10-Q 1 0001.txt FPL GROUP AND FPL 9/30/00 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Exact name of Registrants as specified Commission in their charters, address of principal IRS Employer File Number Executive offices and Registrants' Identification telephone number Number 1-8841 FPL GROUP, INC. 59-2449419 1-3545 FLORIDA POWER & LIGHT COMPANY 59-0247775 700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 State or other jurisdiction of incorporation or organization: Florida Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days. Yes X No ___ APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each class of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $.01 par value, outstanding at September 30, 2000: 176,885,789 shares. As of September 30, 2000, there were issued and outstanding 1,000 shares of Florida Power & Light Company's common stock, without par value, all of which were held, beneficially and of record, by FPL Group, Inc. ______________________________ This combined Form 10-Q represents separate filings by FPL Group, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) (collectively, the Company) are hereby filing cautionary statements identifying important factors that could cause the Company's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of the Company in this combined Form 10-Q, in presentations, in response to questions or otherwise. Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projection, outlook) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors that could cause the Company's actual results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Some important factors that could cause actual results or outcomes to differ materially from those discussed in the forward-looking statements include changes in laws or regulations, changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC), the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), the Public Utility Holding Company Act of 1935, as amended and the U. S. Nuclear Regulatory Commission, with respect to allowed rates of return including but not limited to return on common equity and equity ratio limits, industry and rate structure, operation of nuclear power facilities, acquisition, disposal, depreciation and amortization of assets and facilities, operation and construction of plant facilities, recovery of fuel and purchased power costs, decommissioning costs, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs). The business and profitability of the Company are also influenced by economic and geographic factors including political and economic risks, changes in and compliance with environmental and safety laws and policies, weather conditions (including natural disasters such as hurricanes), population growth rates and demographic patterns, competition for retail and wholesale customers, availability, pricing and transportation of fuel and other energy commodities, market demand for energy from plants or facilities, changes in tax rates or policies or in rates of inflation or in accounting standards, unanticipated delays or changes in costs for capital projects, unanticipated changes in operating expenses and capital expenditures, capital market conditions, competition for new energy development opportunities and legal and administrative proceedings (whether civil, such as environmental, or criminal) and settlements. All such factors are difficult to predict, contain uncertainties which may materially affect actual results, and are beyond the control of the Company. PART I - FINANCIAL INFORMATION Item 1. Financial Statements FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (millions, except per share amounts) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 OPERATING REVENUES ............................................... $2,087 $1,892 $5,225 $4,918 OPERATING EXPENSES: Fuel, purchased power and interchange .......................... 845 693 1,992 1,788 Other operations and maintenance................................ 314 309 907 910 Depreciation and amortization .................................. 237 245 763 768 Impairment loss on Maine assets ................................ - - - 176 Taxes other than income taxes .................................. 180 175 469 462 Total operating expenses ..................................... 1,576 1,422 4,131 4,104 OPERATING INCOME ................................................. 511 470 1,094 814 OTHER INCOME (DEDUCTIONS): Interest charges ............................................... (74) (58) (201) (163) Preferred stock dividends - FPL ................................ (4) (4) (11) (11) Gain on sale of Adelphia Communications Corporation stock ...... - - - 149 Other - net .................................................... 46 39 80 79 Total other income (deductions) - net ........................ (32) (23) (132) 54 INCOME BEFORE INCOME TAXES ....................................... 479 447 962 868 INCOME TAXES ..................................................... 165 156 323 291 NET INCOME ....................................................... $ 314 $ 291 $ 639 $ 577 Earnings per share of common stock: Basic .......................................................... $ 1.85 $ 1.70 $ 3.75 $ 3.36 Assuming dilution .............................................. $ 1.84 $ 1.70 $ 3.75 $ 3.36 Dividends per share of common stock .............................. $ 0.54 $ 0.52 $ 1.62 $ 1.56 Weighted-average number of common shares outstanding: Basic .......................................................... 170 171 170 171 Assuming dilution .............................................. 171 171 171 172
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the combined Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (1999 Form 10-K) for FPL Group and FPL. FPL GROUP, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (millions) (unaudited)
