the remaining balance of this regulatory asset was are accrued over the period from the end of the last outage to     fully amortized in 1998. See Regulation. FPL Group the end of the next planned outage. Any difference between         Capital Inc (FPL Group Capital) expenses this cost in the the estimated and actual costs are included in O&M expenses         period incurred.
FPL Group's non-regulated operations capitalize interest on construction projects.
when known.                                                             Income Taxes - Deferred income taxes are provided on all ConstructionActivity - In accordance with an FPSC rule,       significant temporary differences between the financial state FPL is not permitted to capitalize interest or a return on com     ment and tax bases of assets and liabilities. The deferred regu mon equity during construction, except for projects that cost in   latory credit - income taxes of FPL represents the revenue excess of 1/2% of the plant in service balance and will require     equivalent of the difference in accumulated deferred income than one year to complete. The FPSC allows construc         taxes computed under FAS 109, "Accounting for Income tion projects below that threshold as an element of rate base.     Taxes," as compared to regulatory accounting rules. This FPL Group's non-regulated operations capitalize interest on         amount is being amortized in accordance with the regulatory construction projects.                                             treatment over the estimated lives of the assets or liabilities Storm and Property InsuranceReserve Fund (storm fund)         which resulted in the initial recognition of the deferred tax The storm fund provides coverage toward storm damage costs         amount. Investment tax credits (ITC) for FPL are deferred and and possible retrospective premium assessments stemming from       amortized to income over the approximate lives of the related a nuclear incident under the various insurance programs cover     property in accordance with the regulatory treatment. The spe ing FPL's nuclear generating plants. The storm fund, which         cial amortization program included amortization of regulatory totaled $160 million and $157 million at December 31, 1998         assets related to income taxes of $59 million and $20 million in and 1997, respectively, is included in special use funds of FPL. 1997 and 1996, respectively.
Storm and Property Insurance Reserve Fund (storm fund)
Securities held in the fund are carried at market value with           Accounting for Derivative Instruments and Hedging market adjustments resulting in a corresponding adjustment to     Activities - In June 1998, the FASB issued FAS 133, "Accounting the storm and property insurance reserve. See Note 3 - Special     for Derivative Instruments and Hedging Activities." The state Use Funds and Note 9 - Insurance. Fund earnings, net of taxes,     ment establishes accounting and reporting standards requiring are reinvested in the fund. The tax effects of amounts not yet     that every derivative instrument (including certain derivative recognized for tax purposes are included in accumulated             instruments embedded in other contracts) be recorded in the bal deferred income taxes.                                             ance sheet as either an asset or liability measured at its fair value.
The storm fund provides coverage toward storm damage costs and possible retrospective premium assessments stemming from a nuclear incident under the various insurance programs cover ing FPL's nuclear generating plants. The storm fund, which totaled $160 million and $157 million at December 31, 1998 and 1997, respectively, is included in special use funds of FPL.
Other Investments - Included in other investments in the       The statement requires that changes in the derivative's fair value consolidated balance sheets is FPL Group's participation in         be recognized currently in earnings unless specific hedge leveraged leases of $154 million at both December 31, 1998         accounting criteria are met. FPL Group is currently assessing and 1997. Additionally, other investments include non               the effect, if any, on its financial statements of implementing FAS controlling non-majority owned interests in partnerships           133. FPL Group will be required to adopt the standard in 2000.
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 9 - 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.
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Other Investments - Included in other investments in the consolidated balance sheets is FPL Group's participation in leveraged leases of $154 million at both December 31, 1998 and 1997. Additionally, other investments include non controlling non-majority owned interests in partnerships and joint ventures, essentially all of which are accounted for under the equity method.
: 2. EMPLOYEE RETIREMENT BENEFITS                                                                                                            /1 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, 1998 and a statement of the funded status of both years:
Cash Equivalents - Cash equivalents consist of short term, highly liquid investments with original maturities of three months or less.
Pension Benefits                    Other Benefits (Millions of Dollars)                                            1998                    1997        1998                    1997 Change in benefit obligation:
Short-Term Debt - The year end weighted-average interest rate on short-term debt at December 31, 1998 was 5.2%.
Obligation at October 1 of prior year .......                S 1,146                $ 1,262      S 324                    $ 29, Service cost ...........................                          45                        38          5 Interest cost ..........................                          75                        76          21                      21 Plan amendments ......................                              8                    (290)
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 remain ing life of the original issue, which is consistent with its treatment in the ratemaking process. Through this amorti zation and amounts recorded under the special amortization program, the remaining balance of this regulatory asset was fully amortized in 1998. See Regulation. FPL Group Capital Inc (FPL Group Capital) expenses this cost in the period incurred.
Actuarial losses - net ....................                      34                        87          10                      1 1)
Income Taxes - Deferred income taxes are provided on all significant temporary differences between the financial state ment and tax bases of assets and liabilities. The deferred regu latory 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 spe cial amortization program included amortization of regulatory assets related to income taxes of $59 million and $20 million in 1997 and 1996, respectively.
Curtailments ..........................                             -                        19 Benefit payments ......................                         (135)                      (46)      (15)                      (1(
Accounting for Derivative Instruments and Hedging Activities - In June 1998, the FASB issued FAS 133, "Accounting for Derivative Instruments and Hedging Activities." The state ment establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the bal ance sheet as either an asset or liability measured at its fair value.
Obligation at September 30 ................                       1,173                    1,146        345                      32L Change in plan assets:
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 is currently assessing the effect, if any, on its financial statements of implementing FAS 133. FPL Group will be required to adopt the standard in 2000.
Fair value of plan assets at October 1 of prior year ................                   2,287                    1,996        125                      1077 Actual return on plan assets ..............                                                                                         8 184                      343          7                      28 2
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Participant contributions ................
wwt.fplgroup.com
Benefit payments and expenses ...........
: 2. EMPLOYEE RETIREMENT BENEFITS
Fair value of plan assets at September 30 ......                 2,329 (142)
/1 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, 1998 and a statement of the funded status of both years:
(52) 2,287 1
(Millions of Dollars) 1998 Pension Benefits 1997 1998 Other Benefits 1997 Change in benefit obligation:
(18) 115 (1;
Obligation at October 1 of prior year.......
125 2) 5 A)
S 1,146
Funded status:
$ 1,262 S 324
Funded status at September 30 ............                     1,156                    1,141        (230)                    (199 Unrecognized prior service cost ............                   (100)                    (117)          -
$ 29, Service cost...........................
Unrecognized transition (asset) obligation ......               (140)                    (163)        49                        529)
45 38 5
Unrecognized (gain) loss .................                      (736)                    (762)       34                        22 Prepaid (accrued) benefit cost ..............                   S 180                  $      99    S (147)                 $ (122 The following table provides the components of net periodic benefit cost for the plans for fiscal years 1998, 1997 and 1996:
Interest cost..........................
Pension Benefits                      Other Benefits (Millions of Dollars)                                             1998        1997      1996        1998        1997        1996 Service cost ............................                      S    45      $    38  $      38    $      6    $      6    $        5 Interest cost ............................                          75            76          90        21          21            18 Expected return on plan assets              .............          (149)        (135)      (126)          (8)        (7)          (6)
75 76 21 21 Plan amendments......................
Amortization of transition (asset) obligation            .....    (23)          (23)        (23)          3          3            3 Amortization of prior service cost ............                       (8)          1          12 Amortization of losses (gains) ...............                     (21)          (26)        (10)          1 Net periodic (benefit) cost .................                      (81)         (69)        (19)        23          23          20 Effect of special retirement programs .........                       -          18 Net periodic (benefit) cost .................                   S  (81)    $  (51)   $    (19)  S    23    $    23     $    20      J) 1998 Annual Report      38
8 (290)
Actuarial losses - net....................
34 87 10 1
Curtailments..........................
19 Benefit payments......................
(135)
(46)
(15)
(1(
Obligation at September 30................
1,173 1,146 345 32L Change in plan assets:
Fair value of plan assets at October 1 of prior year................
2,287 1,996 125 107 Actual return on plan assets..............
184 343 7
28 Participant contributions................
1 Benefit payments and expenses (142)
(52)
(18)
(1; Fair value of plan assets at September 30......
2,329 2,287 115 125 Funded status:
Funded status at September 30............
1,156 1,141 (230)
(199 Unrecognized prior service cost............
(100)
(117)
Unrecognized transition (asset) obligation......
(140)
(163) 49 52 Unrecognized (gain) loss.................
(736)
(762) 34 22 Prepaid (accrued) benefit cost..............
S 180 99 S (147)
$ (122 The following table provides the components of net periodic benefit cost for the plans for fiscal years 1998, 1997 and 1996:
1)
Pension Benefits (Millions of Dollars) 1998 1997 Other Benefits 1996 1998 1997 1996 Service cost............................
Interest cost............................
Expected return on plan assets Amortization of transition (asset) obligation Amortization of prior service cost............
Amortization of losses (gains)...............
Net periodic (benefit) cost.................
Effect of special retirement programs.........
Net periodic (benefit) cost.................
S 45 75 (149)
(23)
(8)
(21)
(81) 38 76 (135)
(23) 1 (26)
(69) 38 90 (126)
(23) 12 (10)
(19) 18 S
(81)
(51)
(19) 6 21 (8) 3 1
23 6
21 (7) 3 23 5
18 (6) 3 20 S
23 23 20 1998 Annual Report 38 A) 9)
J) 7 8 2
: 2) 5


The weighted-average discount rate used in determining the benefit obligations was 6.0% and 6.5% for 1998 and 1997, 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.
The weighted-average discount rate used in determining the benefit obligations was 6.0% and 6.5% for 1998 and 1997, 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.
Line 401: Line 799:
: 3. FINANCIAL INSTRUMENTS The carrying amounts of cash equivalents and short-term debt approximate their fair values. Certain investments of FPL Group, included in other investments, are carried at estimated fair value which was $72 million and $51 million at December 31, 1998 and 1997, respectively. 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.
: 3. FINANCIAL INSTRUMENTS The carrying amounts of cash equivalents and short-term debt approximate their fair values. Certain investments of FPL Group, included in other investments, are carried at estimated fair value which was $72 million and $51 million at December 31, 1998 and 1997, respectively. 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.
(Millions of Dollars)
(Millions of Dollars)
December 31,                                                         1998                                             1997 Carrying         Estimated                       Carrying     Estimated Amount           Fair Value                       Amount       Fair Value Long-term debt',".......................                   $2,706             $ 2,797"                         $3,147       $ 3,236" Interest rate swap agreements .............               $    -            $    -                          $    -        $ 311c' Includes current maturities.
December 31, 1998 1997 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt',".......................  
    "Basedon quoted market prices for these or similarissues.
$2,706  
    "Basedon estimated cost to terminate the agreements. The agreements were terminated in 1998.
$ 2,797"  
Special Use Funds - Securities held in the special use funds are carried at estimated fair value. The nuclear decommissioning fund consists of approximately one-half equity securities and one-half municipal, government, corporate and mortgage-backed debt securities with a weighted-average maturity of approximately 10 years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately 3 years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $24 million and approximate realized losses of
$3,147  
$4 million in 1998, $3 million and $2 million in 1997 and $8 million and $9 million in 1996, respectively. The funds had unrealized gains of approximately $210 million and $126 million at December 31, 1998 and 1997, respectively; the unrealized losses at those dates were approximately $2 million and $1 million. The proceeds from the sale of securities in 1998, 1997 and 1996 were approximately $1.2 billion, $800 million and $1.1 billion, respectively.
$ 3,236" Interest rate swap agreements.............
311c' Includes current maturities.  
"Based on quoted market prices for these or similar issues.  
"Based on estimated cost to terminate the agreements. The agreements were terminated in 1998.
Special Use Funds - Securities held in the special use funds are carried at estimated fair value. The nuclear decommissioning fund consists of approximately one-half equity securities and one-half municipal, government, corporate and mortgage-backed debt securities with a weighted-average maturity of approximately 10 years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately 3 years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $24 million and approximate realized losses of  
$4 million in 1998, $3 million and $2 million in 1997 and $8 million and $9 million in 1996, respectively. The funds had unrealized gains of approximately $210 million and $126 million at December 31, 1998 and 1997, respectively; the unrealized losses at those dates were approximately $2 million and $1 million. The proceeds from the sale of securities in 1998, 1997 and 1996 were approximately $1.2 billion, $800 million and $1.1 billion, 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. FPUs 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 cur rently limit FPL's ability to pay dividends to FPL Group. In 1998, 1997 and 1996, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.
: 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. FPUs 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 cur rently limit FPL's ability to pay dividends to FPL Group. In 1998, 1997 and 1996, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.
39     www.fplgroup.com
39 www.fplgroup.com


