ML021420174
| ML021420174 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| 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 | |
| Download: ML021420174 (52) | |
Text
it Ie
-P
,At co a)
FPL Group, Inc.
- 0) 1998 Annual Report' r1
i IT II I HI]HGT U
I FPL Group m (Dollarsin millions, except per share amounts)
For the Years Ended December 31, 1998 1997 % Change FINANCIAL RESULTS Operating Revenues S.............................................................................................................
Operating Income
$6,661
$1,252
$6,369
$1,228 4.6 2.0 I)
Net Income $664 $618 7.4 S.............................................................................................................
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)
COMMON STOCK DATA Average Shares Outstanding (millions) 172.5 173.1 (0.3)
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
................ ) $ .... ..... ....6 ....
Market Price Per Share (high-low) $729/16 - $561116
$60-$425/8 OPERATING DATA S.......................................................................................................................................................................
FPL Energy Sales (millions kwh) 89,362 82,734 8.0 FPL Customer Accounts (average; thousands)
Employees (year end) 3,680 10,375 3,616 10,039 1.8 3.3 I)
me of the nation'sr largest providers of electrici plqted services.
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 Table of Contents electricity from clean and renewable fuels. FPL Energy owns Letter to Shareholders 2
and operates power plants in the U.S. and abroad, representing Review of Operations nearly 1,900 megawatts. 6 Financial and Operating Statistics 22
- <Vici< Ti 4zlWrU Independent Auditors' Report 28 Management's Report 28 Financial Statements L
29
- STh4itI Company Officers
>4 9< t3/4 <i 47 At" Board of Directors 4FQ,< 48 Investor Information 49
- wIw fplgru. corný C f
Nineteen ninety-eight I
a 4 t
V t
Residential II Aurosýý tlt, N I .,0O0 ki!6>onmý ý ff If 1 Jmues.. Broodheod Chitirmaon d Chief Executive Officer 1998 Annual Report 4>
QOa
was a year of outstanding accomplishments for FPL Group in which we achieved record operating and financial results.
We also continued to strengthen
- 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 EXCELLENT PERFORMANCE "superior" ratings from the
'--through our subsidiary, FPL AT FLORIDA POWER 6s LIGHT Nuclear Regulatory Commission.
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.
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
$363.33 $3.57 exceptional in 1998. to an all-time low.
$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.
previous year.
- Nuclear plant availability of Earnings per share increased 93% also was an all-time high and 94 95 96 97 98
-iearly 8% to a record $3.85. well above the industry average. Earnings per Share (basic and assuming dilution)
ý www.fplgroup.com
225%
160%
I) reflected by the 'World Association consecutive year. We have of Nuclear Operators' "perform reduced these costs 33%
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.
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.
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.
FPL Group's earnings per share.
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.
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 $345 about 1,900 net megawatts of gen sale of our citrus subsidiary, erating capacity, almost all being Turner Foods, and, in January Uses of Cash in 1998
($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.
AHEAD During his very success ful tenure at the UK L6 top~k
~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.
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.
will be resolved expeditiously.
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.
< tv w w.Dfplgroup.com
LcF7 7o0t~sstA~zcn~ J II Florida Powet
<3/4'> A S24,280 i L
- A89.4 ,
3,159 3,680 66.0 4
90 90 90 98 90 98 Electricity Sales Customers Usaqe Per (billion kilowatt-hours) (average; thousands) Customer (kilowatt hours)
TwcLA,¶*car The fit tVA4 *tA rraaJA *Atc*'
6,40(47W 244Vfl2 H A- TI&t JCa6 42 ATh' AV4A& L4*rA6.S.
1998 Annual Report C-
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.
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
- 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.
ADDING CAPACITY 4, FPL will meet future growth through expanding its system capacity by about NEW EMPLOYEES
- 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.
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.
w¢ww f/locom C_ q
-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
,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
- 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%
program launched in mid-1997 to increase from 1998.
enhance service quality and reliability.