September 30, December 31, 2000 1999 PROPERTY, PLANT AND EQUIPMENT: Electric utility plant in service and other property, including nuclear fuel and construction work in progress ....................... $20,582 $19,554 Less accumulated depreciation and amortization ................................... (10,940) (10,290) Total property, plant and equipment - net ...................................... 9,642 9,264 CURRENT ASSETS: Cash and cash equivalents ........................................................ 377 361 Customer receivables, net of allowances of $8 and $7, respectively ............... 690 482 Materials, supplies and fossil fuel inventory - at average cost .................. 331 343 Deferred clause expenses ......................................................... 185 54 Other ............................................................................ 260 133 Total current assets ........................................................... 1,843 1,373 OTHER ASSETS: Special use funds of FPL ......................................................... 1,556 1,352 Other investments ................................................................ 655 611 Other ............................................................................ 1,241 841 Total other assets ............................................................. 3,452 2,804 TOTAL ASSETS ....................................................................... $14,937 $13,441 CAPITALIZATION: Common stock ..................................................................... $ 2 $ 2 Additional paid-in capital........................................................ 2,848 2,904 Retained earnings................................................................. 2,829 2,465 Accumulated other comprehensive loss.............................................. - (1) Total common shareholders' equity............................................... 5,679 5,370 Preferred stock of FPL without sinking fund requirements ......................... 226 226 Long-term debt ................................................................... 3,480 3,478 Total capitalization ........................................................... 9,385 9,074 CURRENT LIABILITIES: Debt due within one year ......................................................... 1,178 464 Accounts payable ................................................................. 613 407 Deferred clause revenues ......................................................... 81 116 Accrued interest, taxes and other ................................................ 1,081 883 Total current liabilities ...................................................... 2,953 1,870 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 1,254 1,079 Unamortized regulatory and investment tax credits ................................ 279 310 Other ............................................................................ 1,066 1,108 Total other liabilities and deferred credits ................................... 2,599 2,497 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $14,937 $13,441
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the 1999 Form 10-K for FPL Group and FPL. FPL GROUP, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) (unaudited)
Nine Months Ended September 30, 2000 1999 NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $1,055 $1,518 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures of FPL ......................................................... (915) (607) Independent power investments ....................................................... (394) (1,448) Other - net ......................................................................... (82) 160 Net cash used in investing activities ........................................... (1,391) (1,895) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt .......................................................... 387 1,216 Retirement of long-term debt ........................................................ (272) (584) Increase in commercial paper ........................................................ 597 284 Repurchase of common stock .......................................................... (85) (89) Dividends on common stock ........................................................... (275) (267) Net cash provided by financing activities ....................................... 352 560 Net increase in cash and cash equivalents ............................................. 16 183 Cash and cash equivalents at beginning of period ...................................... 361 187 Cash and cash equivalents at end of period ............................................ $ 377 $ 370 Supplemental disclosures of cash flow information: Cash paid for interest (net of amount capitalized) .................................. $ 193 $ 161 Cash paid for income taxes .......................................................... $ 120 $ 323 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 42 $ 56
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the 1999 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF INCOME (millions) (unaudited)
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 OPERATING REVENUES ................................................. $1,917 $1,769 $4,788 $4,638 OPERATING EXPENSES: Fuel, purchased power and interchange ............................ 774 646 1,845 1,679 Other operations and maintenance ................................. 258 258 745 791 Depreciation and amortization .................................... 221 234 722 743 Income taxes ..................................................... 165 156 326 306 Taxes other than income taxes .................................... 173 172 455 460 Total operating expenses ....................................... 1,591 1,466 4,093 3,979 OPERATING INCOME ................................................... 326 303 695 659 OTHER INCOME (DEDUCTIONS): Interest charges ................................................. (47) (39) (129) (125) Other - net ...................................................... - 4 (2) 8 Total other deductions - net ................................... (47) (35) (131) (117) NET INCOME ......................................................... 279 268 564 542 PREFERRED STOCK DIVIDENDS .......................................... 4 4 11 11 NET INCOME AVAILABLE TO FPL GROUP .................................. $ 275 $ 264 $ 553 $ 531