                                                                                                                                                      -I,- __LJ.
-I,-
__LJ.
Employee Stock Ownership Plan (ESOP) - The employee thrift plans of FPL Group include a leveraged ESOP feature.
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.
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 $19 million in 1998, $19 million in 1997 and $23 million in 1996 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 share holders' equity at December 31, 1998 was approximately $248 million, representing 8.5 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, 1998 was approximately $526 million.
ESOP-related compensation expense of approximately $19 million in 1998, $19 million in 1997 and $23 million in 1996 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 share holders' equity at December 31, 1998 was approximately $248 million, representing 8.5 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, 1998 was approximately $526 million.
Long-Term Incentive Plan - Under FPL Group's long-term incentive plan, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries as of December 31, 1998. Total com pensation charged against earnings under the incentive plan was not material in any year. The changes in share awards under the incentive plan are as follows:
Long-Term Incentive Plan - Under FPL Group's long-term incentive plan, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries as of December 31, 1998. Total com pensation charged against earnings under the incentive plan was not material in any year. The changes in share awards under the incentive plan are as follows:
Performance           Restricted         Non-Qualified Sharesl""             Stock           Option Shares Balances, December 31, 1995 ..................................                               320,336               194,200                 11,185 G ranted :*.. ..............................................                               90,772               23,000 Exercised at $30 7s. ........................................                                     -                    -              (10,935)
Performance Restricted Non-Qualified Sharesl""
Paid/released .............................................                               (60,359)             (34,250)                     -A           )
Stock Option Shares Balances, December 31, 1995..................................
Forfeited ................................................                                 (39,222)             (16,650)                 (250)
320,336 194,200 11,185 G ranted :*................................................
Balances, December 31, 1996 ..................................                               311,527               166,300 G ranted .... .....................                          ......................      212,011                 71,000 Paid/released .............................................                               (70,008)                     -
90,772 23,000 Exercised at $30 7s.........................................
Forfeited ................................................                                 (10,942)             (17,750)
(10,935)
Balances, December 31, 1997 ..................................                               442,588               219,550 Granted . ...............................................                                 178,518                 19,500 Paid/released .............................................                               (80,920)                     -
Paid/released.............................................
Forfeited ................................................                                 (29,566)             (22,250)
(60,359)
Balances, December 31, 1998 ..................................                               510,620               216,800-'
(34,250)  
Performanceshares resulted in 128,000, 132,000 and 124,000 assumed incremental shares of common stock outstanding for purposes of computing diluted earnings per share in 1998, 1997 and 1996, respectively- These incremental shares did not change basic earnings per share.
-A  
)
Forfeited................................................
(39,222)
(16,650)
(250)
Balances, December 31, 1996..................................
311,527 166,300 G ranted 212,011 71,000 Paid/released.............................................
(70,008)
Forfeited................................................
(10,942)
(17,750)
Balances, December 31, 1997..................................
442,588 219,550 Granted................................................
178,518 19,500 Paid/released.............................................
(80,920)
Forfeited................................................
(29,566)
(22,250)
Balances, December 31, 1998..................................
510,620 216,800-'
Performance shares resulted in 128,000, 132,000 and 124,000 assumed incremental shares of common stock outstanding for purposes of computing diluted earnings per share in 1998, 1997 and 1996, respectively-These incremental shares did not change basic earnings per share.
The average grant date fair value of equity instrumoents issued under the incentive plan was 512 million, 513 million and S5 million in 1998, 1997 and 1996, respectively.
The average grant date fair value of equity instrumoents issued under the incentive plan was 512 million, 513 million and S5 million in 1998, 1997 and 1996, respectively.
Shares of restrictedstock were issued at market value at the date of the grant.
Shares of restricted stock were issued at market value at the date of the grant.
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. The results of utilizing the accounting method recommended in FAS 123 would not have a material effect on FPL Group's results of operations or change earnings per share.
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. The results of utilizing the accounting method recommended in FAS 123 would not have a material effect on FPL Group's results of operations or change earnings per share.
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.
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.
1998 Annual Report   40
1998 Annual Report 40
: 5. PREFERRED STOCK FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, $.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:"'
: 5. PREFERRED STOCK FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, $.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:"'
(Millions of Dollars)
December 31, 1998  
December 31, 1998                           December 31,
-Shares Outstanding emption Prce Cumulative, $100 Par Value, authorized 15,822,500 shares at December 31, 1998 and 1997, without sinking fund requirements:
                                                                  -Shares Outstanding       emption Prce         S1998_                1997 Cumulative, $100 Par Value, authorized 15,822,500 shares at December 31, 1998 and 1997, without sinking fund requirements:
4 1/2% Series............................
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             $ 103.521b)                5o                    50 6.75% Series U ..............................                 650,000             $ 103.371b"                65                    65 Total preferred stock of FPL without sinking fund requirements ..........................                     2,262,500                                   $226                  $ 226 FPL's charter authorizes the issuance of S million shares of subordinatedpreferred stock, no par value. None of these shares is outstanding.
100,000 4 1/2% Series A..........................
There were no issuances of preferred stock in 1998, 1997 and 1996. In 1996, FPL redeemed 600,000 shares of its 7.28% PreferredStock, Series F, S100 Par Value and 400,000 shares of its 7.40% PreferredStock, Series G, S100 Par Value.
50,000 4 1/2% Series B..........................
50,000 4 1/2% Series C..........................
62,500 4.32% Series D.........................
50,000 4.35% Series E..........................
50,000 6.98% Series S..........................
750,000 7.05% Series T..........................
500,000 6.75% Series U..............................
650,000 Total preferred stock of FPL without sinking fund requirements..........................
2,262,500
$ 101.00
$ 101.00
$ 101.00
$ 103.00
$ 103.50
$ 102.00
$ 103.49(b)
$ 103.521b)
$ 103.371b" (Millions of Dollars)
December 31, S1998_
$ 10 5
5 6
5 5
75 5o 65
$226 FPL's charter authorizes the issuance of S million shares of subordinated preferred stock, no par value. None of these shares is outstanding.
There were no issuances of preferred stock in 1998, 1997 and 1996. In 1996, FPL redeemed 600,000 shares of its 7.28% Preferred Stock, Series F, S100 Par Value and 400,000 shares of its 7.40% Preferred Stock, Series G, S100 Par Value.
Not redeemable prior to 2003.
Not redeemable prior to 2003.
4     www.fplgroup.com
4 www.fplgroup.com 1997
: 6. LONG-TERM DEBT Long-term debt consists of the following:
$ 10 5
: 7. INCOME TAXES The components of income taxes are as follows:
5 6
IA (Millions of Dollars)                                                          (Millions of Dollars)
5 5
December 31,                                                  1998        1997      Years Ended December 31,                           1998       1997      1996 FPL                                                                                 Federal:
75 50 65
First mortgage bonds:                                                               Current .......................               $ 467      $308      $355 Maturing through 2000 - 5 3/8%to 5 1/2% ..... S 355 $ 355                          Deferred ......................                (215)          (34)
$ 226
Maturing 2001 through 2015 - 6%to 7 780% ...                                       ITC and other - net ..............               (27)         (22) 641        642          Total federal ..................             S225 252        247 Maturing 2016 through 2026 - 7% to 7 3/4% ...             741        741      State:
: 7. INCOME TAXES Long-term debt consists of the following:
Medium-term notes:                                                                C urrent .......................                   72                    63 52 Maturing 1998 - 5.50% to 6.20% ..........                             180      Deferred ......................                   (18)                  (16)
(Millions December 31, 1998 FPL First mortgage bonds:
Maturing 2003 - 5.79% ..................                   70            70          Total state ...................                             52        447 Total income taxes ................               S 279      $304      $294 Pollution control and industrial development series maturing 2020 through 2027 - 6.7% to 7.5% ..             150         150 Pollution control, solid waste disposal and industrial                              A reconciliation between the effective income tax rates development revenue bonds - maturing 2021 through                                and the applicable statutory rates is as follows:
Maturing through 2000 - 5 3/8% to 5 1/2%.....
2029 - variable, 3.6% and 3.9% average annual                                  Years Ended December 31,                           1998       1997      1996 interest rate, respectively .................         483        484 Unamortized discount - net ...................             _(_19)      ....(_22) Statutory federal income tax rate .....
S 355 Maturing 2001 through 2015 - 6% to 7 780%...
641 Maturing 2016 through 2026 - 7% to 7 3/4%...
741 Medium-term notes:
Maturing 1998 - 5.50% to 6.20%..........
Maturing 2003 - 5.79%..................
70 Pollution control and industrial development series maturing 2020 through 2027 - 6.7% to 7.5%..
150 Pollution control, solid waste disposal and industrial development revenue bonds - maturing 2021 through 2029 - variable, 3.6% and 3.9% average annual interest rate, respectively.................
483 Unamortized discount - net...................
_(_19)
Total long-term debt of FPL................. 2,421 Less current maturities.................
. 230 Long-term debt of FPL..................
excluding current maturities...............2,191 FPL Group Capital Debentures-maturing 2013 - 7 5s/8%
125 Senior term loan - maturing 2007 - variableb Other long-term debt - 3.4% to 7.645%
due various dates to 2018..................
162 Unamortized discount......................
(2)
Total long-term debt of FPL Group Capital.....
285 Less current maturities.................
129 Long-term debt of FPL Group Capital, excluding current maturities...............
156 Total long-term debt.........................  
$2,347
"' Redeemed in January 1999.
The components of income taxes are as follows:
of Dollars)
(Millions of Dollars) 1997 Years Ended December 31, 1998 1997 1996
$ 355 642 741 180 70 150 484
(_22) 2,600 180 2,420 125 333 91
--- (2) 547 18 529
$2,949 "A
notional principal amount of $267 million at December 31, 1997 was hedged with interest rate swap agreements to reduce the impact of changes in interest rates on variable rate long-term debt. The swap agreements effectively changed the variable interest rates to an average fixed rate of 9.7%. The agreements were dedesignated as a hedge and terminated in 1998, resulting in a loss recorded as interest expense.
Minimum annual maturities of long-term debt for FPL Group for 1999-2003 are approximately $359 million, $129 million, $4 million, $4 million and $175 million, respectively.
Available lines of credit aggregated approximately
$1.9 billion at December 31, 1998, all of which were based on firm commitments.
Federal:
C urrent.......................
D eferred......................
ITC and other - net..............
Total federal..................
State:
C urrent.......................
D eferred......................
Total state...................
Total income taxes................
$ 467 (215)
(27)
S225 72 (18)
S 279
$308 (34)
(22) 252 52 52
$ 304 IA
$355 247 63 (16) 447
$294 A reconciliation between the effective income tax rates and the applicable statutory rates is as follows:
Years Ended December 31, Statutory federal income tax rate.....
Increases (reductions) resulting from:
Increases (reductions) resulting from:
35.0%        35.0%      35.0%
State income taxes - net of federal income tax benefit........
Total long-term debt of FPL ................. 2,421                  2,600        State income taxes - net of Less current maturities ................ . . 230                      180          federal income tax benefit ........             3.7        3.7        3.5 Long-term debt of FPL . .................                                       Amortization of ITC .............                 (2.5)       (2.4)     (3.6) excluding current maturities .............. .2,191 2,420                      Amortization of deferred regulatory FPL Group Capital                                                                        credit - income taxes ............            (1.8)       (1.8)     (2 Debentures- maturing 2013 - 7 5s/8%        .. ............
Amortization of ITC.............
Adjustments of prior years' 125        125          tax matters ...................                 (6.3 ).     (2.7)     (1.3)
Amortization of deferred regulatory credit - income taxes............
Senior term loan - maturing 2007 - variableb ....                _        333      Preferred stock dividends - FPL .....               0.5         0.7         1.0 Other long-term debt - 3.4% to 7.645%                                                Other- net .....................                   1.0         0.5       1.0 due various dates to 2018 ..................                162          91    Effective income tax rate ...........               29.6%       33.0%       33.6"/o Unamortized discount ......................                    (2) ---(2)        ';'Includes the resolution of an audit issue with the Internal Revenue Total long-term debt of FPL Group Capital .....            285        547        Service (IRS).
Adjustments of prior years' 1998 1997 1996 35.0%
Less current maturities ................ . . 129                        18 Long-term debt of FPL Group Capital,                                            The income tax effects of temporary differences giving rise excluding current maturities ...............          156        529    to consolidated deferred income tax liabilities and assets are Total long-term debt .........................              $2,347 $2,949          as follows:
35.0%
(Millions of Dollars)
35.0%
"'Redeemed in January 1999.                                                        December 31,                                                   1998      1997 "Anotional principalamount of $267 million at December 31,        1997 was hedged with interest rate swap agreements to reduce the impact                Deferred tax liabilities:
3.7 3.7 3.5 (2.5)
of changes in interestrates on variable rate long-term debt. The swap                Property-related ........................                 S 1,493 $1,663 agreements effectively changed the variable interest rates to an average            Investment-related ......................                     460        436 fixed rate of 9.7%. The agreements were dedesignatedas a hedge and                  Other .......................               ......... ...255            32A6 terminated in 1998, resulting in a loss recorded as interest expense.                  Total deferred tax liabilities ..............           2,208      -2,4611 Deferred tax assets and valuation allowance:
(2.4)
Minimum annual maturities of long-term debt for FPL                              Asset writedowns and capital loss carryforward..               113        121 Unamortized ITC and deferred regulatory Group for 1999-2003 are approximately $359 million, $129                                credit - incom e taxes ...................                 136        153 million, $4 million, $4 million and $175 million, respectively.                      Storm and decommissioning reserves ........                   258        246 Available lines of credit aggregated approximately                                O ther ...... ......... .................                     473        496
(3.6)
$1.9 billion at December 31, 1998, all of which were                                  Valuation allowance ....................                        (27)      (28) based on firm commitments.
(1.8)
Net deferred tax assets .................
(1.8)
Accumulated deferred income taxes .......... S1,255 $ 1,473 953        988 Il) 1998 Annual Report         42
(2 tax matters...................
(6.3 ).
(2.7)
(1.3)
Preferred stock dividends - FPL.....
0.5 0.7 1.0 Other-net.....................
1.0 0.5 1.0 Effective income tax rate...........
29.6%
33.0%
33.6"/o  
';'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:
December 31, Deferred tax liabilities:
Property-related........................
Investment-related......................
O ther.......................
Total deferred tax liabilities..............
Deferred tax assets and valuation allowance:
Asset writedowns and capital loss carryforward..
Unamortized ITC and deferred regulatory credit - incom e taxes...................
Storm and decommissioning reserves........
O ther................................
Valuation allowance....................
Net deferred tax assets.................
Accumulated deferred income taxes..........
(Millions of Dollars) 1998 1997 S 1,493 460
...255 2,208 113 136 258 473 (27) 953 S1,255
$1,663 436 32A6
-2,4611 121 153 246 496 (28) 988
$ 1,473 1998 Annual Report 42
: 6. LONG-TERM DEBT Il)


The carryforward period for a capital loss from the dis   insurance, which is the maximum obtainable, and partici position in a prior year of an FPL Group Capital subsidiary   pates in a secondary financial protection system under expired at the end of 1996. The amount of the deductible       which it is subject to retrospective assessments of up to loss from this disposition was limited by IRS rules. FPL       $363 million per incident at any nuclear utility reactor in Group is challenging the IRS loss limitation and the IRS is   the United States, payable at a rate not to exceed $43 mil disputing certain other positions taken by FPL Group. Tax     lion per incident per year.
The carryforward period for a capital loss from the dis position 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 report ed in future periods when resolved.
benefits, if any, associated with these matters will be report     FPL participates in nuclear insurance mutual companies ed in future periods when resolved.                            that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decom
: 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 ter minal and approximately 76% of Scherer Unit No. 4. At December 31, 1998, FPL's gross investment in these units was $1.174 billion, $328 million and $571 million, respec tively; accumulated depreciation was $663 million, $142 million and $239 million, respectively.
: 8. JOINTLY-OWNED ELECTRIC UTILITY PLANT                        missioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabi FPL owns approximately 85% of St. Lucie Unit No. 2,        lization and site decontamination before they can be used 20% of the St. Johns River Power Park units and coal ter      for plant repair. FPL also participates in an insurance pro minal and approximately 76% of Scherer Unit No. 4. At          gram that provides limited coverage for replacement power December 31, 1998, FPL's gross investment in these units      costs if a nuclear plant is out of service because of an acci was $1.174 billion, $328 million and $571 million, respec      dent. In the event of an accident at one of FPL's or another tively; accumulated depreciation was $663 million, $142        participating insured's nuclear plants, FPL could be assessed million and $239 million, respectively.                        up to $51 million in retrospective premiums.
FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1998, there was no significant balance of construction work in progress on these facilities.
FPL is responsible for its share of the operating costs, In the event of a catastrophic loss at one of FPLs nuclear as well as providing its own financing. At December 31, plants, the amount of insurance available may not be ade 1998, there was no significant balance of construction quate to cover property damage and other expenses work in progress on these facilities.
: 9. COMMITMENTS AND CONTINGENCIES Commitments - FPL has made commitments in connec tion with a portion of its projected capital expenditures.
incurred. Uninsured losses, to the extent not recovered through rates, would be borne by FPL and could have a
Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to be approximately $2.8 billion for 1999 through 2001. Included in this three-year forecast are capital expenditures for 1999 of approximately $910 mil lion. FPL Energy is a party to a contract to purchase all of Central Maine Power Company's (Central Maine) non nuclear generation assets for $846 million. The contract is subject to a civil action initiated by FPL Energy. See Litigation. FPL Group and its subsidiaries, other than FPL, have guaranteed approximately $305 million of purchase power agreement obligations, debt service payments and other payments subject to certain contingencies.
: 9. COMMITMENTS AND CONTINGENCIES material adverse effect on FPL Group's financial condition.
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 partici pates in a secondary financial protection system under which it is subject to retrospective assessments of up to
Commitments - FPL has made commitments in connec              FPL self-insures certain of its transmission and distribution tion with a portion of its projected capital expenditures.      (T&D) property due to the high cost and limited coverage Capital expenditures for the construction or acquisition      available from third-party insurers. As approved by the of additional facilities and equipment to meet customer        FPSC, FPL maintains a funded storm and property insurance demand are estimated to be approximately $2.8 billion for      reserve, which totaled approximately $259 million at 1999 through 2001. Included in this three-year forecast are    December 31, 1998, for T&D property storm damage or capital expenditures for 1999 of approximately $910 mil        assessments under the nuclear insurance program. Recovery lion. FPL Energy is a party to a contract to purchase all of    from customers of any losses in excess of the storm and prop Central Maine Power Company's (Central Maine) non              erty insurance reserve will require the approval of the FPSC.
$363 million per incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $43 mil lion per incident per year.
nuclear generation assets for $846 million. The contract is    FPL's available lines of credit include $300 million to provide subject to a civil action initiated by FPL Energy. See          additional liquidity in the event of a T&D property loss.
FPL participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decom missioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabi lization and site decontamination before they can be used for plant repair. FPL also participates in an insurance pro gram that provides limited coverage for replacement power costs if a nuclear plant is out of service because of an acci dent. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $51 million in retrospective premiums.
Litigation. FPL Group and its subsidiaries, other than FPL,        Contracts - FPL has entered into long-term purchased have guaranteed approximately $305 million of purchase          power and fuel contracts. Take-or-pay purchased power power agreement obligations, debt service payments and          contracts with the Jacksonville Electric Authority (JEA) and other payments subject to certain contingencies.                with subsidiaries of The Southern Company (Southern Insurance - Liability for accidents at nuclear power      Companies) provide approximately 1,300 megawatts (mw) plants is governed by the Price-Anderson Act, which limits      of power through mid-2010 and 383 mw thereafter through the liability of nuclear reactor owners to the amount of the    2022. FPL also has various firm pay-for-performance con insurance available from private sources and under an          tracts to purchase approximately 1,000 mw from certain industry retrospective payment plan. In accordance with        cogenerators and small power producers (qualifying facili
In the event of a catastrophic loss at one of FPLs nuclear plants, the amount of insurance available may not be ade quate 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 financial condition.
"*  this Act, FPL maintains $200 million of private liability      ties) with expiration dates ranging from 2002 through 43     www.fp1group.comn
FPL self-insures certain 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 $259 million at December 31, 1998, for T&D property storm damage or assessments under the nuclear insurance program. Recovery from customers of any losses in excess of the storm and prop erty 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 2022. FPL also has various firm pay-for-performance con tracts to purchase approximately 1,000 mw from certain cogenerators and small power producers (qualifying facili ties) with expiration dates ranging from 2002 through 43 www.fp1group.comn


2026. The purchased powver contracts provide for capacity and energy payments. Eneergy payments are based on the actual power taken under these contracts. Capacity pay-of no force and effect because the power plants failed to accomplish commercial operation before January 1, 1997,         A) as required by the agreements. In 1997, the plant owners ments for the pay-for-perfc rmance contracts are subject to                     filed for bankruptcy under Chapter XI of the U.S.
2026. The purchased pow and energy payments. Ene actual power taken under ments for the pay-for-perfc the qualifying facilities me Fuel contracts provide for natural gas and coal. FPL for the transportation and Doswell plant which expir al option, and in 2017, res The required capacity a 2003 under these contract (Millions of Dollars)
the qualifying facilities me eting certain contract conditions.                 Bankruptcy Code, ceased all attempts to operate the power Fuel contracts provide for the transportation and supply of                     plants and entered into an agreement with the holders of natural gas and coal. FPL Energy has long-term contracts                       more than 70% of the bonds that partially financed the for the transportation and storage of natural gas to its                       construction of the plants. This agreement gives the holders Doswell plant which expir e in 2007, with a five-year renew-                   of a majority of the principal amount of the bonds (the al option, and in 2017, res pectively.                                         majority bondholders) the right to control, fund and man The required capacity and minimum payments through                       age any litigation against FPL and the right to settle with 2003 under these contract are estimated to be as follows:                       FPL on any terms such majority bondholders approve, provided that certain agreements are not affected and cer (Millions of Dollars)                    1999... 2000   2001   2002   2       tain conditions are met. In January 1998, the plant owners Capacity payments:
Capacity payments:
JEA and                                                                        (through the attorneys for the majority bondholders) filed Southern Companies ...... * $210 $210             $210   $210   $200   an answer denying the allegations in FPus complaint and Qualifying facilities: .......  * $360 $370         $380   $400   $410   asserting counterclaims for approximately, $2 billion, con Minimum payments, at projectec prices:                                         sisting of all capacity payments that could have been made Natural gas, including                                                        over the 30-year term of the power purchase agreements transportation for FPL ..... * $210 $210           $240 $260       $270   and three times their actual damages for alleged violations Coal ....................            $ 40 $ 40       $ 30 $ 30       $ 15   of Florida antitrust laws, plus attorneys' fees. In October Natural gas transportation and storage for FPL Energy * $ 15 $ 15             $ 15 $ 15       $ 15   1998, the court dismissed all of the plant owners' antitrust Includes approximately $40 mi.Ilion, $40 million, S40 million, S45 mil-lion and $45 million, respectivelly, for capacity payments associatedwith claims against FPL. The plant owners have since moved for summary judgment on FPL's claims against them.
JEA and Southern Companies......
A) two contracts that are currently in dispute. These capacity payments are           The Florida Municipal Power Agency (FMPA), an subject to the outcome of the re,lated litigation. See Litigation.             organization comprised of municipal electric utilities, has Charges under these co ntracts were as follows:                           sued FPL for allegedly breaching a "contract" to provide 1998 Clbarges    1997 Charges       1996 Charges   transmission service to the FMPA and its members and for Energy/           Energy/           Energy/ breaching antitrust laws by monopolizing or attempting to (Millions of Dollars)      Capacity    Fuel   Capacity Fuel     Capacity Fuel   monopolize the provision, coordination and transmission JEA and Southern Companies .........      $1921"  $1381     $201>   $153" $192       $148   of electric power in refusing to provide transmission serv Qualifying facilities ....  $299,2  S108:'   $296c   $1281, $279,, S125"     ice, or to permit the FMPA to invest in and use FPL's Natural gas, including                                                          transmission system, on the FMPA's proposed terms. The transportation for FPL.            S280':   $ -      $413..   $ -    S422. FMPA seeks $140 million in damages, before trebling for Coal ................                S 5011   $ -      $ 521: $ -       $ 49'" the antitrust claim, and court orders requiring FPL to per Natural gas transportation                                                      mit the FMPA to invest in and use FPL's transmission sys and storage for FPL Energy .........      S -      S 18     $ -      $16     $  -  $  -  tem on "reasonable terms and conditions" and on a basis Recovered through the fuel claiuse.                                         equal to FPL. In 1995, a court of appeals vacated the dis Recovered through base rates and the capacity cost recovery clause           trict court's summary judgment in favor of FPL and (capacity clause).
Qualifying facilities:.......
    "Recoveredthrough the capacity clause,                                       remanded the matter to the district court for further pro ceedings. In 1996, the district court ordered the FMPA to Litigation - In 1997, FP'L filed a complaint against the                   seek a declaratory ruling from the FERC regarding certain owners of two qualifying f:acilities (plant owners) seeking an                   issues in the case. In November 1998, the FERC declined order declaring that FPL's o)bligations under the power pur-chase agreements with the qualifying facilities were rendered to make the requested ruling. The district court has yet to act further.                                                   I) 1998 Annual Report   44
Minimum payments, at projectec Natural gas, including transportation for FPL.....
C oal....................
Natural gas transportation and storage for FPL Energy Includes approximately $40 mi.
lion and $45 million, respectivel two contracts that are currently subject to the outcome of the re, Charges under these co (Millions of Dollars)
JEA and Southern Companies.........
Qualifying facilities....
Natural gas, including transportation for FPL.
C oal................
Natural gas transportation and storage for FPL Energy.........
1998 Cl Capacity  
$1921"
$299,2 S -
Recovered through the fuel clai Recovered through base rates a (capacity clause).
"Recovered through the capacity Litigation - In 1997, FP owners of two qualifying f:
order declaring that FPL's o chase agreements with the ver contracts provide for capacity of no force and effect because the power plants failed to ergy payments are based on the accomplish commercial operation before January 1, 1997, these contracts. Capacity pay-as required by the agreements. In 1997, the plant owners rmance contracts are subject to filed for bankruptcy under Chapter XI of the U.S.
eting certain contract conditions.
Bankruptcy Code, ceased all attempts to operate the power the transportation and supply of plants and entered into an agreement with the holders of Energy has long-term contracts more than 70% of the bonds that partially financed the storage of natural gas to its construction of the plants. This agreement gives the holders e in 2007, with a five-year renew-of a majority of the principal amount of the bonds (the pectively.
majority bondholders) the right to control, fund and man nd minimum payments through age any litigation against FPL and the right to settle with are estimated to be as follows:
FPL on any terms such majority bondholders approve, provided that certain agreements are not affected and cer 199 9... 2000 2001 2002 2
tain conditions are met. In January 1998, the plant owners (through the attorneys for the majority bondholders) filed  
* $210  
$210 $210  
$210  
$200 an answer denying the allegations in FPus complaint and  
* $360  
$370 $380  
$400  
$410 asserting counterclaims for approximately, $2 billion, con prices:
sisting of all capacity payments that could have been made over the 30-year term of the power purchase agreements  
* $210  
$210 $240  
$260  
$270 and three times their actual damages for alleged violations  
$ 40 $ 40 $ 30 $ 30  
$ 15 of Florida antitrust laws, plus attorneys' fees. In October  
* $ 15  
$ 15 $ 15 $ 15  
$ 15 1998, the court dismissed all of the plant owners' antitrust Ilion, $40 million, S40 million, S45 mil-claims against FPL. The plant owners have since moved ly, for capacity payments associated with for summary judgment on FPL's claims against them.
in dispute. These capacity payments are The Florida Municipal Power Agency (FMPA), an lated litigation. See Litigation.
organization comprised of municipal electric utilities, has ntracts were as follows:
sued FPL for allegedly breaching a "contract" to provide barges 1997 Charges 1996 Charges transmission service to the FMPA and its members and for Energy/
Energy/
Energy/
breaching antitrust laws by monopolizing or attempting to Fuel Capacity Fuel Capacity Fuel monopolize the provision, coordination and transmission  
$1381  
$201>  
$153" $192  
$148 of electric power in refusing to provide transmission serv S108:'  
$296c  
$1281,  
$279,,
S125" ice, or to permit the FMPA to invest in and use FPL's transmission system, on the FMPA's proposed terms. The S280':  
$413..
S422.
FMPA seeks $140 million in damages, before trebling for S 5011  
$ 521: $ -
$ 49'"
the antitrust claim, and court orders requiring FPL to per mit the FMPA to invest in and use FPL's transmission sys S 18  
$16 tem on "reasonable terms and conditions" and on a basis use.
equal to FPL. In 1995, a court of appeals vacated the dis nd the capacity cost recovery clause trict court's summary judgment in favor of FPL and
: clause, remanded the matter to the district court for further pro ceedings. In 1996, the district court ordered the FMPA to  
'L filed a complaint against the seek a declaratory ruling from the FERC regarding certain acilities (plant owners) seeking an issues in the case. In November 1998, the FERC declined  
)bligations under the power pur-to make the requested ruling. The district court has yet qualifying facilities were rendered to act further.
1998 Annual Report 44 A)
A)
I)