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.
<9 vwww.fpl.com
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.
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.
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.
quicker service restoration.
HIGH AVAILABILITY FPL's fleet of power plants again achieved excellent performance in 1998.
Fossil plant availability reached Industry 9 94%
Avera e 90%
93.7% and nuclear plant avail ability was 93.1% -- record levels for FPL and among the 77% 78%
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.
WORLD-CLASS PERFORMANCE The Turkey Point nuclear plant became the first U.S. nuclear plant to receive three consecutive 1998 Annual Report 10
.5t4o Lwwo-q -vurvoo-4 +rý144,r 5A noý 47Z 14)q+W 5LAOLA)0+5A--ý +50W 0+ 4OA40J
'I110 rg:4AOAA IAOA---) AeJO-A D 045-DA Q+ 5/
5e 5ý;virx-4-ýMlppqoA moillp 6ýj p-D+5,:;AIAI
'5-J9l4oj)eLP 05-DL4+ 0+ j "DIALoid Lo4o q5e*--?
04 ýq -,--?IAA,25 40 4JI0 Pgý-Olq 02A"91AMA "10!W IAO'55'W514e45,-iA--.i 4o OlAOq4Xq OL*
ý-Oog O/M+ 'L*140W OW
'5-ýWlj A-.)AAOJ _ýJQAOjr- e5
-AOAAOJ rw-n-4 uAAio 5+t4eiJ -AoAAoJ 5,-ia4 4o 6M 0+ 50'IJJA5 5c9-9m4J"51j0 "epi-AOL4 GPOI4 L4, 140!501JYO 5eg )F-A4elA L'
,45 11+Lfg, lAe%
+5141-V W oli 141 --Pep OL* 14, 5A--)WO+5A-9 000100C 2AOW +AJ UP+IVV VtkAO+S je-9IJOA 0 5:ýgAO OlAe IAAtq - -A' WW115 5LAkAO+5 AOreLAA qe-) rWe O-Al/M 5-,)Ilw pW(o 5AO+elA5V' ooo'ý '5AOWA45MCAý OOZ '50)OJ Oog P9-2(0)JOA 5m-)A--? VOM
-ld4 0+ Aewejo -glAl5Ae-? jotAe 5-?55-DW'5Aq pe 5-,)Woý p-DAplAAq JU,2,AO5 -94,ReWep -AO -9WIý045010 /ePPOL4 )e4W-,--9 JOIAe 4POIA Wl 5*2A--?e 1401 'MW-4m e pývAo---,5 5-DAlke oo-zz OW05 'AOWWA5 -)% -%I-AAd !A-.)/MOJ
-00*ýM 5A,ýWO+5rO 000'0(;ý_
Me% O-AOW *1 UP-AeVV P14e
ýAe"qýý 14,50010WO+ '45Aýj t4i Lor'ýAOL4 tool-&O)j +eq+
5+WDA,2 -AOr.ew -AOO PAe 5,ýA,4
'5V"0+5 ýq P-D+Lo--)-4-? 5AO)IeV 01-206 +OW 5Q-;40jJV" JA4
.jeeA Bui6uellLxLi:) o o; BuipuodsoU
UFT--TT-c Wv
~lVI65~ TA*-Y c~r2--f 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 require reliable, high-quality electricity.
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.
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.
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
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 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.
serving the environment and expanding Sthe commercial viability of new electric technology applications.
<1 w1Vw.fpl.co1n
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.
LOWER COSTS T)
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.
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.
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.
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
nponent N A
' N--'
1.82 1.65 1,49 1.30 1.22 aW 90 92 94 Operations and Maintenance Expenses 96 98 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 !
Baldrige National BEST PRACTICES 4 The power delivery business Quality Award in early 1999.
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.
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.
wwwf p/coin co0
UEFTT O-o Cvh7 <,ýj FPL Group understands of corporate responsibility and environmental stewardship.
ENVIRONMENTAL HONORS FPL's nine largest utilities in Florida, hundred hatchlings emerge.