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the 1999 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (millions) (unaudited)
September 30, December 31, 2000 1999 ELECTRIC UTILITY PLANT: Plant in service, including nuclear fuel and construction work in progress ....... $18,710 $18,162 Less accumulated depreciation and amortization ................................... (10,782) (10,184) Electric utility plant - net ................................................... 7,928 7,978 CURRENT ASSETS: Cash and cash equivalents ........................................................ 264 - Customer receivables, net of allowances of $8 and $7, respectively ............... 622 433 Materials, supplies and fossil fuel inventory - at average cost .................. 277 299 Deferred clause expenses ......................................................... 185 54 Other ............................................................................ 223 107 Total current assets ........................................................... 1,571 893 OTHER ASSETS: Special use funds ................................................................ 1,556 1,352 Other ............................................................................ 784 385 Total other assets ............................................................. 2,340 1,737 TOTAL ASSETS ....................................................................... $11,839 $10,608 CAPITALIZATION: Common shareholder's equity ...................................................... $ 5,169 $ 4,793 Preferred stock without sinking fund requirements ................................ 226 226 Long-term debt ................................................................... 2,081 2,079 Total capitalization ........................................................... 7,476 7,098 CURRENT LIABILITIES: Debt due within one year ......................................................... 577 219 Accounts payable ................................................................. 563 379 Deferred clause revenues ......................................................... 81 116 Accrued interest, taxes and other ................................................ 982 719 Total current liabilities ...................................................... 2,203 1,433 OTHER LIABILITIES AND DEFERRED CREDITS: Accumulated deferred income taxes ................................................ 965 802 Unamortized regulatory and investment tax credits ................................ 279 310 Other ............................................................................ 916 965 Total other liabilities and deferred credits ................................... 2,160 2,077 COMMITMENTS AND CONTINGENCIES TOTAL CAPITALIZATION AND LIABILITIES ............................................... $11,839 $10,608
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the 1999 Form 10-K for FPL Group and FPL. FLORIDA POWER & LIGHT COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) (unaudited)
Nine Months Ended September 30, 2000 1999 NET CASH PROVIDED BY OPERATING ACTIVITIES ............................................. $ 964 $1,494 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................................................ (915) (607) Other - net ......................................................................... (53) (55) Net cash used in investing activities ........................................... (968) (662) CASH FLOWS FROM FINANCING ACTIVITIES: Issuance of long-term debt .......................................................... 387 224 Retirement of long-term debt ........................................................ (272) (455) Increase in commercial paper ........................................................ 241 - Dividends ........................................................................... (488) (470) Capital contributions from FPL Group ................................................ 400 - Net cash provided by (used in) financing activities ............................... 268 (701) Net increase in cash and cash equivalents ............................................. 264 131 Cash and cash equivalents at beginning of period ...................................... - 152 Cash and cash equivalents at end of period ............................................ $ 264 $ 283 Supplemental disclosures of cash flow information: Cash paid for interest .............................................................. $ 124 $ 126 Cash paid for income taxes .......................................................... $ 74 $ 268 Supplemental schedule of noncash investing and financing activities: Additions to capital lease obligations .............................................. $ 42 $ 56 Transfer of net assets to FPL FiberNet, LLC ........................................ $ 100 $ -
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements herein and the Notes to Consolidated Financial Statements appearing in the 1999 Form 10-K for FPL Group and FPL. FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The accompanying condensed consolidated financial statements should be read in conjunction with the 1999 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period may not give a true indication of results for the year. 1. Merger On July 30, 2000, FPL Group and Entergy Corporation (Entergy) entered into an Agreement and Plan of Merger (merger agreement). The merger will be accounted for as an acquisition of Entergy by FPL Group under the purchase method of accounting. Based on the number of common shares outstanding on the date the merger agreement was signed, FPL Group shareholders would own 57 percent of the common equity of the combined company, WCB Holding Corp., and Entergy shareholders would own 43 percent. Corporate