FPL Group and FPL believe that they have meritorious defenses to the litigation to which they are parties 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.
FPL Group and FPL believe that they have meritorious defenses to the litigation to which they are parties 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.
In November 1998, a subsidiary of FPL Energy filed a civil action with the U.S. District Court for the Southern District of New York requesting a declaratory judgment that Central Maine cannot meet essential terms of the agreement with FPL Energy's subsidiary regarding the purchase of Central Maine's non-nuclear generating assets. FPL Group believes that recent FERC rulings regarding transmission prevent Central Maine from delivering on its contractual obligation that FPL Energy's subsidiary be able to operate the power plants in a manner that is substantially consistent with Central Maine's historical operation of the assets. FPL Group believes the FERC rulings constitute a material adverse effect under the purchase agreement and that FPL Energy's subsidiary should therefore not be bound to complete the transaction. The trial is scheduled for March 1999.
In November 1998, a subsidiary of FPL Energy filed a civil action with the U.S. District Court for the Southern District of New York requesting a declaratory judgment that Central Maine cannot meet essential terms of the agreement with FPL Energy's subsidiary regarding the purchase of Central Maine's non-nuclear generating assets. FPL Group believes that recent FERC rulings regarding transmission prevent Central Maine from delivering on its contractual obligation that FPL Energy's subsidiary be able to operate the power plants in a manner that is substantially consistent with Central Maine's historical operation of the assets. FPL Group believes the FERC rulings constitute a material adverse effect under the purchase agreement and that FPL Energy's subsidiary should therefore not be bound to complete the transaction. The trial is scheduled for March 1999.
: 10. SEGMENT INFORMATION Effective December 31, 1998, FPL Group adopted FAS 131, "Disclosures about Segments of an Enterprise and Related Information." FPL Group's only reportable segment is FPL, a regulated utility. For the years ended December 31, 1998, 1997 and 1996, approximately 98%, 98% and 97%, respectively, of FPL Group's operating revenues were derived from the sale of electricity in the United States. As of December 31, 1998 and 1997, less than 1% of long-lived assets were located in foreign countries.
: 10. SEGMENT INFORMATION Effective December 31, 1998, FPL Group adopted FAS 131, "Disclosures about Segments of an Enterprise and Related Information." FPL Group's only reportable segment is FPL, a regulated utility. For the years ended December 31, 1998, 1997 and 1996, approximately 98%, 98% and 97%, respectively, of FPL Group's operating revenues were derived from the sale of electricity in the United States. As of December 31, 1998 and 1997, less than 1% of long-lived assets were located in foreign countries.
1998                                  1997                      1996 (Millions of Dollars)                       FPL      Other a'    Total          FPL      Other"' Total      FPL ----Other"'- Total Operating revenues ............ S 6,366 $ 295 $ 6,661                          $ 6,132    $ 237 $ 6,369    $5,986    $ 51    $6,037 Interest expense ..............           S 196 S 126 S 322                    $ 227      $ 64 $ 291        $ 246      $ 21    $ 267 Depreciation and amortization ................         S1,249 S 35 $ 1,284                  $1,034      $  27 $ 1,061    $ 955      $  5  $ 960 Equity in earnings of equity method investees ....... S                S 39 S 39                            $ 14    $ 14                $  2  $    2 Income tax expense ........... S 349 $ (70) $ 279                              $    321    $ (17)  $ 304    $ 322      $ (28)  $ 294 N et income ..................           $ 616 $ 48 $ 664                    $    608    $ 10    $ 618    $ 591      $ (12)  $ 579 items   ....... $          $    - $                $          $ 420    $ 420    $          $  33  $ 33 Significant noncash
(Millions of Dollars)
                                                                                          $ 291    $ 842    $ 474      $  52  $ 526 Capital expenditures ........... $ 617 $ 329 $ 946                            $    551 Total assets ..................         $10,748 $1,281 $12,029               $11,172     $1,277   $12,449 Investment in equity method investees .............        $     - $ 165 $ 165                $     -    $   76   $    76 SRepresents other business activities and other segments that are not separately reportable.
Operating revenues............
Interest expense..............
Depreciation and amortization................
Equity in earnings of equity method investees.......
Income tax expense...........
N et income..................
Significant noncash items.......
Capital expenditures...........
Total assets..................
Investment in equity method investees.............
1998 FPL Other a' Total S 6,366
$ 295 $ 6,661 S 196 S 126 S 322 S1,249 S
35
$ 1,284 S
S 349
$ 616
$ 617
$10,748 S
39 S 39
$ (70) $ 279 48 $ 664
$ 329 $
946
$1,281  
$12,029
$ 165 165 1997 FPL Other"' Total
$ 6,132
$ 237 $ 6,369
$ 227 64 $ 291
$1,034 27 $ 1,061 321 608 551
$11,172 14
$ (17) 10
$ 420
$ 291
$1,277 14
$ 304
$ 618
$ 420
$ 842
$12,449 1996 FPL ----Other"'-
Total
$5,986
$ 51
$6,037
$ 246
$ 21
$ 267
$ 955 5
$ 960
$ 322
$ 591
$ 474
$ 2
$ (28)
$ (12)
$ 33
$ 52 2
$ 294
$ 579 33
$ 526 76 76 S Represents other business activities and other segments that are not separately reportable.
: 11. SUBSEQUENT EVENT In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communications Corporation (Adelphia) stock, which had been accounted for on the equity method, resulting in an after-tax gain of approximately $96 million. In addition, an agreement was reached with Adelphia to sell FPL Group Capital's one-third interest in a limited partnership. While the terms have not been finalized, the sale of the limited partnership interest is expected to have a positive effect on FPL Group's results of operations.
: 11. SUBSEQUENT EVENT In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communications Corporation (Adelphia) stock, which had been accounted for on the equity method, resulting in an after-tax gain of approximately $96 million. In addition, an agreement was reached with Adelphia to sell FPL Group Capital's one-third interest in a limited partnership. While the terms have not been finalized, the sale of the limited partnership interest is expected to have a positive effect on FPL Group's results of operations.
Svwww.fplgroup.coin
Svwww.fplgroup.coin
I - -
: 12. SUMMARIZED FINANCIAL INFORMATION OF FPL GROUP CAPITAL (UNAUDITED)
: 12. SUMMARIZED FINANCIAL INFORMATION OF FPL GROUP CAPITAL (UNAUDITED)
FPL Group Capital's debentures, when outstanding, are guaranteed by FPL Group and included in FPL Group's consoli T'
FPL Group Capital's debentures, when outstanding, are guaranteed by FPL Group and included in FPL Group's consoli dated balance sheets. Operating revenues of FPL Group Capital for the three years ended December 31, 1998, 1997 and 1996 were $295 million, $237 million and $50 million, respectively. For the same periods, operating expenses were $225 million, $186 million and $65 million, respectively. Net income for 1998, 1997 and 1996 was $68 million, $27 million and $11 million, respectively.
dated balance sheets. Operating revenues of FPL Group Capital for the three years ended December 31, 1998, 1997 and 1996 were $295 million, $237 million and $50 million, respectively. For the same periods, operating expenses were $225 million, $186 million and $65 million, respectively. Net income for 1998, 1997 and 1996 was $68 million, $27 million and $11 million, respectively.
At December 31, 1998, FPL Group Capital had $317 million of current assets, $1.445 billion of noncurrent assets,  
At December 31, 1998, FPL Group Capital had $317 million of current assets, $1.445 billion of noncurrent assets,
$310 million of current liabilities and $703 million of noncurrent liabilities. At December 31, 1997, FPL Group Capital had current assets of $156 million, noncurrent assets of $1.447 billion, current liabilities of $252 million and noncurrent liabilities of $999 million.
$310 million of current liabilities and $703 million of noncurrent liabilities. At December 31, 1997, FPL Group Capital had current assets of $156 million, noncurrent assets of $1.447 billion, current liabilities of $252 million and noncurrent liabilities of $999 million.
: 13. QUARTERLY DATA (UNAUDITED)
: 13. QUARTERLY DATA (UNAUDITED)
Condensed consolidated quarterly financial information for 1998 and 1997 is as follows:
Condensed consolidated quarterly financial information for 1998 and 1997 is as follows:
(In millions, except per share amounts) 1998                                                                           March 31           June 301"           September 30"           December 31'"
(In millions, except per share amounts) 1998 March 31 June 301" September 30" Operating revenues.........................
Operating revenues .........................                                 $          1,338 $          1,692       $        1,999       $          1,632 Operating income ..........................                                 $            218 S             317       S           528       $            189 Net income ...............................                                   $            108 $            176       $          287       $            931 Earnings per share" .........................                               $            0.63 $            1.02       $          1.66       $          0.54" Dividends per share .........................                               $            0.50 $            0.0         $          0.50        $          0.50 High-low common stock sales prices ............                             $ 653/16 - 561/16 $ 655/8 - 5811/16       $ 70- 5911/16         $ 729/16- 601/2 1997 Operating................revenues...........................................
1,338 1,692 1,999 Operating income..........................
b Operating revenues .........................                                 $          1,445 $          1,587        $        1,859        $          1,478 Operating incom e ..........................                                 $            225              321        $          464        $            218 N et incom e ...............................                                 $                $                        $                      $
218 S
101              164                    262                      91 Earnings per share ... .....................                                $            0.58 $            0.95        $          1.52        $          0.52 Dividends per share .........................                               $            0.48 $            0.48        $          0.48        $          0.48 High-low common stock sales prices ............                             $ 463/4 - 435/8   $ 481/8 - 425/8         $ 519/16. 451/2       $     60 -491/2 In the opinion of FPL Group, all adjustments, which consist of normal recurringaccruals necessary to present a fair statement of the amounts shown for such periods, have been made. Results of operationsfor an interim period may not give a true indication of results for the year.
317 S
Includes a loss on the sale of Turner Foods Corporationand the cost of terminating an agreement designed to fix interest rates,partly offset by the favorable resolution of an audit issue ivith the IRS.
528 Net income...............................
108 176 287 Earnings per share".........................
0.63 1.02 1.66 Dividends per share.........................
0.50 0.0 0.50 High-low common stock sales prices............  
$ 653/16 - 561/16  
$ 655/8 - 5811/16  
$ 70- 5911/16 1997 Operating................revenues...........................................
Operating revenues.........................
Operating incom e..........................
N et incom e...............................
Earnings per share...
Dividends per share.........................
High-low common stock sales prices............
1,445 225 101 0.58 0.48 463/4 - 435/8 1,587 321 164 0.95 0.48 481/8 - 425/8
$ 519/16.
1,859 464 262 1.52 0.48 451/2 December 31'"
1,632 189 931 0.54" 0.50
$ 729/16-601/2 1,478 218 91 0.52 0.48 60 -491/2 In the opinion of FPL Group, 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.
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 ivith the IRS.
Basic and assuming dilution.
Basic and assuming dilution.
A) 1998 Annual Report     4
A) 1998 Annual Report 4
T' b
I - -


Officers FPL GROUP, INC. James L. Broadhead       Dennis P. Coyle       Mary Lou Kromer Chairmanand              General Counsel       Vice President Chief Executive          and Secretary         Corporate Officer                                        Communications James P. Higgins Roger Young              Vice President       K. Michael Davis President                Tax                  Controller Lawrence J. Kelleher  Dilek L. Samil Vice President      Treasurer Human Resources FLORIDA POWER   James L. Broadhead       Dennis P. Coyle       Thomas E Plunkett
Officers FPL GROUP, INC.
                & LIGHT COMPANY      Chairmanand Chief        General Counsel     President Executive Officer      and Secretary         Nuclear Division SENIOR OFFICERS Paul J. Evanson        Lawrence J. Kelleher C.O. Woody President              Senior Vice President President Human Resources       Power Generation Division FPL ENERGY, INC. Michael W. Yackira      Glenn E. Smith       John W. Stanton President                Vice President       Vice President Development         OperationsEast Peter D. Boylan          Kenneth P. Hoffman  James A. Keener Vice Presidentand        Vice President       Vice President Chief Financial Officer  Business Management  Operations West Michael L. Leighton  William A. Fries Vice President       Vice President International        Engineering Development          Construction and Project Management 47 twww.fpilgroup.comn
James L. Broadhead Chairman and Chief Executive Officer Roger Young President Dennis P. Coyle General Counsel and Secretary James P. Higgins Vice President Tax Lawrence J. Kelleher Vice President Human Resources Mary Lou Kromer Vice President Corporate Communications K. Michael Davis Controller Dilek L. Samil Treasurer FLORIDA POWER  
& LIGHT COMPANY SENIOR OFFICERS FPL ENERGY, INC.
James L. Broadhead Chairman and Chief Executive Officer Paul J. Evanson President Michael W. Yackira President Peter D. Boylan Vice President and Chief Financial Officer Dennis P. Coyle General Counsel and Secretary Lawrence J. Kelleher Senior Vice President Human Resources Glenn E. Smith Vice President Development Kenneth P. Hoffman Vice President Business Management Michael L. Leighton Vice President International Development Thomas E Plunkett President Nuclear Division C.O. Woody President Power Generation Division John W. Stanton Vice President Operations East James A. Keener Vice President Operations West William A. Fries Vice President Engineering Construction and Project Management 47 t www.fpilgroup.comn


Directors H. JESSE ARNELLE                         ARMANDO M. CODINA                    PAUL J. EVANSON I)
Directors H. JESSE ARNELLE Of Counsel Womble, Carlyle, Sandridge & Rice (law firm)
Of Counsel                               Chairman and                        President Womble, Carlyle, Sandridge & Rice         Chief Executive Officer              Florida Power & Light Company (law firm)                               Codina Group, Inc.                  Director since 1995.
Director since 1990. Member audit committee, compensation committee.
Directorsince 1990. Member audit         (real estate firm) committee, compensation committee.       Directorsince 1994. Member benefits  DREW LEWIS committee, compensation committee. Retired Chairman and SHERRY S. BARRAT                                                               Chief Executive Officer President and Chief Executive             MARSHALL M. CRISER                  Union Pacific Corporation Officer of Northern Trust Bank           Of Counsel                          (diversified company) of California, N.A.                       McGuire, Woods,                    Director since 1992. Member (commercial bank)                         Battle & Boothe, L.L.P.            acquisitionscommittee, Director since 1998. Member audit         (law firm)                          compensation committee, committee, finance committee.            Director since 1989. Chairman audit  finance committee.
SHERRY S. BARRAT President and Chief Executive Officer of Northern Trust Bank of California, N.A.
committee. Member executive ROBERT M. BEALL, II                     committee, finance committee.        FREDERIC V. MALEK Chairman and Chief                                                           Chairman Executive Officer                       B. F. DOLAN                          Thayer Capital Partners Beall's, Inc.                           Retired Chairman and Chief          (merchant bank)
(commercial bank)
(department stores)                     Executive Officer                   Directorsince 1987. Chairman Director since 1989. Member acquisitionscommittee, benefits Textron, Inc.
Director since 1998. Member audit committee, finance committee.
(diversified company) benefits committee. Member acquisitions committee, executive
ROBERT M. BEALL, II Chairman and Chief Executive Officer Beall's, Inc.
                                                                                                                      -1 committee, compensationcommittee.       Directorsince 1992. Chairman         committee, finance committee.
(department stores)
acquisitionscommittee. Member audit JAMES L. BROADHEAD                      committee, compensation committee,   PAUL R. TREGURTHA Chairman and Chief                      executive committee.                 Chairman and Executive Officer                                                            Chief Executive Officer FPL Group, Inc.                          WILLARD D. DOVER                    Mormac Marine Group, Inc.
Director since 1989. Member acquisitions committee, benefits committee, compensation committee.
Directorsince 1989.                      Principal                            (maritime shipping company)
JAMES L. BROADHEAD Chairman and Chief Executive Officer FPL Group, Inc.
Chairman executive committee.           Niles, Dobbins, Meeks, Raleigh       Directorsince 1989.
Director since 1989.
                                        & Dover                             Chairman finance committee.
Chairman executive committee.
J. HYATT BROWN                          (law firm)                           Member compensation Chairman, President and                 Director since 1989. Member audit   committee, executive committee.
J. HYATT BROWN Chairman, President and Chief Executive Officer Poe & Brown, Inc.
Chief Executive Officer                 committee, acquisitions committee, Poe & Brown, Inc.                       benefits committee.                 ROGER YOUNG (insurance broker)                                                           President Director since 1989. Chairman           ALEXANDER W. DREYFOOS, JR.          FPL Group, Inc.
(insurance broker)
compensation committee. Member          Owner and Chief Executive Officer   Directorsince February 1999.
Director since 1989. Chairman compensation committee. Member benefits committee, executive committee.
benefits committee, executive committee. The Dreyfoos Group (investment management company)
ARMANDO M. CODINA Chairman and Chief Executive Officer Codina Group, Inc.
Directorsince 1997. Member audit committee, finance committee.
(real estate firm)
Director since 1994. Member benefits committee, compensation committee.
MARSHALL M. CRISER Of Counsel McGuire, Woods, Battle & Boothe, L.L.P.
(law firm)
Director since 1989. Chairman audit committee. Member executive committee, finance committee.
B. F. DOLAN Retired Chairman and Chief Executive Officer Textron, Inc.
(diversified company)
Director since 1992. Chairman acquisitions committee. Member audit committee, compensation committee, executive committee.
WILLARD D. DOVER Principal Niles, Dobbins, Meeks, Raleigh  
& Dover (law firm)
Director since 1989. Member audit committee, acquisitions committee, benefits committee.
ALEXANDER W. DREYFOOS, JR.
Owner and Chief Executive Officer The Dreyfoos Group (investment management company)
Director since 1997. Member audit committee, finance committee.
PAUL J. EVANSON President Florida Power & Light Company Director since 1995.
DREW LEWIS Retired Chairman and Chief Executive Officer Union Pacific Corporation (diversified company)
Director since 1992. Member acquisitions committee, compensation committee, finance committee.
FREDERIC V. MALEK Chairman Thayer Capital Partners (merchant bank)
Director since 1987. Chairman benefits committee. Member acquisitions committee, executive committee, finance committee.
PAUL R. TREGURTHA Chairman and Chief Executive Officer Mormac Marine Group, Inc.
(maritime shipping company)
Director since 1989.
Chairman finance committee.
Member compensation committee, executive committee.
ROGER YOUNG President FPL Group, Inc.
Director since February 1999.
T) 1998 Annual Report
T) 1998 Annual Report
* Investor Information CORPORATE OFFICES                                         Other shareholder communications to:                     ANALYST INQUIRIES FPL Group, Inc.                                           Alyse E. Porter
* I)
-1
 