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.
Nationally, FPL's emission rate per of these gentle creatures seek warm waters discharged from I)
FPL's power plants.
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.
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
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
"- 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 ý,*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
$630,000. Two dozen employ cause to win the battle against ees of the Martin plant are breast cancer.
17 www.fplgroup.com
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;798 11FPL Energy active- world's largest solar generating station.
FPL Energy's ly manages more Growing Portfolio (net meeawatils inoperation; 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 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.
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.
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.
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.
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
tiA>) &Pct Vt &0A4Ut.*
SoinrWind 8% 18 Geothermal6%*
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)
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 (%)
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'/
Market Price Per Share (high-low) $721/6-561&6 60-425h $48'/-41 '/ $46/2-34 $39'/,-26-/ $41-35'! $32'/2-27'/
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).
(2) Winter peaks include November-December of current year and January-Marchof 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 unallocatedshares held by the ESOP due to an accounting standard adopted effective January 1, 1994.
(5) Basic and assuming dilution.
1998 Annual Report 22
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%.
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.
from base rates, cost recovery clauses and franchise fees. FPL is authorized to continue to record special amortization
__ 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.
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.
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 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
"*-- December 1998, after negotiations between FPL and the expenses. Conservation clause expenses are essentially
< twvvv.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.
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.
1997 and 1996 were $348 million, $169 million and The electric utility industry is facing increasing
$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, 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.
Since there is no deregulation proposal currently under consideration in Florida, FPL is unable to predict what 4'
$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.
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
by its computer systems. A multi-phase plan has been to mitigate both internal risks and potential risks in FPL
"* 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.
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.
confirmatory testing at St. Lucie Unit No. 1, which will FPL Group will be required to adopt the standard in 2000.
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.
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 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
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.
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.
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.
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.
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 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.
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%
decrease in interest rates: 1i 1998 Annual Report 2
(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.
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 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.
<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.:
'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.
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.
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.
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
- Consolidated Statements of Income FPL Group, Inc.
(In millions, except per share amounts)
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)
Interest charges (322) (291) (267)
Preferred stock dividends - FPL (15) (19) (24)
Other - net 28 4 (7)
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.
2 www.fplgroup.com
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)
Total property, plant and equipment - net 8,555
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)
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 ConsolidatedFinancialStatements 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 ConsolidatedFinancialStatements are an integral part of these statements. Ij 1998 Annual Report 32
Statements of Shareholders' Equity FPL Group, Inc.
(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)
Dividends on common stock - (320)
Earned compensation under ESOP 8 15 S..
...(1)
Other Balances, December 31, 1996 183k 3,345 (272) 1,518 Net income 618 Repurchase of common stock (1) (48)
Dividends on common stock - (332)
Earned compensation under ESOP 6 8 Other comprehensive income 1 Other 3,302 (264) 1 1,804 Balances, December 31, 1997 182""
Net income 664 Repurchase of common stock (1) (62)
Dividends on common stock (345)
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.
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, respectivelyý The accompanying Notes to ConsolidatedFinancialStatements 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)
- 1.
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
& 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.
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 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:
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):
Unamortized debt reacquisition costs .....
Plant-related deferred costs .............
S S
$ 171
$ 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:
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.
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
'* 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.
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.
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.
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.
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.
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.
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.
35 www.fp1group.comn
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.
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
$85 million and $94 million in 1998, 1997 and 1996, amortization program has been completed.
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.
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
$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
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.
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.
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%.
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.
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.
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.
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.
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:
Pension Benefits Other Benefits (Millions of Dollars) 1998 1997 1998 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 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 1077 Actual return on plan assets .............. 8 184 343 7 28 2
Participant contributions ................
Benefit payments and expenses ...........
Fair value of plan assets at September 30 ...... 2,329 (142)
(52) 2,287 1
(18) 115 (1;
125 2) 5 A)
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) 49 529)
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:
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)
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
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.