headquarters of the merged company will be located in Juno Beach, Florida, while the utility group will be headquartered in New Orleans, Louisiana. WCB Holding Corp.'s board of directors will initially consist of 15 members, eight from FPL Group and seven from Entergy. The agreement has been unanimously approved by FPL Group's and Entergy's board of directors and is conditioned upon, among other things, the approvals of the shareholders of both FPL Group and Entergy, as well as various regulatory bodies. Upon shareholder approval of the merger, which is expected to occur in December 2000, FPL Group expects to incur approximately $47 million of additional other operations and maintenance expenses (O&M) associated with change in control provisions in employment agreements and FPL Group's long-term incentive plans. The companies' objective is to complete the merger by late 2001. In connection with the merger, FPL Group's board of directors authorized a share repurchase program totaling $570 million, which supercedes the previous share repurchase program. See Note 4 - FPL Group Common Stock for share repurchase activity. 2. Earnings Per Share The following represents a reconciliation of FPL Group's basic earnings per share to earnings per share assuming dilution:
Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (millions, except per share amounts) Net income .......................................................... $ 314 $ 291 $ 639 $ 577 Weighted-average number of common shares outstanding ................ 170.1 171.1 170.3 171.4 Effect of dilutive securities: Options ........................................................... .2 .1 .1 .1 Performance shares ................................................ .2 .2 .2 .2 Diluted weighted-average number of common shares outstanding ........ 170.5 171.4 170.6 171.7 Earnings per share of common stock: Basic ............................................................. $ 1.85 $ 1.70 $ 3.75 $ 3.36 Assuming dilution ................................................. $ 1.84 $ 1.70 $ 3.75 $ 3.36
3. Deferred Clause Expenses As part of the annual fuel clause filing with the FPSC in October 2000, FPL requested approval to recover fuel costs that were in excess of the projected amounts included in customer bills in 2000 (under-recovered fuel costs). This process of recovering or refunding under- and over-recoveries of fuel costs is a long-established practice. Under-recovered fuel costs at September 30, 2000 totaled $491 million, $184 million of which is included in deferred clause expenses and $307 million, the noncurrent portion, is included in other assets in the consolidated balance sheets. Under-recovered fuel costs at December 31, 1999 totaled $54 million and is included in deferred clause expenses. The amount of under-recovered fuel costs is unusually large at September 30, 2000 as a result of the unanticipated rise in the cost of oil and natural gas. In the October 2000 filing with the FPSC, FPL proposed to recover the estimated under-recovered fuel costs over a two-year period beginning in January 2001, rather than the typical one-year time frame. FPL has also proposed that instead of receiving a return on the unrecovered portion through the fuel clause, the under-recovery would be included as a rate base regulatory asset over the two-year recovery period. The FPSC will rule on FPL's proposal during a hearing scheduled in November 2000. FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (unaudited) 4. Capitalization FPL Group Common Stock - During the three and nine months ended September 30, 2000, FPL Group repurchased 862,000 shares and 1,612,400 shares of common stock, respectively, under its share repurchase programs. Through October 31, 2000, 1,526,500 shares totaling $94 million have been repurchased under the $570 million share repurchase program authorized in connection with the proposed merger. See Note 1. Long-Term Debt - In April 2000, FPL sold approximately $96 million principal amount of variable-rate pollution control revenue refunding bonds maturing in July 2022. The proceeds were used in July 2000 to redeem approximately $96 million of pollution control revenue refunding bonds, consisting of $76 million bearing interest at 7.3% and maturing in 2020 and $20 million with variable rate interest maturing in 2024. In June 2000, FPL sold approximately $49 million principal amount of variable-rate solid waste disposal revenue refunding bonds maturing in 2025. The proceeds were used to redeem, in June, August and September 2000, solid waste disposal revenue bonds totaling $49 million bearing interest at fixed rates ranging from 6.7% to 7.5%, as well as variable interest rates, and maturing in 2020 to 2027. In September 2000, FPL sold approximately $242 million principal amount of variable-rate pollution control revenue refunding bonds maturing in September 2028. The proceeds will be used in December 2000 to redeem a total of approximately $242 million variable-rate pollution control revenue refunding bonds maturing at various dates between January 2026 and July 2029. Other - Comprehensive income of FPL Group, totaling $314 million and $290 million for the three months ended September 30, 2000 and 1999 and $639 million and $575 million for the nine months ended September 30, 2000 and 1999, respectively, includes net income, changes in unrealized gains and losses on securities and foreign currency translation adjustments. Accumulated other comprehensive loss is separately displayed in the condensed consolidated balance sheets of FPL Group. 