Investor Information CORPORATE OFFICES FPL Group, Inc.
700 Universe Blvd.
P.O. Box 14000 Juno Beach, FL 33408-0420 (561) 694-4000 EXCHANGE LISTINGS Common Stock New York Stock Exchange Ticker Symbol: FPL Options Philadelphia Stock Exchange NEWSPAPER LISTING Common Stock: FPL Gp REGISTRAR, TRANSFER, AND PAYING AGENTS FPL Group Common Stock and FPL Preferred Stock EquiServe P.O. Box 8040 Boston, MA 02266-8040 (888) 218-4392 Florida Power & Light Co.
First Mortgage Bonds Bankers Trust Company Security Holder Relations P.O. Box 305050 Nashville, TN 37230-5050 (800) 735-7777 SHAREHOLDER INQUIRIES Communications concerning transfer requirements, lost certificates, dividend checks, address changes, stock accounts and the dividend reinvestment plan should be directed to EquiServe.
Other shareholder communications to:
Alyse E. Porter Shareholder Services (800) 222-4511 (561) 694-4693 (561) 694-4620 (Fax)
DUPLICATE MAILINGS Financial reports must be mailed to each account unless you instruct us otherwise. If you wish to discontinue multiple mailings to your address, please call EquiServe.
DIRECT DEPOSIT OF DIVIDENDS Cash dividends may be deposited directly to personal accounts at financial institutions. Call EquiServe for authorization forms.
DIVIDEND REINVESTMENT PLAN FPL Group offers a low-cost plan for holders of common stock and FPL preferred stock to reinvest their dividends or make optional cash payments for the purchase of additional common stock. Enrollment materials may be obtained by calling EquiServe.
NEWS AND FINANCIAL INFORMATION For the latest news and financial information about FPL Group, call our Shareholder Direct toll-free line:
(888) 375-1329. Callers may listen to recorded announcements and request information via fax or mail. Company information is also available on the Internet:
http://www.fplgroup.com ANALYST INQUIRIES


==Contact:==
==Contact:==
700 Universe Blvd.                                        Shareholder Services                                    Investor Relations P.O. Box 14000                                            (800) 222-4511                                            (561) 694-4697 Juno Beach, FL 33408-0420                                (561) 694-4693                                            (561) 694-4718 (Fax)
Investor Relations (561) 694-4697 (561) 694-4718 (Fax)
(561) 694-4000                                          (561) 694-4620 (Fax)                                      NEWS MEDIA INQUIRIES EXCHANGE LISTINGS                                        DUPLICATE MAILINGS
NEWS MEDIA INQUIRIES


==Contact:==
==Contact:==
Common Stock                                            Financial reports must be mailed to                      Corporate Communications New York Stock Exchange                                  each account unless you instruct us                      P.O. Box 029100 Ticker Symbol: FPL                                        otherwise. If you wish to discontinue                    Miami, FL 33102-9100 multiple mailings to your address,                        (305) 552-3888 Options                                                  please call EquiServe.                                    (305) 552-2144 (Fax)
Corporate Communications P.O. Box 029100 Miami, FL 33102-9100 (305) 552-3888 (305) 552-2144 (Fax)
Philadelphia Stock Exchange DIRECT DEPOSIT OF DIVIDENDS                              CERTIFIED PUBLIC NEWSPAPER LISTING                                                                                                  ACCOUNTANTS Cash dividends may be deposited Common Stock: FPL Gp                                    directly to personal accounts at                          Deloitte & Touche LLP financial institutions. Call EquiServe                    200 S. Biscayne Boulevard, Suite 400 REGISTRAR, TRANSFER, for authorization forms.                                  Miami, FL 33131-2310 AND PAYING AGENTS FPL Group Common Stock                                                                                            FORM 10-K DIVIDEND REINVESTMENT PLAN and FPL PreferredStock                                                                                            The Form 10-K annual report for FPL Group offers a low-cost plan EquiServe                                                                                                          1998 as filed with the Securities and for holders of common stock and P.O. Box 8040                                                                                                      Exchange Commission is available FPL preferred stock to reinvest their Boston, MA 02266-8040                                                                                              without charge by writing to dividends or make optional cash (888) 218-4392                                                                                                    FPL Group Shareholder Services.
CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP 200 S. Biscayne Boulevard, Suite 400 Miami, FL 33131-2310 FORM 10-K The Form 10-K annual report for 1998 as filed with the Securities and Exchange Commission is available without charge by writing to FPL Group Shareholder Services.
payments for the purchase of FloridaPower & Light Co.                                additional common stock. Enrollment                      ANNUAL MEETING First Mortgage Bonds                                    materials may be obtained by                              May 10, 1999, 10 a.m.
ANNUAL MEETING May 10, 1999, 10 a.m.
Bankers Trust Company                                    calling EquiServe.                                        PGA National Resort Security Holder Relations                                                                                          400 Avenue of the Champions NEWS AND FINANCIAL P.O. Box 305050                                          INFORMATION                                              Palm Beach Gardens, FL Nashville, TN 37230-5050                                  For the latest news and financial (800) 735-7777                                            information about FPL Group, call SHAREHOLDER              INQUIRIES                        our Shareholder Direct toll-free line:
PGA National Resort 400 Avenue of the Champions Palm Beach Gardens, FL PROPOSED 1999 COMMON STOCK DIVIDEND DATES*
Communications concerning transfer                        (888) 375-1329. Callers may listen to requirements, lost certificates, dividend                recorded announcements and request checks, address changes, stock accounts                  information via fax or mail. Company and the dividend reinvestment plan                        information is also available on the Internet:
Declaration Ex-Dividend Record Payment February 15 February 24 February 26 March 15 May 10 May 26 May 28 June 15 August 16 August 25 August 27 September 15 November 15 November 23 November 26 December 15 OPTIONAL CASH PAYMENT DATES Qtr./Yr.
should be directed to EquiServe.                          http://www.fplgroup.com PROPOSED 1999 COMMON STOCK DIVIDEND DATES*                                                   OPTIONAL CASH PAYMENT DATES Declaration         Ex-Dividend       Record             Payment                             Qtr./Yr.      Acceptance begins        Must be received by February 15         February 24       February 26         March 15                           2nd/99        May 15                    June 10 May 10              May 26             May 28             June 15                             3rd/99        August 15                September 10 August 16           August 25         August 27           September 15                       4th/99        November15                December10 November 15         November 23       November 26         December 15                         1st/00         February 15               March 10
Acceptance begins Must be received by 2nd/99 May 15 June 10 3rd/99 August 15 September 10 4th/99 November15 December10 1st/00 February 15 March 10
  "*Declarationof dividends and dates shown are subject to the discretion of the board of directors of FPL Group. Dates shown are based on the assumption that past patterns will prevail.
"*Declaration of dividends and dates shown are subject to the discretion of the board of directors of FPL Group. Dates shown are based on the assumption that past patterns will prevail.
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Latest revision as of 18:22, 16 January 2025

Part E - Seabrook Station Application for Order & Conforming License Amendments to Transfer Facility Operating License NPF-86 - FPL Group, Inc. 1998 Annual Report
ML021420174
Person / Time
Site: Seabrook NextEra Energy icon.png
Issue date: 05/17/2002
From: Feigenbaum T, Stall J
Florida Power & Light Energy Seabrook, North Atlantic Energy Service Corp
To:
Document Control Desk, Office of Nuclear Reactor Regulation
References
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0) r1 1998 Annual Report'

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HI]HGT FPL Group m (Dollars in millions, except per share amounts)

For the Years Ended December 31, FINANCIAL RESULTS Operating Revenues S.............................................................................................................

Operating Income Net Income S.............................................................................................................

Earnings Per Share (basic and assuming dilution)

Cash Flows From Operating Activities Total Assets 1998

$6,661

$1,252

$664

$3.85

$1,743

$12,029 COMMON STOCK DATA Average Shares Outstanding (millions) 172.5 Dividends Per Share

$2.00 Book Value Per Share

$29.76 M ark et....................Price Per............Share................(high.............-low

)

$.............6....

Market Price Per Share (high-low)

$729/16 - $561116 1997

% Change

$6,369

$1,228

$618

$3.57

$1,597

$12,449 4.6 2.0 7.4 7.8 9.1 (3.4) 173.1

$1.92

$28.03

$60-$425/8 (0.3) 4.2 6.2 8.0 1.8 3.3 OPERATING DATA S.......................................................................................................................................................................

FPL Energy Sales (millions kwh) 89,362 82,734 FPL Customer Accounts (average; thousands) 3,680 3,616 Employees (year end) 10,375 10,039 I)

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me of the nation'sr largest providers of electrici plqted Its principal subsidiary, Florida Power & Light CompaS/@'r serves more than seven million people along the eastern seaboard and the southern portion of Florida. FPL Energy, Inc.,

FPL Group's energy generating subsidiary, is a leader in producing electricity from clean and renewable fuels. FPL Energy owns and operates power plants in the U.S. and abroad, representing nearly 1,900 megawatts.

services.

Table of Contents Letter to Shareholders 2

Review of Operations 6

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Financial and Operating Statistics 22 Independent Auditors' Report 28 Management's Report 28 Financial Statements 29 Company Officers 47 Board of Directors 48 Investor Information 49

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was a year of outstanding accomplishments for FPL Group in which we achieved record operating and financial results.

We also continued to strengthen our principal subsidiary, Florida Power & Light Company; significantly expanded our energy

,perations outside of Florida

'--through our subsidiary, FPL Energy; and divested unrelated businesses. These accomplish ments and our continued focus on enhancing our capabilities as a high performance organization position us well for profitable growth in the years ahead.

RECORD FINANCIAL RESULTS Our financial results were exceptional in 1998.

S Net income reached an all-time high of $664 million, an increase of 7.4% from the previous year.

Earnings per share increased

-iearly 8% to a record $3.85.

  • Reductions of debt and preferred stock further strengthened our balance sheet.

EXCELLENT PERFORMANCE AT FLORIDA POWER 6s LIGHT Florida Power & Light con tinued to increase its productivity, improve reliability, and provide better service to its customers.

The percentage of time our plants were available to produce power reached the highest levels in the history of our company, and unplanned outages dropped to an all-time low.

<: Our fossil fuel plant availabili ty of 94% is among the best of any large fossil fleet in America.

  • Nuclear plant availability of 93% also was an all-time high and well above the industry average.

e The Turkey Point plant south of Miami became the first nuclear facility in the country to receive three consecutive "superior" ratings from the Nuclear Regulatory Commission.

The St. Lucie nuclear units on Hutchinson Island established a company record for continuous operation and improved their NRC ratings as well.

. The overall strength of our nuclear operations in 1998 was

$3 63.33 $3.57 $3

$2.91 $3

$.8 94 95 96 97 98 Earnings per Share (basic and assuming dilution)

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reflected by the 'World Association of Nuclear Operators' "perform ance index," which ranked Turkey Point number one and St. Lucie number three out of 36 multiple-unit nuclear sites in the United States.

One of our top priorities in 1998 was to improve service reliability, and we did so dra matically, reducing by 27% the amount of time our customers were without power. FPL's reliability now exceeds the national average by 41%.

Our safety record improved 20% compared to 1997, and the number of incidents is well below the industry average.

We continued to improve our productivity as operating and maintenance costs per kilo watt-hour declined for the eighth Debt/Preferred Fx L Capitalurs$1 Stock Reduction $408 Expendlitures $617 FPL Energy Investments $313 Common Stock Repurchases $62 Common Stock Dividends $345 Uses of Cash in 1998

($ millions) consecutive year. We have reduced these costs 33%

since 1990.

Our success in controlling costs has helped keep down the price FPL customers pay for electricity.

The price of FPL's residential elec tricity is 9% lower today than in the mid-1980s. During the same period, the Consumer Price Index has risen 56%.

GROWTH AT FPL ENERGY Early last year we formed FPL Energy to consolidate our electric operations outside of Florida. FPL Energy is an independent power producer with plants in operation, under construction, or being developed in 11 states and two foreign countries.

FPL Energy's improved operating results significantly contributed to the growth in FPL Group's earnings per share.

Earnings grew from enhanced project performance and the addition of more than 600 net megawatts of natural gas, wind, and geothermal generation projects. The company now owns about 1,900 net megawatts of gen erating capacity, almost all being sold under long-term contracts.

225%

160%

Industry*

FPL Group Total Return 1990-98 Dow Jones Electric Utilities Index I)

These additions added to FPL Energy's position as a leading clean electricity provider.

Nearly 95% of its generation is derived from natural gas, wind, solar, or geothermal plants. It is the largest developer of wind generation in the U.S.

  • > Also, FPL Energy has already added significantly to its genera tion fleet in 1999. In January and February, plans were announced for the development of 1,250 megawatts of natural gas-fired power plants - a 1,000-megawatt plant in Texas to begin operation in mid-2000 and a 248-megawatt plant in Washington to be pro ducing power by mid-2001.

FPL Energy is positioned to be a significant clean-energy provider in emerging non-regulated power generation markets.

OTHER DEVELOPMENTS In 1998 we completed the sale of our citrus subsidiary, Turner Foods, and, in January 1999 we reached an agreement A1 1998 Annual Report i

C' LOOKING AHEAD to sell our cable TV interests.

These transactions essentially complete our program of divest ing unrelated businesses that vere acquired in the 1980s.

One disappointment in 1998 was the decline in our stock price during the last quarter of the year. This was due primarily to uncertainty created by the staff of the Florida Public Service Commission (and later by the Office of Public Counsel) regard ing FPL's electricity rates. We are confident this matter of rates will be resolved expeditiously.

OUTLOOK FOR THE FUTURE Nothing is more important to long-term success than capable management. Earlier this year, we added a new member to our already strong senior manage ment team. Roger Young, who previously served as CEO of Scottish Hydro-Electric plc, became president and a director of FPL Group.

During his very success ful tenure at the UK based company Roger demonstrated excellent strategic and operational skills as well as a management style highly compatible with FPL Group. We welcome him to our organization.

During the 1990s we have consistently focused on reducing costs, improving quality and customer focus, increasing speed and flexibility, and investing out side of Florida in environmentally favored generation technologies.

We have made enormous strides in all of these areas and, as a consequence, FPL Group is one of the largest, cleanest, most efficient, and financially sound providers of electricity in the country.

At the same time we have pro vided returns to our shareholders that are well above the industry average. Since 1990 our stock has produced an annualized return of nearly 16%, exceeding the 12.7% annualized return of the Dow Jones Electric Utilities Index.

top~k L6 ~y~p(lltrI During that period we saw the power industry undergo continuous change as federal and state governments intro duced new forms of regulation governing the generation, transmission, and sale of electricity. While the precise final shape of the industry is unclear, the comprehensive strategic plan we adopted to meet these competitive challenges has served us well and will continue to do so in the future.

James L. Broadhead Chairman and Chief Executive Officer March 3, 1999 tv w w.Dfplgroup.com

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$990 96 97 Capital Expenditures Florida Power It Light Company SLig t Com pany

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millions) achieved record levels of performance while reducing costs, improving quality, and enhancing customer service and satisfaction.

CUSTOMER GROWTH 1 FPL added almost 65,000 customer accounts in 1998, representing an increase 0M 1.8%, a rate faster than most other electric utili Wies in the country. Over the next five years the population in the area served by FPL is projected to grow by almost 600,000 people.

INCREASED USAGE Average energy usage among customers has increased throughout the 19 90s, reflecting a 20% increase in the average home size in FPL's service area and greater use of personal computers and other devices that run on electricity.

ADDING CAPACITY 4, FPL will meet future growth through expanding its system capacity by about 3,100 MW, or about 17%, over the next ten years. FPL will repower older oil-fired power plants with high-efficiency gas-fired combined cycle generators. Plans call for adding 926 MW by repowering the Ft. Myers plant in 2001, followed by the Sanford plant in 2002. Three new gas combined-cycle units are planned for the second half of the decade, two at the Martin site and the third at a site to be selected.

ENERGY TRADING

  • The Energy Marketing and Trading (EMT) division completed its first full year of operation in 1998, supporting FPL's power gener ation facilities by procuring gas, as well as marketing and trading electricity. EMT's expanded presence in energy markets produced approximately $65 million in fuel and power savings for FPL customers in 1998, up from less than $5 million in 1996. EMT has grown to rank among the top 10 physical power marketers and gas buyers in the U.S.

NEW EMPLOYEES

  • FPL added more than 250 employees in 1998 to support increased activity, service enhancements and growth opportunities in several areas, including EMT, sales and marketing, information management and customer service.

Half of these new hires were recruited from colleges, bringing with them diversity and new ideas to help the company succeed in a competitive environment.

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AOA 8l r65 97 98 Reducing Outage Time (average length of outages, minutes) 137 97 4

Improving Service Reliability (total outnge time per cuslomer; minutes) 1998 Annual Report

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,ed its system reliability while successfully responding to several significant events that tested the company's resources and preparedness.

INCREASED RELIABILITY Power is available to customers 99.98% of the

  • ime, but FPL wants to make its service even better. Reliability 2000 is an aggressive three-year, $400 million program launched in mid-1997 to enhance service quality and reliability.

Improvements in 1998 included a 27% reduction in the average time per year that a customer is without power, and a 20% improvement in the average time to restore service. Since the program started, FPL has cleared trees and vegetation from more than 7,500 miles of overhead power lines, replaced or upgraded 145 miles of underground cable and installed more than 500 radio-controlled devices that improve the maintenance of power line voltage. Other efforts include increased lightning arrestor installations to reduce momentary power outages and improved allocation of work crews during storms.

MORE TO COME Plans for 1999 include the replacement or repair of 450 miles of underground power lines and the trimming of vegetation from more than 8,000 miles of overhead lines, a 15%

increase from 1998.

WORKING SMARTER

-Applying the latest technology has also helped improve service quality. FPL began using a technology called ThermovisionT11 to improve preventive maintenance and system reliability. Vans equipped with infrared devices measure the temperature of power lines and distribution equip ment, looking for "hot spots" that signal a potential problem. Data telemetry is another technology application that provides FPL's power dispatchers with "real-time" information about electricity loads, allowing power to be shifted as needed to prevent service interruptions.

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RESPONDING FASTER On six occasions in 1998, President Clinton declared parts of Florida as federal disaster areas due to tornadoes, a hurricane and trop ical storm, and wildfires. These and other events caused more than one-third of FPL's 3.7 mil lion customers to suffer outages.