"Basedon quoted market prices for these or similarissues.
"Basedon 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-'
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.
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.
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:"'
(Millions of Dollars)
December 31, 1998 December 31,
-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 ............................ 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.
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.
Not redeemable prior to 2003.
4 www.fplgroup.com
- 6. LONG-TERM DEBT Long-term debt consists of the following:
- 7. INCOME TAXES The components of income taxes are as follows:
IA (Millions of Dollars) (Millions of Dollars)
December 31, 1998 1997 Years Ended December 31, 1998 1997 1996 FPL Federal:
First mortgage bonds: Current ....................... $ 467 $308 $355 Maturing through 2000 - 5 3/8%to 5 1/2% ..... S 355 $ 355 Deferred ...................... (215) (34)
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:
Medium-term notes: C urrent ....................... 72 63 52 Maturing 1998 - 5.50% to 6.20% .......... 180 Deferred ...................... (18) (16)
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:
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 .....
Increases (reductions) resulting from:
35.0% 35.0% 35.0%
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% .. ............
Adjustments of prior years' 125 125 tax matters ................... (6.3 ). (2.7) (1.3)
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).
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:
(Millions of Dollars)
"'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:
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:
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
$1.9 billion at December 31, 1998, all of which were Valuation allowance .................... (27) (28) based on firm commitments.
Net deferred tax assets .................
Accumulated deferred income taxes .......... S1,255 $ 1,473 953 988 Il) 1998 Annual Report 42
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.
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 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, 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.
incurred. Uninsured losses, to the extent not recovered through rates, would be borne by FPL and could have a
- 9. COMMITMENTS AND CONTINGENCIES material adverse effect on FPL Group's financial condition.
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.
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.
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
"* this Act, FPL maintains $200 million of private liability 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.
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:
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.
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).
"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
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.
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
$ 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.
- 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
I - -
- 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'
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" December 31'"
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...........................................
b Operating revenues ......................... $ 1,445 $ 1,587 $ 1,859 $ 1,478 Operating incom e .......................... $ 225 321 $ 464 $ 218 N et incom e ............................... $ $ $ $
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.
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.
Basic and assuming dilution.
A) 1998 Annual Report 4
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
& 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
Directors H. JESSE ARNELLE ARMANDO M. CODINA PAUL J. EVANSON I)
Of Counsel Chairman and President Womble, Carlyle, Sandridge & Rice Chief Executive Officer Florida Power & Light Company (law firm) Codina Group, Inc. Director since 1995.
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.
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)
(department stores) Executive Officer Directorsince 1987. Chairman Director since 1989. Member acquisitionscommittee, benefits Textron, Inc.
(diversified company) benefits committee. Member acquisitions committee, executive
-1 committee, compensationcommittee. Directorsince 1992. Chairman committee, finance committee.
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.
Directorsince 1989. Principal (maritime shipping company)
Chairman executive committee. Niles, Dobbins, Meeks, Raleigh Directorsince 1989.
& Dover Chairman finance committee.
J. HYATT BROWN (law firm) Member compensation Chairman, President and Director since 1989. Member audit committee, executive committee.
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.
compensation committee. Member Owner and Chief Executive Officer Directorsince February 1999.
benefits committee, executive committee. The Dreyfoos Group (investment management company)
Directorsince 1997. Member audit committee, finance committee.
T) 1998 Annual Report
- Investor Information CORPORATE OFFICES Other shareholder communications to: ANALYST INQUIRIES FPL Group, Inc. Alyse E. Porter
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)
(561) 694-4000 (561) 694-4620 (Fax) NEWS MEDIA INQUIRIES EXCHANGE LISTINGS DUPLICATE MAILINGS
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)
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.
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.
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:
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:
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
"*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.
<ý> www.fplgroup.com
IL I I
F-N A
>7 N
J
-1 4
'I FPL Group, Inc.
700OUniverse Boulevard 0 CA)
Juno Beach, Florida 33408 Ni Co Ca