5. Regulation On October 16, 2000, FPL, together with Florida Power Corporation and Tampa Electric Company, filed a joint proposal in response to the FERC's final order requiring all investor-owned utilities to submit plans to create regional transmission organizations (RTO) that would become operational by December 15, 2001. The joint filing proposes a fully independent for- profit transmission company that will be responsible for the transmission lines that carry electricity from power plants primarily within the state to substations in peninsular Florida. Under the proposed form of RTO, FPL would contribute its transmission assets to an independent transmission company, GridFlorida LLC (GridFlorida), that would own and operate the system. In return, FPL would receive a non-voting ownership interest in GridFlorida and account for its interest using the equity method. A separate corporation will be formed that will own and manage GridFlorida. In May 2000, the Governor of Florida signed an executive order creating the Energy 2020 Study Commission to propose an energy plan and strategy for Florida. The order requires that recommendations be made to the legislature and Governor by December 1, 2001. The members of the Commission were appointed in July 2000, and they held their first meeting in September 2000. The first meeting resulted in a proposal to split the energy study between wholesale and retail, with the Commission's recommendations on wholesale restructuring to be provided by January 2001. 6. Commitments and Contingencies Commitments - FPL has made commitments in connection with a portion of its projected capital expenditures. Capital expenditures for the construction or acquisition of additional facilities and equipment to meet customer demand are estimated to be approximately $3.1 billion for 2000 through 2002. Included in this three-year forecast are capital expenditures for 2000 of approximately $1.3 billion, of which $915 million had been spent through September 30, 2000. As of September 30, 2000, FPL Energy, LLC (FPL Energy) has made commitments in connection with the development and expansion of independent power projects totaling approximately $91 million. FPL Group and its subsidiaries, other than FPL, have guaranteed approximately $508 million of purchased power agreement obligations, debt service payments and other payments subject to certain contingencies. Insurance - Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of the insurance available from private sources and under an industry retrospective payment plan. In accordance with this Act, FPL maintains $200 million of private liability insurance, which is the maximu obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $363 million per incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $43 million per incident per year. FPL participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service because of an accident. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $38 million in retrospective premiums. In the event of a catastrophic loss at one of FPL's nuclear plants, the amount of insurance available may not be adequate to cover property damage and other expenses incurred. Uninsured losses, to the extent not recovered through rates, would be borne by FPL and could have a material adverse effect on FPL Group's and FPL's financial condition. FPL self-insures the majority of its transmission and distribution (T&D) property due to the high cost and limited coverage available from third- party insurers. As approved by the FPSC, FPL maintains a funded storm and property insurance reserve, which totaled approximately $221 million at September 30, 2000, for uninsured property storm damage or assessments under the nuclear insurance program. Recovery from customers of any losses in excess of the storm and property insurance reserve will require the approval of the FPSC. FPL's available lines of credit include $300 million to provide additional liquidity in the event of a T&D property loss. Contracts - FPL Group has entered into a $3.7 billion long-term agreement with General Electric Company for the supply of 66 gas turbines from 2000 through 2004 and parts, repairs and on-site services through 2011. The turbines are intended to support expansion at FPL and FPL Energy, and the related commitments for a portion of the 66 gas turbines are included in Commitments above. FPL has entered into long-term purchased power and fuel contracts. Take- or-pay purchased power contracts with the Jacksonville Electric Authority (JEA) and with subsidiaries of The Southern Company (Southern Companies) provide approximately 1,300 megawatts (mw) of power through mid-2010 and 383 mw thereafter through 2021. FPL also has various firm pay-for- performance contracts to purchase approximately 900 mw from certain cogenerators and small power producers (qualifying facilities) with expiration dates ranging from 2002 through 2026. The purchased power contracts provide for capacity and energy payments. Energy payments are based on the actual power taken under these contracts. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. FPL has long-term contracts for the transportation and supply of natural gas, coal and oil with various expiration dates through 2021. FPL Energy has long-term contracts for the transportation and storage of natural gas with expiration dates ranging from 2005 through 2017, and a contract for the supply of natural gas that expires in mid-2002. The required capacity and minimum payments under these contracts for the remainder of 2000 (October-December) and for 2001 through 2004 are estimated to be as follows:
2000 2001 2002 2003 2004 (millions) FPL: Capacity payments: JEA and Southern Companies .......................................... $ 50 $200 $200 $200 $200 Qualifying facilities (a) ........................................... $ 70 $320 $330 $340 $350 Minimum payments, at projected prices: Natural gas, including transportation ............................... $140 $650 $655 $630 $615 Coal ................................................................ $ 15 $ 45 $ 45 $ 20 $ 10 Oil ................................................................. $ 40 $270 $ 10 $ - $ - FPL Energy: Natural gas, including transportation and storage ..................... $ 6 $ 20 $ 20 $ 15 $ 15 _______________ (a) Excludes capacity payments associated with two contracts that were in dispute. The capacity payments are no longer required pursuant to an approved settlement. See Litigation.