Repair crews worked tirelessly to restore power to most cus tomers, generally within one day, despite the size and difficult working conditions.

FPL's newly renovated command center features a sophisticated storm monitoring and tracking system that enables the company to better model a storm's impact, and plan and execute quicker service restoration.

HIGH AVAILABILITY FPL's fleet of power plants again achieved excellent performance in 1998.

Fossil plant availability reached 93.7% and nuclear plant avail ability was 93.1% -- record levels for FPL and among the best in the industry. This high level of performance is a result of a consistent emphasis on operational excellence through a standardized model that uti lizes process management and reliability techniques. High plant availability allowed FPL to reli ably meet peak energy demands in 1998 that surpassed 1997's summer peak on 43 days.

WORLD-CLASS PERFORMANCE The Turkey Point nuclear plant became the first U.S. nuclear plant to receive three consecutive "superior" performance ratings from the Nuclear Regulatory Commission (NRC). The St.

Lucie facility was recognized by the NRC for improved perform ance. Also, both plants earned excellent rankings based on the World Association of Nuclear Operators performance index, with Turkey Point achieving the top ranking in the nation.

The nuclear division beat its goal of reducing operations and main tenance costs per kilowatt-hour to a penny, achieving a level of

.98 cents per kwh in 1998.

CUSTOMER CARE FPL improved several key functions that provide service to cus-9N 92 9P 4 A T8 Nuclear Plant Availability tomers. For example, voice response units that route calls to FPL's customer care centers have been simplified, and the supporting telephone network has been upgraded to increase call-handling capability ten-fold.

The new system provides cus tomers who call to report an outage with an "initial time of restoration," or an "estimated time of restoration" in cases requiring more extensive repairs.

In addition, customer service representatives have completed intensive training to enhance their knowledge of power distri bution equipment and their overall effectiveness in handling customer calls.

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~lVI65~ TA*-Y Innovation drives success.

Employees are encouraged to be creative in using the latest technology to further enhance customer service, quality and overall performance.

RETAIL ENERGY MARKETING FPL Energy Services is a retail energy marketer providing customized solutions to commercial, industrial, chain and government organizations. FPL Energy Services introduced its Energy Data Management (EDM) program in 1998, providing multi-site businesses with the expertise and information they need to reduce energy costs nationwide. The Internet-based service ensures the accura cy of utility-related bills through audits, improves the cost-effectiveness of bill processing, provides rate analysis and identifies energy efficiency measures.

FPL Energy Services also began supply ing natural gas to businesses in Florida and several northeastern states, tapping FPUs experience as one of the largest natural gas buyers in the nation.

POWER EXPERTS Due to the prolifera tion of high-tech electronic and computer systems that are sensitive to power fluctuations, businesses increasingly require reliable, high-quality electricity.

FPL's power quality experts offer a variety of services, including the diagnosis of power problems, as well as the installation of surge protectors and uninterruptible power supplies.

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BUSINESS CARE FPL introduced a dedicated sales and service field organiza tion and opened a Business Care Center in 1998 to better meet the unique requirements of the small-to medium sized business customer. FPL's customer service telephone system identifies busi ness callers and routes their calls to highly trained FPL business specialists who are equipped to provide prompt solutions to their energy-related needs.

ELECTRONIC PAYMENT CheckFree is another program offered by FPL that allows customers to log onto FPUs web site to get information about their bill and pay it electronically. FPL received theJ) 1998 Award for Excellence in Electronic 1998 Annual Report 12

eooumeY TWýF DO4A4-.it +VIFA Commerce for its use of CheckFree. ý, A new On-line Pay Agent Locations system

'OPAL) utilizes the latest technology to

'--allow customers to conveniently pay bills on line at more than 100 locations in Florida. The system automatically posts payments via the Internet to FPUs com puter system. OPAL is expected to reduce costs by $1 million annually and reduce customer calls to confirm bill payment by 300,000 each year. The OPAL system earned FPL the Ultra Award, presented annually by Public Utilities Fortnightly magazine and IBM, for "the most innovative application of information technology" among energy companies.

LARGEST EV FLEET FPL began operating the largest electric vehicle fleet in Florida - 41 cars and trucks and opened the state's largest charging station. FPL is committed to both pre serving the environment and expanding Sthe commercial viability of new electric technology applications.

/

FPL Energy Services is constructing its first district cooling facility located in downtown Miami. This facility, scheduled to be opera tional in May 1999, will serve the north downtown Miami business community. The first customer will be the new state-of-the art American Airlines Arena, home to the Miami Heat professional basketball team.

The cooling facility, which will be owned and operated by FPL Energy Services, pro duces chilled water at night when energy costs are lower, and stores it for use in air conditioning during the day. The chilled water is then pumped through a distribution system to serve local businesses.

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Quality is a central cc of FPL Group's corporate culture as a high-performance organization.

SHOWCASING QUALITY A strong commitment to quality is reflected in the level of participation in the company's annual quality competition - the President's Cup - and the accompanying Quality Expo. A record 45 employee teams entered the President's Cup competition in 1998, and the Quality Expo featured more than 130 booths displaying achievements in quality and safety.

A WINNING TEAM A team of meter readers won the President's Cup competition with an impres sive demonstration of continuous improvement and customer focus. These dedicated employees, who already had a remarkable record of perform ance, further improved to only.92 errors for every 10,000 meters read. That's the equivalent of just one mistake per meter reader per month, making them the most accurate in the nation. Since 1995 FPL's meter readers have cut their error rate in half, while costs have been held at 1991 levels.

PROBLEM SOLVERS Other President's Cup finalists had impressive stories as well. A team developed a predictive model for substation voltage regulators that resulted in a 59% reduc tion in power interruptions caused by regulator failure. Employees from the Martin power plant achieved a 60% reduction in visible emissions from the plant's stacks through rebuilding certain components. This technique is being applied to other FPL plants sites as well.

LOWER COSTS FPL has succeeded in maintain ing low electricity prices through a constant focus on reducing costs and improving quality. FPL reduced its operations and maintenance costs per kilowatt-hour for the eighth consecutive year in 1998 to a level one-third lower than they were in 1990.

FPL's residential rates are lower than the U. S. average and are the lowest among the major investor-owned electric utilities in Florida.

What's more, FPL is the only major utility in the state that has not asked for a base rate increase in the 1990s.

HIGH PERFORMANCE FPL's quality efforts are currently focused on strengthening its position as a high performance organization that is recognized as world class in all business aspects.

Departmental assessments based on the criteria established for the Malcolm Baldrige National Quality Award are being used to measure the 1998 Annual Report <4 T)

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90 92 94 96 98 W Operations and Maintenance Expenses Florida Power & Light Company

((enls per kilowatt-hour) company's progress. The criteria include leader ship, strategic planning, customer and market focus, information and analysis, human resource focus, process management, and business results.

BEST PRACTICES 4 The power delivery business unit implemented a comprehensive high perform ance organization plan identified as a "best prac tice" to be emulated by other appropriate business units. Under the plan, new employee engineers work in a variety of positions during their first 16-20 months on the job to learn all aspects of the organization before being named to a permanent position.

BALDRIGE FOUNDATION t FPL Group Chairman Uawnd Chief Executive Officer James L. Broadhead was named president of the Foundation for the Malcolm Baldrige National Quality Award in early 1999.

The foundation raises contributions to fund the Baldrige Award program, created by Congress in 1987 in memory of the late Secretary of Commerce Malcolm Baldrige. The program seeks to enhance the competitiveness of U.S.

businesses by promoting quality awareness. In 1998 Congress approved extending the benefits of the Baldrige program into the education and healthcare sectors. 0 FPL employees with expertise in quality tools and techniques work with Florida schools and school systems to help improve the quality of education.

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<,ýj FPL Group understands of corporate responsibility and environmental stewardship.

ENVIRONMENTAL HONORS FPL's environmental performance received special recognition in 1998 as the company became the first electric utility to earn the U.S.

Coast Guard's highest honor for excellence in marine environmen tal protection - the William M.

Benkert Award. Activities hon ored by the Coast Guard include completion of a $1.5 million study to mitigate fuel spill impacts, programs to protect and preserve endangered species, and an oil spill prevention and response program.

CLEANEST UTILITY ': FPL is the largest electric utility in Florida, and its kilowatt-hour sales have increased by about one-third since 1990, reflecting customer growth and higher usage. FPL has successfully met this growth, while building on its sterling environmental record. Among the nine largest utilities in Florida, FPL was recently ranked the clean est by the Legal Environmental Assistance Foundation based on emissions that cause smog, acid rain and global warming.

Nationally, FPL's emission rate per kilowatt-hour for carbon dioxide is among the lowest and has declined since 1990. FPL's success reflects an increase in the use of gas combined-cycle technology, greater fuel efficiency and higher output from nuclear units.

PROTECTING NATURE FPL supports many programs to pro tect endangered species and to promote the preservation of their natural habitats. For example, the cooling canals at the Turkey Point plant are one of only three nesting areas in the country for the endan gered North American saltwater crocodile, where each year several hundred hatchlings emerge.

FPL facilities provide refuge for the endangered West Indian manatee. Every winter hundreds of these gentle creatures seek warm waters discharged from FPL's power plants.

KEEPING FIT FPL Group received the Gold Well Workforce Award from the Wellness Council of America for offering quality on-site fitness centers and health awareness programs for its employees.

SAFETY FIRST Safety is a critical area of focus, and the company's Safety 2000 initiative works to more aggressively and regularly promote safety awareness among employees and customers. These efforts are paying off. For exam ple, distribution system workers reduced the number of serious 1998 Annual Report 16 I) t)

the importance injuries by 28%.

Customer programs include a safety calendar contest in which children are invited to submit drawings depict ing safe practices with electricity.

Another FPL-sponsored program focuses on helping the public

"- avoid contacting power lines.

The "Safety Six-Pack" series of posters, brochures and stickers is distributed mostly to businesses that operate equipment that could contact power lines, such as cranes and backhoes.

COMMUNITY SUPPORT FPL and its employees are involved in a number of activities that help improve the quality of life in the communities it serves. For exam ple, during the 1998 United Way campaign, employees pledged more than $1.6 million, an 11%

increase over 1997 while the company contributed another

$630,000.

Two dozen employ ees of the Martin plant are involved in a program to mentor students in the local Indiantown community. The program targets a reduction in the drop-out rate among a diverse minority student population.

In Volusia County, FPL's award-winning efforts include helping establish an educa tional foundation that provides direct support to schools, and Career Connection that helps students relate school experi ence more directly to the work environment.

A team of 550 employees participated in the annual Race for the Cure in West Palm Beach, an event that benefits the Susan G. Komen Breast Cancer Foundation. FPL had the largest corpo rate team in the race, showing its commitment to this important cause to win the battle against breast cancer.

17 www.fplgroup.com

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r GROWLH FPL Energy is a

leading AHEAD producer focused on clean energy generation. It significantly increased earnings contributions through new projects and improved operations.

  • FPL Energy's ownership interest in than 90% of its projects. This hands power generation projects has more on approach enables FPL Energy to than doubled during the last two maximize the operating and financial years from less than 700 MW in 1996 performance of its projects. 4 In fact, to nearly 1,900 MW in operation at performance enhancements at existing the end of 1998. Most of the output projects accounted for 60% of the from the projects is under long-term earnings growth contribution made contract. Approximately 95% of this by FPL Energy in 1998 with the capacity is located in the United States remainder coming from the addition and is focused in three main regions:

of new projects. For example, FPL the mid-Atlantic, Energy enhanced the operating and I78 West and Northeast.

financial performance of its Doswell Lg.

During 1998, FPL plant in 1998 through re-negotiation 991 1,240 Energy added more of its power purchase agreement with than 600 MW Virginia Electric Power and restructur of capacity to ing of its debt. FPL Energy has also its portfolio, significantly improved the financial performance of its two solar facilities, HANDS-ON APPROACH totalling 160 MW, that comprise the 96 9;7 98 11 FPL Energy active-world's largest solar generating station.

FPL Energy's ly manages more Growing Portfolio (net meeawatils in operation; year end) 1998 Annual Report

International (Colombia, UK) 5%

Northeast 19%

West 36%

Mid-Atlanti 40%

FPL Energy's Regional Focus independent power EARNINGS GROWTH FPL Energy has substantially increased its earnings contributions to FPL Group, and in 1998 was a significant contributor to earn ings growth. This trend is expected to continue into 1999 and 2000 with the addition of new pro jects to FPL Energy's portfolio and continued operational and other profitability enhancements.

GAS EXPANSION., Gas-fired projects account for a significant portion of the growth in FPL Energy's earnings contributions - about 60%

in 1998 and 80% expected for 1999. This reflects FPL Energy's ownership of the 665 MW Doswell plant in Virginia and the addition of gas-fired capacity throughout 1998.

SYNERGY FPL Group expanded the scope of its Power Generation Division in early 1998 to include construction and operation of FPL Energy's plants in addition to those of Florida Power & Light Company. This organizational structure allows FPL Energy to capitalize on FPL's world-class expertise in operating gas-fired combined-cycle power plants.

ACQUISITIONS In early 1998, FPL Energy announced two major acquisitions in the Northeast. In the first transaction, FPL Energy acquired 50% ownership of two 300 MW gas fired combined-cycle power plants in New Jersey and Massachusetts. These clean energy plants have long-term contracts to supply power to local utilities. FPL Energy assumed the full management of these facilities effective in January 1998, assumed operating responsibility in early 1999, and expects to further enhance plant performance.

FPL Energy expects to complete the acquisition of the non-nuclear generating assets of Central Maine Power Company (CMP) in early spring.

The facilities consist of hydro, fossil and biomass plants with a combined capacity of 1,185 MW.

Between the time of closing and the start of retail competition in Maine on March 1, 2000, CMP will buy from FPL Energy all of the hydro output and a specified minimum amount of the fossil out put. The acquisition of these assets will add hydro capacity to the company's clean energy portfolio.

GOING OPERATIONAL <N The gas-fired Cherokee plant began operations in mid-1998, providing power to Duke Energy under a long-term con tract. FPL Energy constructed this 100 MW plant in South Carolina, drawing upon the world-class expertise of the Power Generation Division. FPL's 19 www.fplenergy.coni

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FPL Energy's Clean Energy Focus Net Capacity by Source (megawatis in operation at year end) l! "

Energy Marketing and Trading division supports Cherokee and other FPL Energy facilities by selling available energy in wholesale markets and by procuring gas for its operations.

  • The gas fired Termovalle project in Colombia went into operation in March 1998, adding 68 MW to FPL Energy's portfolio of operating projects. 4 Other portfolio additions in 1998 include a 25 MW wind generation project in Oregon that entered service in November, which FPL Energy constructed, and acquisitions of geothermal projects in California that added approximately 50 MW.

NEW TALENT + Expansion of FPL Energy's team of employees has strengthened the company's ability to identify, structure, construct, close, finance, and profitably manage and operate pro jects. The FPL Energy team today numbers about 600, more than double what it was in 1996.

MERCHANT PLANTS + Going forward FPL Energy plans to expand its development of merchant plants (those that don't sell their output under long-term contracts to utilities), particularly those fueled by gas. FPL Energy plans to expand its merchant activity through internal development of projects and by buying late stage development projects.

  • In January 1999, FPL Energy announced plans to construct its first gas-fired merchant plant, a 248 MW facility near Seattle to be completed in 2001. In this transaction, FPL Energy acquired the development rights as a means to accelerate portfolio expan sion. + In February, EPL Energy acquired the rights to build, own, and operate a 1,000 MW gas-fired plant in Texas that is scheduled to begin operations in mid-2000. The plant's output will be sold primarily in the wholesale market.

INCREASING WIND PROJECTS 4 FPL Energy will complete the construction of wind energy projects in mid-1999 in Texas and Iowa, adding more than 100 MW to the portfolio. These state-of-the art facilities feature the latest wind turbine technology and are not only more efficient than older designs, but operate at lower wind speeds that are safer for birds. Today's wind turbines are capable of generating power for approximately 5 cents per kilowatt-hour, about half the cost of earlier turbines.

1998 Annual Report Wind 18 Soinr 8%

Geothermal6%*

Other 2%

tuo 9 -,MqU91 dj -alazal

Financial and Operating Statistics For the Years Ended December 31, 1998 1997 1996 1995 1994 1993 1988 SELECTED FINANCIAL DATA (MILLIONS)

Operating Revenues

$6,661 Operating Expenses"'

$5,409 Operating Income")

$1,252 Net Income")

$664 Total Assets

$12,029 Long-Term Debt (excluding current maturities)

Preferred Stock of FPL (excluding current maturities)

$226 FLORIDA POWER &b LIGHT COMPANY Operating Revenues (millions)

$6,366 Energy Sales (millions of kwh) 89,362 Customer Accounts -

Average (thousands) 3,680 Peak Load, Winter (mw 60-minute)'2' 16,802 Peak Load, Summer (mw 60-minute) 17,897 Total Capability (summer peak, mw)3' 18,509 Reserve Margin (summer peak, %)-")

10 Net Energy for Load (%)

Oil 27 Natural Gas 26 Nuclear 26 Net Purchased Power and Interchange 14 Coal 7

Capital Expenditures (including nuclear fuel and AFUDC)

$617 COMMON STOCK DATA Average Shares Outstanding (millions)14) 173 Earnings Per Share of Common Stock(')(4)(5)

$3.85 Dividends Paid Per Share

$2.00 Book Value Per Share (year end)

$29.76 Market Price Per Share (year end)

$6151 Market Price Per Share (high-low) $721/6-561&6 Number of Shareholders (year end) 55,149

$6,369

$5,141

$1,228

$618

$12,449

$6,037

$4,866

$1,171

$579

$12,219

$5,592

$4,395

$1,197

$553

$12,459

$5,423

$4,274

$1,148

$519

$12,618

$2,347

$2,949

$3,144

$3,377

$3,864

$226

$331

$6,132 82,734 3,616 13,047 16,613 18,715 20 18 29 25 20 8

$5,986 80,889 3,551 16,490 16,064 18,538 23 18 29 26 20 7

$551

$474 173

$3.57

$1.92

$28.03

$59716 60-425h 60,493

$5,312

$4,342

$969

$429

$13,078

$4,729

$3,845

$884

$448

$10,185

$3,749

$3,254

$340

$545

$548

$526

$5,530 79,756 3,489 18,096 15,813 18,153 21 19 31 25 18 7

$5,343 77,096 3,422 16,563 15,179 18,146 26 31 20 26 17 6

$5,224 72,455 3,350 12,594 15,266 16,698 13 32 17 25 21 5

$4,627 61,578 2,954 12,372 12,382 16,008 30 26 17 30 25 2

$669

$772

$1,109

$668 174 175 178

$3.33

$1.84

$26.46

$46

$48'/-41 '/

67,580

$3.16

$1.76

$25.12

$46-1/2

$46/2-34 74,169

$2.91

$1.88

$23.82

$35'/

$39'/,-26-/

82,021 Includes charges in 1993 for cost reduction program (S85 million after tax).

(2) Winter peaks include November-December of current year and January-March of following year.

( Represents installed capability plus purchased power. Reserve margin is based on peak load net of load management.

"' Reflects a reduction of 9 million in 1998, 1997 and 1996, 10 million in 1995, and 11 million in 1994 of unallocated shares held by the ESOP due to an accounting standard adopted effective January 1, 1994.

(5) Basic and assuming dilution.

1998 Annual Report 22 AT 187 131

$2.30

$3.42

$2.47

$2.18

$21.57

$24.90

$39'/

$31'/

$41-35'! $32'/2-27'/

85,787 70,296 1,

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS During 1998, FPL Group, Inc. (FPL Group) achieved net income and earnings per share growth of 7.4%

and 7.8%, respectively, compared to 1997 growth rates of 6.7% and 7.2%. The growth reflects better operating results from FPL Energy, Inc.'s (FPL Energy) independent power projects, primarily from its natural gas-fired projects.

Florida Power & Light Company's (FPL) operating revenues and net income represent approximately 96%

and 93% of the corresponding amounts of FPL Group.

Approximately 20% of the 1998 growth in earnings per share was provided by FPL. FPL's growth was primarily associated with an increase in total kilowatt-hour (kwh) sales and lower interest charges and preferred stock dividends. Offsetting these items were higher depreciation and other operations and maintenance (O&M) expenses.

FPL's operating revenues consist primarily of revenues from base rates, cost recovery clauses and franchise fees.

Revenues from FPL's base rates were $3.7 billion, $3.5 billion and $3.4 billion in 1998, 1997 and 1996, respectively.

There were no changes in base rates during those years.

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.

FPL's retail customer accounts increased 1.8% for the third consecutive year. In 1998 and 1997, warmer weather contributed to an increase in retail customer usage of 4.8% and 1.2%, respectively. Together these factors and changes in sales to other utilities contributed to an increase in FPL's total energy sales of 8.0%, 2.3%

and 1.4% in 1998, 1997 and 1996, respectively.

The Florida Public Service Commission (FPSC) regulates FPL's retail sales, which represent approximately 95% of FPL Group's total operating revenues. FPL reported a retail regulatory return on common equity (ROE) of 12.6%, 12.3% and 12.1% in 1998, 1997 and 1996, respectively. FPL's allowed ROE range for 1996 through 1998 was 11% to 13% with a midpoint of 12%. In December 1998, after negotiations between FPL and the FPSC staff, the FPSC issued a proposed order approving a settlement regarding FPL's allowed ROE, equity ratio and the special amortization program. Under the proposed settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2% with a midpoint of 11.2%.

FPL agreed to a maximum adjusted equity ratio of 55.83% through 2000. The adjusted equity ratio reflected a discounted amount for off-balance sheet obligations under certain long-term purchase power contracts. See Note 9 - Contracts. The proposed settlement also extended the special amortization program through 2000 and modified the program to include an additional fixed amount of $140 million per year in addition to the variable amount. FPL continues to record a $30 million fixed nuclear amount under a previous FPSC order. In January 1999, several parties challenged the FPSC's proposed order. In mid-February 1999, FPL withdrew from the settlement agreement; the FPSC subsequently approved this withdrawal and concluded the proceeding.

FPL is authorized to continue to record special amortization through 1999 in accordance with the extension of the spe cial amortization program approved by the FPSC in 1997.

In January 1999, the State of Florida Office of Public Counsel (Public Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and requested that certain revenues be held subject to refund. Other parties have requested participation with Public Counsel. The FPSC is scheduled to address Public Counsel's request in March 1999. FPL is unable to predict the outcome of this matter or any potential effect on its financial statements. See Note 1 - Regulation.

FPL Group's 1998 operating revenues reflect the receipt by an independent power project of a settlement relating to a contract dispute. Beginning in 1997, FPL Group's operating revenues, energy sales and fuel, purchased power and interchange expense include the effects of consolidating some independent power projects.

O&M expenses increased in 1998, primarily as a result of additional costs associated with improving the service reliability of FPL's distribution system. Partly offsetting the higher distribution expenses were lower nuclear maintenance costs and conservation clause expenses. Conservation clause expenses are essentially t wvvv.fplgroup.coin

a pass-through and do not affect net income. In 1997, additional costs associated with the conservation clause and higher distribution system maintenance costs were partially offset by a slight decline in nuclear refueling and lower payroll-related costs.

The increases in depreciation and amortization expense are primarily the result of the FPSC-approved special amortization program. Pursuant to the FPSC approved special amortization program, FPL records as depreciation and amortization expense a fixed amount of $30 million per year for nuclear assets. FPL also records under this program variable amortization based on the actual level of retail base revenues compared to a fixed amount. The variable amounts recorded in 1998, 1997 and 1996 were $348 million, $169 million and

$130 million, respectively. These variable amounts include, as depreciation and amortization expense,

$161 million, $169 million and $20 million, respectively, for amortization of regulatory assets. The remaining variable amounts were applied against nuclear and fossil production assets. Amortization of debt reacquisition costs, a regulatory asset, was completed in 1998. In addition to amounts recorded under the special amortization program in 1998, 1997 and 1996, FPL amortized

$24 million, $22 million and $28 million, respectively, of plant-related regulatory assets deferred since FPL's last rate case in 1984. Amortization of plant-related regulatory assets was completed in 1998. In 1998 and 1997, the FPSC approved higher depreciation rates for certain assets which resulted in additional depreciation of $26 million and $31 million, respectively.

The 1998 increase in interest charges reflects the cost of terminating agreements designed to fix interest rates. This was partially offset by lower interest charges and preferred stock dividends at FPL, which reflect the impact of reducing debt and preferred stock balances.

FPL Group has reduced these balances, net of commercial paper increases, over the past three years by $1.0 billion.

In 1997, additional debt was assumed as a result of FPL Energy's portfolio restructuring and expansion resulting in higher interest charges at FPL Group.

Improved results in 1998 from independent power partnerships contributed to an increase in the non-operating line other-net. Also reflected in other-net is the December 1998 loss from the sale of Turner Foods Corporation's (Turner) assets. Turner was an agricultural subsidiary of FPL Group Capital Inc (FPL Group Capital) which owned and operated citrus groves in Florida. The loss of Turner's revenues as a result of the sale will not have a significant effect on FPL Group's future operating revenues or net income.

FPL Group's 1998 lower effective income tax rate reflects adjustments relating to prior years' tax matters, including the resolution of an audit issue with the Internal Revenue Service. The effective income tax rates in 1997 and 1996 reflect increased amortization of FPL's deferred investment tax credits due to the special amortization program and adjustments relating to prior years' tax matters.

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 1998, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues.

Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict what impact would result from a change to a more competitive environment or when such a change might occur. Various states, other than Florida, have either enacted legislation or are pursuing initiatives designed to deregulate the production and sale of electricity. Deregulation related activities are also being pursued on the federal level. See Note 1 - Regulation. Deregulation of the electricity 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 low-cost power in competitive markets. However, market-based pricing, competitive sources of supply and the reduced availability of long-term power sales agreements may result in fluctuations in revenues and earnings. Substantially all of the energy produced by FPL Energy's independent power projects is sold through long-term power sales agreements with utilities.

FPL Group is continuing to work to resolve the potential impact of the year 2000 on the processing of information 1998 Annual Report 24 4I 4'

AI

by its computer systems. A multi-phase plan has been developed consisting of inventorying potential problems, assessing what will be required to address each potential problem, taking the necessary action to fix each problem, testing to see that the action taken did result in year 2000 readiness and implementing the required solution. The inventory and assessment of the information technology infrastructure, computer applications and computerized processes embedded in operating equipment has been completed and approximately 80% of the necessary modifications have been tested and implemented. FPL Group's efforts to assess the year 2000 readiness of third parties include surveying important suppliers.

Meetings are being conducted with sole source and certain suppliers. Results of our supplier readiness assessment are being considered in the development of our contin gency plans to help ensure that critical supplies are not interrupted, that large customers are able to receive power and that transactions with or processed by financial institutions will occur as intended. FPL Group is on schedule with its multi-phase plan and all phases are expected to be completed by mid-1999, except for confirmatory testing at St. Lucie Unit No. 1, which will be completed during a scheduled refueling outage beginning October 1999. The estimated cost of addressing year 2000 issues is not expected to exceed $50 million, of which approximately 40% had been spent through December 31, 1998. Approximately 80% of the total estimate is for the multi-phase plan. The remainder is an estimate for project and inventory contingencies. The majority of these costs represent the redeployment of existing resources and, therefore, are not expected to have a significant effect on O&M expenses.

At this time, FPL Group believes that the most reasonably likely worst case scenarios relating to the year 2000 could include a temporary disruption of service to customers, caused by a potential disruption in fuel supply, water supply and telecommunications, as well as transmission grid disruptions caused by other companies whose electrical systems are interconnected with FPL. FPL Group's year 2000 contingency planning is currently underway to address risk scenarios at the operating level (such as generation, transmission and distribution), as well as at the business level (such as customer service, "procurement and accounting). These plans are intended to mitigate both internal risks and potential risks in FPL Group's supply chain. Contingency plans are expected to be completed by mid-1999, allowing the second half of 1999 for communication and training. In addition to preparing internal contingency plans, FPL also participated in the development of the state's electric grid contingency plans and expects to participate in national drills during 1999 that are designed to test various operating risk scenarios.

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of 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 is currently assessing the effect, if any, on its financial statements of implementing FAS 133.

FPL Group will be required to adopt the standard in 2000.

In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communi cations Corporation stock resulting in an after-tax gain of approximately $96 million. An agreement was also reached to sell FPL Group Capital's one-third interest in a limited partnership. While the terms have not been finalized, the sale of the limited partnership interest is expected to have a positive effect on FPL Group's results of operations.

LIQUIDITY AND CAPITAL RESOURCES FPL Group's primary capital requirements consist of expenditures to meet increased electricity usage and customer growth of FPL. Capital expenditures of FPL for the 1999-2001 period are expected to be approximately

$2.8 billion, including $910 million in 1999. The increase in FPL Group's 1998 capital expenditures reflects the investment in two power plants in the Northeast, while the increase in FPL's 1998 capital expenditures is primarily the result of improving distribution system 25 www.fplgroup.com

reliability. FPL Group Capital and its subsidiaries have guaranteed approximately $305 million of purchase power agreement obligations, debt service payments and other payments subject to certain contingencies. FPL Energy is a party to a contract to purchase all of Central Maine Power Company's non-nuclear generation assets for $846 million. The contract is subject to a civil action initiated by FPL Energy. See Note 9 - Commitments and Contingencies.

Debt maturities of FPL Group's subsidiaries will require cash outflows of approximately $671 million through 2003, including $359 million in 1999. It is anticipated that cash requirements for FPL's capital expenditures, energy-related investments and debt maturities in 1999 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 common stock, or for investment. Any temporary cash needs will be met by short-term bank borrowings.

In January 1999, FPL Group Capital redeemed $125 million of its 7 518% debentures. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate

$1.9 billion.

During 1998, FPL Group repurchased 1.0 million shares of common stock under the 10 million share repurchase program. As of December 31, 1998, FPL Group may repurchase an additional 8.3 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, 1998 was $259 million. Bank lines of credit of $300 mil lion, included in the $1.9 billion 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.

In 1996, the FASB issued an exposure draft on accounting for obligations associated with the retirement of long-lived assets. The method proposed by the FASB in the exposure draft would require the present value of estimated future cash flows to decommission FPL's nuclear power plants and dismantle its fossil plants to be recorded as an increase to asset balances and as a liability.

Under that proposal, it is anticipated that there will be no effect on cash flows and, because of the regulatory treatment, there will be no significant effect on net income. The matter has been restudied by the FASB and another exposure draft is scheduled to be issued in 1999.

FPL's charter and mortgage contain provisions which, under certain conditions, restrict the payment of divi dends 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.

MARKET RISK SENSITIVITY Substantially all financial instruments and positions held by FPL Group 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 $650 million and $640 million at December 31, 1998 and 1997, 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. Market risk associated with all of these securities is estimated as the potential loss in fair value resulting from a hypothetical 10% increase in interest rates and amounts to $17 million and $19 million at December 31, 1998 and 1997, respectively.

The fair value of FPL Group's long-term debt is also affected by changes in interest rates. The following presents the sensitivity of the fair value of debt and interest rate swap agreements to a hypothetical 10%

decrease in interest rates:

1998 Annual Report 2

A)

A)

1i

(Millions of Dollars)

December 31, Long-term debt Interest rate swap agreements Carrying Value

$2,706 1998 Hypothetical Fair Increase in Value Fair Value"'

$2,797b" 63 Carrying Value

$3,147 1997 Hypothetical Fair Increase in Value Fair Valuelal

$3,236h"

$ 103 31c) 6 "Calculated based on the change in discounted cash flow.

Based on quoted market prices for these or similar issues.

Based on the estimated cost to terminate the agreements. The agreements were terminated in 1998.

While a decrease in interest rates would increase the fair value of debt, it is unlikely that events that would result in a realized loss will occur.

Equity price risk - Included in the special use funds of FPL are marketable equity securities carried at their market value of approximately $556 million and $367 million at December 31, 1998 and 1997, respectively. A hypothetical 10% decrease in the prices quoted by stock exchanges would result in a $56 million and $37 million reduction in fair value and corresponding adjustment to the related liability accounts based on current regulatory treatment at December 31, 1998 and 1997, respectively.

Other risks - Under current cost-based regulation, FPL's cost of fuel is recovered through the fuel and purchased power cost recovery clause (fuel clause), with no effect on earnings. FPL's Energy Marketing & Trading Division buys and sells wholesale energy commodities, such as natural gas and electric power. The division primarily procures natural gas for FPL's own use in power generation and sells excess electric power. Substantially all of the results of these activities are passed through to customers in the fuel or capacity cost recovery clauses. The level of trading activity is expected to grow as FPL seeks to manage the risk associated with fluctuating fuel prices and increase value from its own power generation. At December 31, 1998, there were no material open positions in these activities.

<2 www.fplgroup.com

MANAGEMENT'S REPORT The management of FPL Group is responsible for the integrity and objectivity of the financial information and representations contained in the consolidated financial statements and other sections of this Annual Report. The consolidated financial statements, which in part are based on informed judgments and estimates made by management, have been prepared in conformity with generally accepted accounting principles applied on a consistent basis.

To aid in carrying out this responsibility, management maintains a system of internal accounting control, which is established after weighing the cost of such controls against the benefits derived. The overall system of internal accounting control, in the opinion of management, provides reasonable assurance that the assets of FPL Group and its subsidiaries are safeguarded and transactions are executed in accordance with management's authorization and are properly recorded for the preparation of financial statements. In addition, management believes the overall system of internal accounting control provides reasonable assurance that material errors or irregularities would be prevented or detected on a timely basis by employees in the normal course of their duties. Due to the inherent limitations of the effectiveness of any system of internal accounting control, management cannot provide absolute assurance that the objectives of internal accounting control will be met. The system of internal accounting control is supported by written policies and guidelines, the selection and training of qualified employees, an organizational structure that provides an appropriate division of responsibility and a program of internal auditing. To further enhance the internal accounting control environment, management has prepared and distributed to all employees a Code of Conduct which states management's policy on conflict of interest and ethical conduct.

FPL Group's independent auditors, Deloitte & Touche LLP, are engaged to express an opinion on FPL Group's financial statements. Their report is based on procedures believed by them to provide a reasonable basis to support such an opinion.

The Board of Directors pursues its oversight responsibility for financial reporting and accounting through its Audit Committee.

This Committee, which is comprised entirely of outside directors, meets periodically with management, the internal auditors and the independent auditors to make inquiries as to the manner in which the responsibilities of each are being discharged. The independent auditors and the internal audit staff have free access to the Committee without management's presence to discuss auditing, internal accounting control and financial reporting matters.

INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders, FPL Group, Inc.:

We have audited the consolidated balance sheets of FPL Group, Inc. and subsidiaries as of December 31, 1998 and 199; and the related consolidated statements of income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. These financial statements are the responsibility of the 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 pre sent fairly, in all material respects, the financial position of FPL Group, Inc. and subsidiaries at December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.

Deloitte & Touche LLP Certified Public Accountants Miami, Florida February 12, 1999 I) 1998 Annual Report

'T A)

Consolidated Statements of Income FPL Group, Inc.

Years Ended December 31, OPERATING REVENUES 1998

$_6,661 OPERATING EXPENSES Fuel, purchased power and interchange 2,244 Other operations and maintenance 1,284 Depreciation and amortization 1,284 Taxes other than income taxes 597 Total operating expenses 5,409 OPERATING INCOME 1,252 OTHER INCOME (DEDUCTIONS)

Interest charges Preferred stock dividends - FPL Other - net Total other deductions - net (322)

(15) 28 (309)

(In millions, except per share amounts) 1997

$6,369 2,255 1,231 1,061 594 5,141 J1,2-28 1996

$-6,037 2,131 1,189 960 586 4,866 1,171 (291)

(267)

(19)

(24) 4 (7)

(306)

(298)

INCOME BEFORE INCOME TAXES 943 92 INCOME TAXES 279 30 NET INCOME 664

$ 61 Earnings per share of common stock (basic and assuming dilution)

$ 3.85

$ 3.5 Dividends per share of common stock

$ 2.00

$ 1.9 Average number of common shares outstanding 173 1,

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

.2

'7 72 73 2

www.fplgroup.com 873 294

$ 579 8

$ 3.33

$ 1.84 174 34

Consolidated Balance Sheets FPL Group, Inc.

December 31, 1998 PROPERTY, PLANT AND EOUIPMENT Electric utility plant in service and other property

$17,592 Nuclear fuel under capital lease - net 146 Construction work in progress 214 Less accumulated depreciation and amortization (9,397)

Total property, plant and equipment - net 8,555 CURRENT ASSETS Cash and cash equivalents 187 Customer receivables, net of allowances of $8 and $9 559 Materials, supplies and fossil fuel inventory - at average cost 282 Deferred clause expenses 82 Other 156 Total current assets 1,266 OTHER ASSETS Special use funds of FPL 1,206 Other investments 391 Other 611 Total other assets 2,208 TOTAL ASSETS

$12,029 (Millions of Dollars)

A) 1997

$17,430 186 204 (8,466) 9,354 54 501 302 122 122 1,101 1,007 282 705 1,994

$12,449 A)

I) 1998 Annual Report 30

Consolidated Balance Sheets FPL Group, Inc.

(Millions of Dollars)

December 31, 1998 1997 CAPITALIZATION Common shareholders' equity

$ 5,126

$ 4,845 Preferred stock of FPL without sinking fund requirements 226 226 Long-term debt 2,347 2,949 Total capitalization 7,699 8,020 CURRENT LIABILITIES Short-term debt 110 134 Current maturities of long-term debt 359 198 Accounts payable 338 368 Customers' deposits 282 279 Accrued interest and taxes 191 180 Deferred clause revenues 89 61 Other 272 279 Total current liabilities 1,641 1,499 OTHER LIABILITIES AND DEFERRED CREDITS Accumulated deferred income taxes 1,255 1,473 Deferred regulatory credit - income taxes 148 166 Unamortized investment tax credits 205 229 Storm and property insurance reserve 259 252 Other 822 810 Total other liabilities and deferred credits 2,689

.2,930 Commitments and Contingencies TOTAL CAPITALIZATION AND LIABILITIES

$12,029

$12,449 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Swww.fplgroup.com

Consolidated Statements of Cash Flows FPL Group, Inc.

(Millions of Dollars)

Years Ended December 31, 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES Net income

$ 664

$ 618

$ 579 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 1,284 1,061 960 Decrease in deferred income taxes and related regulatory credit (237)

(30)

(76)

Increase (decrease) in accrued interest and taxes 11 (79) 39 Other - net 21 27 90 Net cash provided by operating activities 1,743 1,597 1,592 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures of FPL (617)

(551)

(474)

Independent power investments (521)

(291)

(52)

Distributions and loan repayments from partnerships and joint ventures 304 53 41 Proceeds from sale of assets 135 43 69 Other - net (96)

(51)

(110)

Net cash used in investing activities (795)

(797)

(526)

CASH FLOWS FROM FINANCING ACTIVITIES Issuance of long-term debt 343 42 Retirement of long-term debt and preferred stock (727)

(717)

(338)

Increase (decrease) in short-term debt (24) 113 (179)

Repurchase of common stock (62)

(48)

(82)

Dividends on common stock (345)

(332)

(320)

Other - net 3

Net cash used in financing activities (815)

(942)

(916)

Net increase (decrease) in cash and cash equivalents 133 (142) 150 Cash and cash equivalents at beginning of year 54 196 46 Cash and cash equivalents at end of year

$ 187 54

$ 196 Supplemental Disclosures of Cash Flow Information Cash paid for interest

$ 308

$ 287

$ 248 Cash paid for income taxes

$ 463

$ 434

$ 381 Supplemental Schedule of Noncash Investing and Financing Activities Additions to capital lease obligations 34 81 86 Debt assumed for property additions

$ 420 33 The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

Ij 1998 Annual Report 32

Statements of Shareholders' Equity FPL Group, Inc.