Charges under these contracts were as follows:
Three Months Ended September 30, Nine Months Ended September 30, 2000 Charges 1999 Charges 2000 Charges 1999 Charges Energy/ Energy/ Energy/ Energy/ Capacity Fuel Capacity Fuel Capacity Fuel Capacity Fuel (millions) FPL: JEA and Southern Companies . $47(a) $ 42(b) $46(a) $ 40(b) $150(a) $114(b) $146(a) $ 94(b) Qualifying facilities ...... $80(c) $ 41(b) $76(c) $ 35(b) $238(c) $101(b) $227(c) $ 83(b) Natural gas, including transportation ........... $ - $167(b) $ - $104(b) $ - $379(b) $ - $290(b) Coal ....................... $ - $ 13(b) $ - $ 10(b) $ - $ 37(b) $ - $ 32(b) Oil ........................ $ - $140(b) $ - $ 41(b) $ - $250(b) $ - $ 81(b) FPL Energy: Natural gas transportation $ - $ 4 $ - $ 4 $ - $ 12 $ - $ 12 and storage _______________ (a) Recovered through base rates and the capacity cost recovery clause (capacity clause). (b) Recovered through the fuel and purchased power cost recovery clause (fuel clause). (c) Recovered through the capacity clause.
Litigation - In 1997, FPL filed a complaint against the owners of two qualifying facilities (plant owners) seeking an order declaring that FPL's obligations under the power purchase agreements with the qualifying facilities were rendered of no force and effect because the power plants failed to accomplish commercial operation before January 1, 1997, as required by the agreements. The plant owners disputed this claim. In 1997, the plant owners filed for bankruptcy under Chapter XI of the U.S. Bankruptcy Code and entered into an agreement with the holders of more than 70% of the bonds that partially financed the construction of the plants. This agreement gives the holders of a majority of the principal amount of the bonds (the majority bondholders) the right to control, fund and manage any litigation against FPL and the right to settle with FPL on any terms to which the majority bondholders agree, subject to approval by the bankruptcy court. In 1998, the plant owners (through the attorneys for the majority bondholders) filed an answer denying the allegations in FPL's complaint and asserting counterclaims for approximately $2 billion, consisting of all capacity and energy payments that could have been earned over the 30-year term of the power purchase agreements and three times their actual damages for alleged violations of Florida antitrust laws by FPL, FPL Group and FPL Group Capital Inc (FPL Group Capital), plus attorneys' fees. Disclosures by the plant owners stated that they were seeking $322.5 million in damages, plus prejudgement interest. In 1998, the trial court dismissed all of the plant owners' antitrust claims. In July 2000, FPL, the majority bondholders, and the trustee of the indenture under which the bonds were issued entered into a conditional settlement agreement and release (settlement). Under the terms of the settlement, the trustee would be paid $222.5 million plus the amount of the security deposits, to be distributed as directed by the bankruptcy court. The settlement was conditioned upon (i) the approval of the bankruptcy court, which was obtained on September 5, 2000, and (ii) the approval of the FPSC, which was obtained on October 17, 2000. On November 9, 2000, an individual filed a petition with the FPSC protesting the FPSC's approval of the settlement and requesting a hearing. The petition will prevent the FPSC's approval order from becoming final until the issues raised by it are resolved. FPL expects to recover the cost of the settlement through the fuel and capacity clauses over a five-year period beginning January 1, 2002. FPL also expects that from the date the settlement payment is made until December 31, 2001, FPL will not receive a return on the unrecovered amount through the fuel and capacity clauses, but instead, the settlement amount will be included as a rate base regulatory asset over that period. FPL estimates the net present value of the savings to its customers from the settlement versus the payments that would have been due under the power purchase agreements to be in excess of $400 million. A contract with Cedar Bay Generating Company, L.P. (Cedar Bay), a qualifying facility, provides FPL with the right to dispatch the Cedar Bay facility "in any manner it deems appropriate." Despite this contractual right, Cedar Bay initiated an action in 1997 in the circuit court challenging, among other things, the manner in which the facility had been dispatched by FPL. Although the court granted summary judgment to FPL with regard to Cedar Bay's claim that FPL's dispatch decisions violated the express terms of the contract, it permitted a jury to hear Cedar Bay's claim that such dispatch decisions violated an implied duty of good faith and fair dealing. The jury awarded Cedar Bay approximately $13 million on this claim. Thereafter, the court entered a declaration that FPL was, in the future, to dispatch the Cedar Bay facility in accordance with certain