(In Millions)

Common Stock "a Aggregate Shares Par Value Additional Paid-In Capital Unearned Compensation Accumulated Other Comprehensive Income Common Retained Shareholders' Earnings Equity Balances, December 31, 1995 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other Balances, December 31, 1996 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other comprehensive income Other Balances, December 31, 1997 Net income Repurchase of common stock Dividends on common stock Earned compensation under ESOP Other comprehensive income Other Balances, December 31, 1998 185i

$ 2 (2) 183k (1) 182""

(1) 181"1:

$2

$3,420 (82) 8 S.....(1 )

3,345 (48) 6 3,302 (62) 13

$3,252

$ (287) 15 (272)

$ 1,259 579 (320) 1,518 618 (332) 8 (264) 1 1

1,804 664 (345) 12

$(252) 1

$2,123 S.01 par value, authorized - 300,000,000 shares; outstanding 180,712,435 and 181,762,385 at December 31, 1998 and 1997, respectively.

Outstanding and unallocated shares held by the Employee Stock Ownership Plan Trust totaled 8.5 million, 8.9 million and 9.3 million at December 31, 1998, 1997 and 1996, respectivelyý The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

3 wwwv.fplgroup.com

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years Ended December 31, 1998, 1997 and 1996

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), a rate-regulated public utility, and FPL Energy, Inc. (FPL Energy). FPL supplies electric service to approximately 3.7 million customers throughout most of the east and lower west coasts of Florida. FPL Energy invests in independent power projects which consist of controlled and consolidated entities and non-controlling ownership interests in joint ventures.

The consolidated financial statements of FPL Group include the accounts of its 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 non-regulated 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.

Various states, other than Florida, have either enacted legislation or are pursuing initiatives 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 1) 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 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 recover), or refund. The principal regulatory assets and liabilities are as follows:

December 31, Assets (included in other assets):

Unamortized debt reacquisition costs.....

Plant-related deferred costs.............

Nuclear maintenance reserve cumulative effect adjustment..........

Deferred Department of Energy assessm ent........................

Liabilities:

Deferred regulatory credit - income taxes Unamortized investment tax credits.......

Storm and property insurance reserve.....

(Millions of Dollars) 1998 1997 S

S S 44

$148

$ 205

$ 259

$ 171

$ 24

$ 14

$ 48

$166

$ 229

$ 252 The storm and property insurance reserve is primarily related to transmission and distribution properties. 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 what impact would result from a change A)

I) 1998 Annual Report 34

to a more competitive environment or when such a change might occur.

FPL's allowed return on equity (ROE) range for 1996 through 1998 was 11% to 13% with a midpoint of 12%.

In December 1998, after negotiations between FPL and the FPSC staff, the FPSC issued a proposed order approving a settlement regarding FPL's allowed ROE, equity ratio and the special amortization program. Under the proposed settlement, beginning in 1999 FPL's allowed ROE range would be 10.2% to 12.2% with a midpoint of 11.2%. FPL agreed to a maximum adjusted equity ratio of 55.83%

through 2000. The adjusted equity ratio reflected a discounted amount for off-balance sheet obligations under certain long-term purchase power contracts. See Note 9 - Contracts. The proposed settlement also extended the special amortization program through 2000 and modified the program to include an additional fixed amount of $140 million per year in addition to the variable amount. FPL continues to record a $30 million fixed nuclear amount under a previous FPSC order. In January 1999, several parties challenged the FPSC's proposed order. In mid February 1999, FPL withdrew from the settlement agreement; the FPSC subsequently approved this withdrawal and concluded the proceeding. FPL is authorized to continue to record special amortization through 1999 in accordance with the extension of the special amortization program approved by the FPSC in 1997.

In January 1999, the State of Florida Office of Public Counsel (Public Counsel) petitioned the FPSC to conduct a full rate proceeding for FPL and requested that certain revenues be held subject to refund. Other parties have requested participation with Public Counsel. The FPSC is scheduled to address Public Counsel's request in March 1999. FPL Group is unable to predict the outcome of this matter or any potential effect on its financial statements.

FPL amortized the plant-related deferred costs as approved by the FPSC and recorded $24 million, $22 million and $28 million in 1998, 1997 and 1996, respectively.

Pursuant to the FPSC-approved special amortization program, FPL recorded as depreciation and amortization expense a fixed amount of $30 million per year for nuclear assets. FPL also records under this program variable amortization based on the actual level of retail base revenues compared to a fixed amount. The variable amounts recorded in 1998, 1997 and 1996 were $348 million,

$169 million and $130 million, respectively. These variable amounts include, as depreciation and amortization expense,

$161 million, $169 million and $20 million, respectively, for amortization of regulatory assets. The remaining variable amounts were applied against nuclear and fossil production assets.

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 $152 million and $154 mil lion at December 31, 1998 and 1997, 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.

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 is added to electric utility plant. The cost of 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, 1998, the generating, transmission, distribution and general facilities of FPL represented approximately 46%, 13%, 34% 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.

35 www.fp1group.comn

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 ever), four years. The most recent depreciation studies were approved by the FPSC effective for 1998. That approval has since been challenged and hearings have been requested. Fossil fuel plant dismantle ment studies were filed in September 1998 and will be effective January 1, 1999. The weighted annual composite depreciation rate for FPLs electric plant in service was approximately 4.4% for 1998, 4.3% for 1997 and 4.1%,

for 1996, excluding the effects of decommissioning and dismantlement. Further, these rates exclude the special and plant-related deferred cost amortization. See Regulation.

Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units. Nuclear fuel lease expense was $83 million,

$85 million and $94 million in 1998, 1997 and 1996, respectively. Included in this expense was an interest component of $9 million, $9 million and $10 million in 1998, 1997 and 1996, 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 $146 million at December 31, 1998.

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 sub mitted to the FPSC for approval. Decommissioning expense accruals included in depreciation and amortization expense, were $85 million in each of the years 1998, 1997 and 1996.

At December 31, 1998 and 1997, the accumulated provi sion for nuclear decommissioning totaled $1.205 billion and

$998 million, respectively, and is included in accumulated depreciation. 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. St Lucie Unit No. 1 will be mothballed beginning in 2016 with decommissioning activi ties 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 facilitvw The studies indicate FPL's portion of the ultimate costs of decommissioning its four nuclear units, including costs associated with spent fuel storage, to be

$73 billion. The updated studies, which are pending FPSC approval, indicate there is an estimated reserve deficiency at December 31, 1998, of approximately $535 million. FPL is proposing to maintain the current approved annual decom missioning accrual at $85 million per year and to recover the reserve deficiency through the special amortization program.

See Regulation. The annual accrual will be adjusted once the amount of deficiency is approved and recovery through the amortization program has been completed.

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 1998, 1997 and 1996, and is included in depreciation and amortization expense. FPL's portion of the ultimate cost to dismantle its fossil units is $521 million. At December 31, 1998 and 1997, the accumulated provision for fossil disman tlement totaled $185 million and $162 million, respectively, and is included in accumulated depreciation. The dismantle ment studies filed in 1998 indicated an estimated reserve deficiency of $38 million which FPL is proposing to recover through the special amortization program. See Regulation.

Restricted trust funds for the payment of future expendi tures to decommission FPL's nuclear units are included in special use funds of FPL. At December 31, 1998 and 1997, decommissioning fund assets were $1.046 billion and $850 million, respectively. 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.

1998 Annual Report 36 A)

A)

A,

In 1996, the Financial Accounting Standards Board (FASB) issued an exposure draft on accounting for obligations associated with the retirement of long-lived assets. The method proposed by the FASB in the exposure draft would require the present value of estimated future cash flows to decommission FPL's nuclear power plants and dismantle its fossil power plants to be recorded as an increase to asset balances and as a liability. Under that proposal, it is anticipated that there will be no effect on cash flows and, because of the regulatory treatment, there will be no significant effect on net income. The matter has been restudied by the FASB and another exposure draft is scheduled to be issued in 1999.

Accrual for Nuclear Maintenance Costs - 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. 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 com mon equity during construction, except for projects that cost in excess of 1/2% of the plant in service balance and will require than one year to complete. The FPSC allows construc tion projects below that threshold as an element of rate base.

FPL Group's non-regulated 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 cover ing FPL's nuclear generating plants. The storm fund, which totaled $160 million and $157 million at December 31, 1998 and 1997, respectively, is included in special use funds of FPL.

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 9 - 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 the consolidated balance sheets is FPL Group's participation in leveraged leases of $154 million at both December 31, 1998 and 1997. Additionally, other investments include non controlling non-majority owned interests in partnerships and joint ventures, essentially all of which are accounted for under the equity method.

Cash Equivalents - Cash equivalents consist of short term, highly liquid investments with original maturities of three months or less.

Short-Term Debt - The year end weighted-average interest rate on short-term debt at December 31, 1998 was 5.2%.

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 remain ing life of the original issue, which is consistent with its treatment in the ratemaking process. Through this amorti zation and amounts recorded under the special amortization program, the remaining balance of this regulatory asset was fully amortized in 1998. 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 state ment and tax bases of assets and liabilities. The deferred regu latory 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 spe cial amortization program included amortization of regulatory assets related to income taxes of $59 million and $20 million in 1997 and 1996, respectively.

Accounting for Derivative Instruments and Hedging Activities - In June 1998, the FASB issued FAS 133, "Accounting for Derivative Instruments and Hedging Activities." The state ment establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the bal ance 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 is currently assessing the effect, if any, on its financial statements of implementing FAS 133. FPL Group will be required to adopt the standard in 2000.

37>

wwt.fplgroup.com

2. EMPLOYEE RETIREMENT BENEFITS

/1 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, 1998 and a statement of the funded status of both years:

(Millions of Dollars) 1998 Pension Benefits 1997 1998 Other Benefits 1997 Change in benefit obligation:

Obligation at October 1 of prior year.......

S 1,146

$ 1,262 S 324

$ 29, Service cost...........................

45 38 5

Interest cost..........................

75 76 21 21 Plan amendments......................

8 (290)

Actuarial losses - net....................

34 87 10 1

Curtailments..........................

19 Benefit payments......................

(135)

(46)

(15)

(1(

Obligation at September 30................

1,173 1,146 345 32L Change in plan assets:

Fair value of plan assets at October 1 of prior year................

2,287 1,996 125 107 Actual return on plan assets..............

184 343 7

28 Participant contributions................

1 Benefit payments and expenses (142)

(52)

(18)

(1; Fair value of plan assets at September 30......

2,329 2,287 115 125 Funded status:

Funded status at September 30............

1,156 1,141 (230)

(199 Unrecognized prior service cost............

(100)

(117)

Unrecognized transition (asset) obligation......

(140)

(163) 49 52 Unrecognized (gain) loss.................

(736)

(762) 34 22 Prepaid (accrued) benefit cost..............

S 180 99 S (147)

$ (122 The following table provides the components of net periodic benefit cost for the plans for fiscal years 1998, 1997 and 1996:

1)

Pension Benefits (Millions of Dollars) 1998 1997 Other Benefits 1996 1998 1997 1996 Service cost............................

Interest cost............................

Expected return on plan assets Amortization of transition (asset) obligation Amortization of prior service cost............

Amortization of losses (gains)...............

Net periodic (benefit) cost.................

Effect of special retirement programs.........

Net periodic (benefit) cost.................

S 45 75 (149)

(23)

(8)

(21)

(81) 38 76 (135)

(23) 1 (26)

(69) 38 90 (126)

(23) 12 (10)

(19) 18 S

(81)

(51)

(19) 6 21 (8) 3 1

23 6

21 (7) 3 23 5

18 (6) 3 20 S

23 23 20 1998 Annual Report 38 A) 9)

J) 7 8 2

2) 5

The weighted-average discount rate used in determining the benefit obligations was 6.0% and 6.5% for 1998 and 1997, 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 1999 trend assumptions used to measure the expected cost of benefits covered by the plans are 6.6% and 5.8%, for persons prior to age 65 and over age 65, respectively. The rate is assumed to decrease over the next 4 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 (decrease) in assumed health care cost trend rates would increase (decrease) the service and interest cost components and the accumulated obligation of other benefits by $1 million and $13 million, respectively.

3. FINANCIAL INSTRUMENTS The carrying amounts of cash equivalents and short-term debt approximate their fair values. Certain investments of FPL Group, included in other investments, are carried at estimated fair value which was $72 million and $51 million at December 31, 1998 and 1997, respectively. 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.

(Millions of Dollars)

December 31, 1998 1997 Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value Long-term debt',".......................

$2,706

$ 2,797"

$3,147

$ 3,236" Interest rate swap agreements.............

311c' Includes current maturities.

"Based on quoted market prices for these or similar issues.

"Based on estimated cost to terminate the agreements. The agreements were terminated in 1998.

Special Use Funds - Securities held in the special use funds are carried at estimated fair value. The nuclear decommissioning fund consists of approximately one-half equity securities and one-half municipal, government, corporate and mortgage-backed debt securities with a weighted-average maturity of approximately 10 years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately 3 years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $24 million and approximate realized losses of

$4 million in 1998, $3 million and $2 million in 1997 and $8 million and $9 million in 1996, respectively. The funds had unrealized gains of approximately $210 million and $126 million at December 31, 1998 and 1997, respectively; the unrealized losses at those dates were approximately $2 million and $1 million. The proceeds from the sale of securities in 1998, 1997 and 1996 were approximately $1.2 billion, $800 million and $1.1 billion, 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. FPUs 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 cur rently limit FPL's ability to pay dividends to FPL Group. In 1998, 1997 and 1996, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.

39 www.fplgroup.com

-I,-

__LJ.

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 $19 million in 1998, $19 million in 1997 and $23 million in 1996 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 share holders' equity at December 31, 1998 was approximately $248 million, representing 8.5 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, 1998 was approximately $526 million.

Long-Term Incentive Plan - Under FPL Group's long-term incentive plan, 9 million shares of common stock are reserved and available for awards to officers and employees of FPL Group and its subsidiaries as of December 31, 1998. Total com pensation charged against earnings under the incentive plan was not material in any year. The changes in share awards under the incentive plan are as follows:

Performance Restricted Non-Qualified Sharesl""

Stock Option Shares Balances, December 31, 1995..................................

320,336 194,200 11,185 G ranted :*................................................

90,772 23,000 Exercised at $30 7s.........................................

(10,935)

Paid/released.............................................

(60,359)

(34,250)

-A

)

Forfeited................................................

(39,222)

(16,650)

(250)

Balances, December 31, 1996..................................

311,527 166,300 G ranted 212,011 71,000 Paid/released.............................................

(70,008)

Forfeited................................................

(10,942)

(17,750)

Balances, December 31, 1997..................................

442,588 219,550 Granted................................................

178,518 19,500 Paid/released.............................................

(80,920)

Forfeited................................................

(29,566)

(22,250)

Balances, December 31, 1998..................................

510,620 216,800-'

Performance shares resulted in 128,000, 132,000 and 124,000 assumed incremental shares of common stock outstanding for purposes of computing diluted earnings per share in 1998, 1997 and 1996, respectively-These incremental shares did not change basic earnings per share.

The average grant date fair value of equity instrumoents issued under the incentive plan was 512 million, 513 million and S5 million in 1998, 1997 and 1996, respectively.

Shares of restricted stock were issued at market value at the date of the grant.

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. The results of utilizing the accounting method recommended in FAS 123 would not have a material effect on FPL Group's results of operations or change earnings per share.

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.

1998 Annual Report 40

5. PREFERRED STOCK FPL Group's charter authorizes the issuance of 100 million shares of serial preferred stock, $.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:"'

December 31, 1998

-Shares Outstanding emption Prce Cumulative, $100 Par Value, authorized 15,822,500 shares at December 31, 1998 and 1997, without sinking fund requirements:

4 1/2% Series............................

100,000 4 1/2% Series A..........................

50,000 4 1/2% Series B..........................

50,000 4 1/2% Series C..........................

62,500 4.32% Series D.........................

50,000 4.35% Series E..........................

50,000 6.98% Series S..........................

750,000 7.05% Series T..........................

500,000 6.75% Series U..............................

650,000 Total preferred stock of FPL without sinking fund requirements..........................

2,262,500

$ 101.00

$ 101.00

$ 101.00

$ 103.00

$ 103.50

$ 102.00

$ 103.49(b)

$ 103.521b)

$ 103.371b" (Millions of Dollars)

December 31, S1998_

$ 10 5

5 6

5 5

75 5o 65

$226 FPL's charter authorizes the issuance of S million shares of subordinated preferred stock, no par value. None of these shares is outstanding.

There were no issuances of preferred stock in 1998, 1997 and 1996. In 1996, FPL redeemed 600,000 shares of its 7.28% Preferred Stock, Series F, S100 Par Value and 400,000 shares of its 7.40% Preferred Stock, Series G, S100 Par Value.

Not redeemable prior to 2003.

4 www.fplgroup.com 1997

$ 10 5

5 6

5 5

75 50 65

$ 226

7. INCOME TAXES Long-term debt consists of the following:

(Millions December 31, 1998 FPL First mortgage bonds:

Maturing through 2000 - 5 3/8% to 5 1/2%.....

S 355 Maturing 2001 through 2015 - 6% to 7 780%...

641 Maturing 2016 through 2026 - 7% to 7 3/4%...

741 Medium-term notes:

Maturing 1998 - 5.50% to 6.20%..........

Maturing 2003 - 5.79%..................

70 Pollution control and industrial development series maturing 2020 through 2027 - 6.7% to 7.5%..

150 Pollution control, solid waste disposal and industrial development revenue bonds - maturing 2021 through 2029 - variable, 3.6% and 3.9% average annual interest rate, respectively.................

483 Unamortized discount - net...................

_(_19)

Total long-term debt of FPL................. 2,421 Less current maturities.................

. 230 Long-term debt of FPL..................

excluding current maturities...............2,191 FPL Group Capital Debentures-maturing 2013 - 7 5s/8%

125 Senior term loan - maturing 2007 - variableb Other long-term debt - 3.4% to 7.645%

due various dates to 2018..................

162 Unamortized discount......................

(2)

Total long-term debt of FPL Group Capital.....

285 Less current maturities.................

129 Long-term debt of FPL Group Capital, excluding current maturities...............

156 Total long-term debt.........................

$2,347

"' Redeemed in January 1999.

The components of income taxes are as follows:

of Dollars)

(Millions of Dollars) 1997 Years Ended December 31, 1998 1997 1996

$ 355 642 741 180 70 150 484

(_22) 2,600 180 2,420 125 333 91

--- (2) 547 18 529

$2,949 "A

notional principal amount of $267 million at December 31, 1997 was hedged with interest rate swap agreements to reduce the impact of changes in interest rates on variable rate long-term debt. The swap agreements effectively changed the variable interest rates to an average fixed rate of 9.7%. The agreements were dedesignated as a hedge and terminated in 1998, resulting in a loss recorded as interest expense.

Minimum annual maturities of long-term debt for FPL Group for 1999-2003 are approximately $359 million, $129 million, $4 million, $4 million and $175 million, respectively.

Available lines of credit aggregated approximately

$1.9 billion at December 31, 1998, all of which were based on firm commitments.

Federal:

C urrent.......................

D eferred......................

ITC and other - net..............

Total federal..................

State:

C urrent.......................

D eferred......................

Total state...................

Total income taxes................

$ 467 (215)

(27)

S225 72 (18)

S 279

$308 (34)

(22) 252 52 52

$ 304 IA

$355 247 63 (16) 447

$294 A reconciliation between the effective income tax rates and the applicable statutory rates is as follows:

Years Ended December 31, Statutory federal income tax rate.....

Increases (reductions) resulting from:

State income taxes - net of federal income tax benefit........

Amortization of ITC.............

Amortization of deferred regulatory credit - income taxes............

Adjustments of prior years' 1998 1997 1996 35.0%

35.0%

35.0%

3.7 3.7 3.5 (2.5)

(2.4)

(3.6)

(1.8)

(1.8)

(2 tax matters...................

(6.3 ).

(2.7)

(1.3)

Preferred stock dividends - FPL.....

0.5 0.7 1.0 Other-net.....................

1.0 0.5 1.0 Effective income tax rate...........

29.6%

33.0%

33.6"/o

';'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:

December 31, Deferred tax liabilities:

Property-related........................

Investment-related......................

O ther.......................

Total deferred tax liabilities..............

Deferred tax assets and valuation allowance:

Asset writedowns and capital loss carryforward..

Unamortized ITC and deferred regulatory credit - incom e taxes...................

Storm and decommissioning reserves........

O ther................................

Valuation allowance....................

Net deferred tax assets.................

Accumulated deferred income taxes..........

(Millions of Dollars) 1998 1997 S 1,493 460

...255 2,208 113 136 258 473 (27) 953 S1,255

$1,663 436 32A6

-2,4611 121 153 246 496 (28) 988

$ 1,473 1998 Annual Report 42

6. LONG-TERM DEBT Il)

The carryforward period for a capital loss from the dis position 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 report ed 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 ter minal and approximately 76% of Scherer Unit No. 4. At December 31, 1998, FPL's gross investment in these units was $1.174 billion, $328 million and $571 million, respec tively; accumulated depreciation was $663 million, $142 million and $239 million, respectively.

FPL is responsible for its share of the operating costs, as well as providing its own financing. At December 31, 1998, there was no significant balance of construction work in progress on these facilities.

9. COMMITMENTS AND CONTINGENCIES Commitments - FPL has made commitments in connec tion 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 $2.8 billion for 1999 through 2001. Included in this three-year forecast are capital expenditures for 1999 of approximately $910 mil lion. FPL Energy is a party to a contract to purchase all of Central Maine Power Company's (Central Maine) non nuclear generation assets for $846 million. The contract is subject to a civil action initiated by FPL Energy. See Litigation. FPL Group and its subsidiaries, other than FPL, have guaranteed approximately $305 million of purchase 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 partici pates 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 mil lion 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 decom missioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabi lization and site decontamination before they can be used for plant repair. FPL also participates in an insurance pro gram that provides limited coverage for replacement power costs if a nuclear plant is out of service because of an acci dent. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $51 million in retrospective premiums.

In the event of a catastrophic loss at one of FPLs nuclear plants, the amount of insurance available may not be ade quate 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 financial condition.

FPL self-insures certain 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 $259 million at December 31, 1998, for T&D property storm damage or assessments under the nuclear insurance program. Recovery from customers of any losses in excess of the storm and prop erty 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 2022. FPL also has various firm pay-for-performance con tracts to purchase approximately 1,000 mw from certain cogenerators and small power producers (qualifying facili ties) with expiration dates ranging from 2002 through 43 www.fp1group.comn

2026. The purchased pow and energy payments. Ene actual power taken under ments for the pay-for-perfc the qualifying facilities me Fuel contracts provide for natural gas and coal. FPL for the transportation and Doswell plant which expir al option, and in 2017, res The required capacity a 2003 under these contract (Millions of Dollars)

Capacity payments:

JEA and Southern Companies......

Qualifying facilities:.......

Minimum payments, at projectec Natural gas, including transportation for FPL.....

C oal....................

Natural gas transportation and storage for FPL Energy Includes approximately $40 mi.

lion and $45 million, respectivel two contracts that are currently subject to the outcome of the re, Charges under these co (Millions of Dollars)

JEA and Southern Companies.........

Qualifying facilities....

Natural gas, including transportation for FPL.

C oal................

Natural gas transportation and storage for FPL Energy.........

1998 Cl Capacity

$1921"

$299,2 S -

Recovered through the fuel clai Recovered through base rates a (capacity clause).

"Recovered through the capacity Litigation - In 1997, FP owners of two qualifying f:

order declaring that FPL's o chase agreements with the ver contracts provide for capacity of no force and effect because the power plants failed to ergy payments are based on the accomplish commercial operation before January 1, 1997, these contracts. Capacity pay-as required by the agreements. In 1997, the plant owners rmance contracts are subject to filed for bankruptcy under Chapter XI of the U.S.

eting certain contract conditions.

Bankruptcy Code, ceased all attempts to operate the power the transportation and supply of plants and entered into an agreement with the holders of Energy has long-term contracts more than 70% of the bonds that partially financed the storage of natural gas to its construction of the plants. This agreement gives the holders e in 2007, with a five-year renew-of a majority of the principal amount of the bonds (the pectively.

majority bondholders) the right to control, fund and man nd minimum payments through age any litigation against FPL and the right to settle with are estimated to be as follows:

FPL on any terms such majority bondholders approve, provided that certain agreements are not affected and cer 199 9... 2000 2001 2002 2

tain conditions are met. In January 1998, the plant owners (through the attorneys for the majority bondholders) filed

  • $210

$210 $210

$210

$200 an answer denying the allegations in FPus complaint and

  • $360

$370 $380

$400

$410 asserting counterclaims for approximately, $2 billion, con prices:

sisting of all capacity payments that could have been made over the 30-year term of the power purchase agreements

  • $210

$210 $240

$260

$270 and three times their actual damages for alleged violations

$ 40 $ 40 $ 30 $ 30

$ 15 of Florida antitrust laws, plus attorneys' fees. In October

  • $ 15

$ 15 $ 15 $ 15

$ 15 1998, the court dismissed all of the plant owners' antitrust Ilion, $40 million, S40 million, S45 mil-claims against FPL. The plant owners have since moved ly, for capacity payments associated with for summary judgment on FPL's claims against them.

in dispute. These capacity payments are The Florida Municipal Power Agency (FMPA), an lated litigation. See Litigation.

organization comprised of municipal electric utilities, has ntracts were as follows:

sued FPL for allegedly breaching a "contract" to provide barges 1997 Charges 1996 Charges transmission service to the FMPA and its members and for Energy/

Energy/

Energy/

breaching antitrust laws by monopolizing or attempting to Fuel Capacity Fuel Capacity Fuel monopolize the provision, coordination and transmission

$1381

$201>

$153" $192

$148 of electric power in refusing to provide transmission serv S108:'

$296c

$1281,

$279,,

S125" ice, or to permit the FMPA to invest in and use FPL's transmission system, on the FMPA's proposed terms. The S280':

$413..

S422.

FMPA seeks $140 million in damages, before trebling for S 5011

$ 521: $ -

$ 49'"

the antitrust claim, and court orders requiring FPL to per mit the FMPA to invest in and use FPL's transmission sys S 18

$16 tem on "reasonable terms and conditions" and on a basis use.

equal to FPL. In 1995, a court of appeals vacated the dis nd the capacity cost recovery clause trict court's summary judgment in favor of FPL and

clause, remanded the matter to the district court for further pro ceedings. In 1996, the district court ordered the FMPA to

'L filed a complaint against the seek a declaratory ruling from the FERC regarding certain acilities (plant owners) seeking an issues in the case. In November 1998, the FERC declined

)bligations under the power pur-to make the requested ruling. The district court has yet qualifying facilities were rendered to act further.

1998 Annual Report 44 A)

A)

I)

FPL Group and FPL believe that they have meritorious defenses to the litigation to which they are parties 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.

In November 1998, a subsidiary of FPL Energy filed a civil action with the U.S. District Court for the Southern District of New York requesting a declaratory judgment that Central Maine cannot meet essential terms of the agreement with FPL Energy's subsidiary regarding the purchase of Central Maine's non-nuclear generating assets. FPL Group believes that recent FERC rulings regarding transmission prevent Central Maine from delivering on its contractual obligation that FPL Energy's subsidiary be able to operate the power plants in a manner that is substantially consistent with Central Maine's historical operation of the assets. FPL Group believes the FERC rulings constitute a material adverse effect under the purchase agreement and that FPL Energy's subsidiary should therefore not be bound to complete the transaction. The trial is scheduled for March 1999.

10. SEGMENT INFORMATION Effective December 31, 1998, FPL Group adopted FAS 131, "Disclosures about Segments of an Enterprise and Related Information." FPL Group's only reportable segment is FPL, a regulated utility. For the years ended December 31, 1998, 1997 and 1996, approximately 98%, 98% and 97%, respectively, of FPL Group's operating revenues were derived from the sale of electricity in the United States. As of December 31, 1998 and 1997, less than 1% of long-lived assets were located in foreign countries.

(Millions of Dollars)

Operating revenues............

Interest expense..............

Depreciation and amortization................

Equity in earnings of equity method investees.......

Income tax expense...........

N et income..................

Significant noncash items.......

Capital expenditures...........

Total assets..................

Investment in equity method investees.............

1998 FPL Other a' Total S 6,366

$ 295 $ 6,661 S 196 S 126 S 322 S1,249 S

35

$ 1,284 S

S 349

$ 616

$ 617

$10,748 S

39 S 39

$ (70) $ 279 48 $ 664

$ 329 $

946

$1,281

$12,029

$ 165 165 1997 FPL Other"' Total

$ 6,132

$ 237 $ 6,369

$ 227 64 $ 291

$1,034 27 $ 1,061 321 608 551

$11,172 14

$ (17) 10

$ 420

$ 291

$1,277 14

$ 304

$ 618

$ 420

$ 842

$12,449 1996 FPL ----Other"'-

Total

$5,986

$ 51

$6,037

$ 246

$ 21

$ 267

$ 955 5

$ 960

$ 322

$ 591

$ 474

$ 2

$ (28)

$ (12)

$ 33

$ 52 2

$ 294

$ 579 33

$ 526 76 76 S Represents other business activities and other segments that are not separately reportable.

11. SUBSEQUENT EVENT In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communications Corporation (Adelphia) stock, which had been accounted for on the equity method, resulting in an after-tax gain of approximately $96 million. In addition, an agreement was reached with Adelphia to sell FPL Group Capital's one-third interest in a limited partnership. While the terms have not been finalized, the sale of the limited partnership interest is expected to have a positive effect on FPL Group's results of operations.

Svwww.fplgroup.coin

12. SUMMARIZED FINANCIAL INFORMATION OF FPL GROUP CAPITAL (UNAUDITED)

FPL Group Capital's debentures, when outstanding, are guaranteed by FPL Group and included in FPL Group's consoli dated balance sheets. Operating revenues of FPL Group Capital for the three years ended December 31, 1998, 1997 and 1996 were $295 million, $237 million and $50 million, respectively. For the same periods, operating expenses were $225 million, $186 million and $65 million, respectively. Net income for 1998, 1997 and 1996 was $68 million, $27 million and $11 million, respectively.

At December 31, 1998, FPL Group Capital had $317 million of current assets, $1.445 billion of noncurrent assets,

$310 million of current liabilities and $703 million of noncurrent liabilities. At December 31, 1997, FPL Group Capital had current assets of $156 million, noncurrent assets of $1.447 billion, current liabilities of $252 million and noncurrent liabilities of $999 million.

13. QUARTERLY DATA (UNAUDITED)

Condensed consolidated quarterly financial information for 1998 and 1997 is as follows:

(In millions, except per share amounts) 1998 March 31 June 301" September 30" Operating revenues.........................

1,338 1,692 1,999 Operating income..........................

218 S

317 S

528 Net income...............................

108 176 287 Earnings per share".........................

0.63 1.02 1.66 Dividends per share.........................

0.50 0.0 0.50 High-low common stock sales prices............

$ 653/16 - 561/16

$ 655/8 - 5811/16

$ 70- 5911/16 1997 Operating................revenues...........................................

Operating revenues.........................

Operating incom e..........................

N et incom e...............................

Earnings per share...

Dividends per share.........................

High-low common stock sales prices............

1,445 225 101 0.58 0.48 463/4 - 435/8 1,587 321 164 0.95 0.48 481/8 - 425/8

$ 519/16.

1,859 464 262 1.52 0.48 451/2 December 31'"

1,632 189 931 0.54" 0.50

$ 729/16-601/2 1,478 218 91 0.52 0.48 60 -491/2 In the opinion of FPL Group, 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.

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 ivith the IRS.

Basic and assuming dilution.

A) 1998 Annual Report 4

T' b

I - -

Officers FPL GROUP, INC.

James L. Broadhead Chairman and Chief Executive Officer Roger Young President Dennis P. Coyle General Counsel and Secretary James P. Higgins Vice President Tax Lawrence J. Kelleher Vice President Human Resources Mary Lou Kromer Vice President Corporate Communications K. Michael Davis Controller Dilek L. Samil Treasurer FLORIDA POWER

& LIGHT COMPANY SENIOR OFFICERS FPL ENERGY, INC.

James L. Broadhead Chairman and Chief Executive Officer Paul J. Evanson President Michael W. Yackira President Peter D. Boylan Vice President and Chief Financial Officer Dennis P. Coyle General Counsel and Secretary Lawrence J. Kelleher Senior Vice President Human Resources Glenn E. Smith Vice President Development Kenneth P. Hoffman Vice President Business Management Michael L. Leighton Vice President International Development Thomas E Plunkett President Nuclear Division C.O. Woody President Power Generation Division John W. Stanton Vice President Operations East James A. Keener Vice President Operations West William A. Fries Vice President Engineering Construction and Project Management 47 t www.fpilgroup.comn

Directors H. JESSE ARNELLE Of Counsel Womble, Carlyle, Sandridge & Rice (law firm)

Director since 1990. Member audit committee, compensation committee.

SHERRY S. BARRAT President and Chief Executive Officer of Northern Trust Bank of California, N.A.

(commercial bank)

Director since 1998. Member audit committee, finance committee.

ROBERT M. BEALL, II Chairman and Chief Executive Officer Beall's, Inc.

(department stores)

Director since 1989. Member acquisitions committee, benefits committee, compensation committee.

JAMES L. BROADHEAD Chairman and Chief Executive Officer FPL Group, Inc.

Director since 1989.

Chairman executive committee.

J. HYATT BROWN Chairman, President and Chief Executive Officer Poe & Brown, Inc.

(insurance broker)

Director since 1989. Chairman compensation committee. Member benefits committee, executive committee.

ARMANDO M. CODINA Chairman and Chief Executive Officer Codina Group, Inc.

(real estate firm)

Director since 1994. Member benefits committee, compensation committee.

MARSHALL M. CRISER Of Counsel McGuire, Woods, Battle & Boothe, L.L.P.

(law firm)

Director since 1989. Chairman audit committee. Member executive committee, finance committee.

B. F. DOLAN Retired Chairman and Chief Executive Officer Textron, Inc.

(diversified company)

Director since 1992. Chairman acquisitions committee. Member audit committee, compensation committee, executive committee.

WILLARD D. DOVER Principal Niles, Dobbins, Meeks, Raleigh

& Dover (law firm)

Director since 1989. Member audit committee, acquisitions committee, benefits committee.

ALEXANDER W. DREYFOOS, JR.

Owner and Chief Executive Officer The Dreyfoos Group (investment management company)

Director since 1997. Member audit committee, finance committee.

PAUL J. EVANSON President Florida Power & Light Company Director since 1995.

DREW LEWIS Retired Chairman and Chief Executive Officer Union Pacific Corporation (diversified company)

Director since 1992. Member acquisitions committee, compensation committee, finance committee.

FREDERIC V. MALEK Chairman Thayer Capital Partners (merchant bank)

Director since 1987. Chairman benefits committee. Member acquisitions committee, executive committee, finance committee.

PAUL R. TREGURTHA Chairman and Chief Executive Officer Mormac Marine Group, Inc.

(maritime shipping company)

Director since 1989.

Chairman finance committee.

Member compensation committee, executive committee.

ROGER YOUNG President FPL Group, Inc.

Director since February 1999.

T) 1998 Annual Report

  • I)

-1

Investor Information CORPORATE OFFICES FPL Group, Inc.

700 Universe Blvd.

P.O. Box 14000 Juno Beach, FL 33408-0420 (561) 694-4000 EXCHANGE LISTINGS Common Stock New York Stock Exchange Ticker Symbol: FPL Options Philadelphia Stock Exchange NEWSPAPER LISTING Common Stock: FPL Gp REGISTRAR, TRANSFER, AND PAYING AGENTS FPL Group Common Stock and FPL Preferred Stock EquiServe P.O. Box 8040 Boston, MA 02266-8040 (888) 218-4392 Florida Power & Light Co.

First Mortgage Bonds Bankers Trust Company Security Holder Relations P.O. Box 305050 Nashville, TN 37230-5050 (800) 735-7777 SHAREHOLDER INQUIRIES Communications concerning transfer requirements, lost certificates, dividend checks, address changes, stock accounts and the dividend reinvestment plan should be directed to EquiServe.

Other shareholder communications to:

Alyse E. Porter Shareholder Services (800) 222-4511 (561) 694-4693 (561) 694-4620 (Fax)

DUPLICATE MAILINGS Financial reports must be mailed to each account unless you instruct us otherwise. If you wish to discontinue multiple mailings to your address, please call EquiServe.

DIRECT DEPOSIT OF DIVIDENDS Cash dividends may be deposited directly to personal accounts at financial institutions. Call EquiServe for authorization forms.

DIVIDEND REINVESTMENT PLAN FPL Group offers a low-cost plan for holders of common stock and FPL preferred stock to reinvest their dividends or make optional cash payments for the purchase of additional common stock. Enrollment materials may be obtained by calling EquiServe.

NEWS AND FINANCIAL INFORMATION For the latest news and financial information about FPL Group, call our Shareholder Direct toll-free line:

(888) 375-1329. Callers may listen to recorded announcements and request information via fax or mail. Company information is also available on the Internet:

http://www.fplgroup.com ANALYST INQUIRIES

Contact:

Investor Relations (561) 694-4697 (561) 694-4718 (Fax)

NEWS MEDIA INQUIRIES

Contact:

Corporate Communications P.O. Box 029100 Miami, FL 33102-9100 (305) 552-3888 (305) 552-2144 (Fax)

CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP 200 S. Biscayne Boulevard, Suite 400 Miami, FL 33131-2310 FORM 10-K The Form 10-K annual report for 1998 as filed with the Securities and Exchange Commission is available without charge by writing to FPL Group Shareholder Services.

ANNUAL MEETING May 10, 1999, 10 a.m.

PGA National Resort 400 Avenue of the Champions Palm Beach Gardens, FL PROPOSED 1999 COMMON STOCK DIVIDEND DATES*

Declaration Ex-Dividend Record Payment February 15 February 24 February 26 March 15 May 10 May 26 May 28 June 15 August 16 August 25 August 27 September 15 November 15 November 23 November 26 December 15 OPTIONAL CASH PAYMENT DATES Qtr./Yr.

Acceptance begins Must be received by 2nd/99 May 15 June 10 3rd/99 August 15 September 10 4th/99 November15 December10 1st/00 February 15 March 10

"*Declaration of dividends and dates shown are subject to the discretion of the board of directors of FPL Group. Dates shown are based on the assumption that past patterns will prevail.

<ý> www.fplgroup.com

IL I

I F-N A

N FPL Group, Inc.

700OUniverse Boulevard Juno Beach, Florida 33408

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