specified parameters. FPL has appealed both the jury award and the court's declaration. On October 30, 2000, the Florida First District Court of Appeal affirmed the trial court's decision per curiam. FPL has filed a motion for rehearing and rehearing en banc. If the jury award is ultimately upheld, FPL expects to recover the amount through the capacity clause. In 1999, after FPL filed its notice of appeal in the Cedar Bay action, a lender, on behalf of itself and a group of other Cedar Bay lenders, filed an action against FPL in the circuit court alleging breach of contract, breach of an implied duty of good faith and fair dealing, fraud, tortious interference with contract and several other claims regarding the manner in which FPL has dispatched the Cedar Bay facility. It seeks unspecified damages and other relief. FPL has moved to dismiss all counts of this complaint. In 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA) brought an action against Georgia Power Company and other subsidiaries of The Southern Company for injunctive relief and the assessment of civil penalties for certain violations of the Clean Air Act. Among other things, the EPA alleges Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining proper permitting, and without complying with performance and technology standards as required by the Clean Air Act. The suit seeks injunctive relief requiring the installation of such technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after August 7, 1977 through January 30, 1997, and $27,500 per day for each violation thereafter. Georgia Power Company has filed an answer to the complaint asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses. In June 2000, Southern California Edison Company (SCE) filed with the FERC a Petition for Declaratory Order (petition) asking the FERC to apply a November 1999 federal circuit court of appeals' decision to all qualifying small power production facilities, including two solar facilities operated by partnerships indirectly owned in part by FPL Energy. The federal circuit court of appeals' decision invalidated the FERC's so-called essential fixed assets standard, which permitted secondary uses of fossil fuels by qualifying small power production facilities beyond those expressly set forth in PURPA. The petition requests that FERC declare that qualifying small power production facilities may not continue to use fossil fuel under the essential fixed assets standard and that they may be required to make refunds with respect to past usage. The partnerships intend to file a Motion to Intervene and Protest before the FERC, vigorously objecting to the position taken by SCE in its petition. The partnerships have always operated the solar facilities in accordance with orders issued by the FERC. Such orders were neither challenged nor appealed at the time they were granted, and it is the position of the partnerships that the orders remain in effect. On September 29, 2000, Karen and Bruce Alexander filed suit against FPL Group, FPL, FPL FiberNet, LLC (FPL FiberNet) FPL Group Capital and FPL Investments, Inc. in the Circuit Court for Palm Beach County, Florida, purportedly on behalf of all property owners in Florida whose property is encumbered by defendants' easements and on whose property the defendants have installed or intend to install fiber optic cable which defendants lease, license or convey for non-electric transmission or distribution purposes, or intend to do so. The lawsuit alleges that FPL's easements do not permit the installation and use of fiber optic cable for general communication purposes. The plaintiffs seek injunctive relief, compensatory damages, interest and attorneys' fees. FPL Group and FPL believe that they have meritorious defenses to all the above pending litigation and are vigorously defending the suits. Accordingly, the liabilities, if any, arising from the proceedings are not anticipated to have a material adverse effect on their financial statements. 7. Segment Information FPL Group's reportable segments include FPL, a rate regulated utility, and FPL Energy, a non-rate regulated energy generating subsidiary. Corporate and Other represents other business activities, other segments that are not separately reportable and eliminating entries. FPL Group's segment information is as follows:
Three Months Ended September 30, 2000 1999 FPL Corporate FPL Corporate FPL Energy & Other Total FPL Energy & Other Total (millions) Operating revenues ..... $ 1,917 $ 149 $ 21 $ 2,087 $ 1,769 $ 103 $ 20 $ 1,892 Net income ............. $ 275 $ 32 $ 7 $ 314 $ 264 $ 27 $ - $ 291 Nine Months Ended September 30, 2000 1999 FPL Corporate FPL Corporate FPL Energy & Other Total FPL Energy(a) & Other(a) Total (millions) Operating revenues ..... $ 4,788 $ 370 $ 67 $ 5,225 $ 4,638 $ 238 $ 42 $ 4,918 Net income (loss) ...... $ 553 $ 74 $ 12 $ 639 $ 531 $ (50)(a) $ 96(b) $ 577 September 30, 2000 December 31, 1999 FPL Corporate FPL Corporate FPL(c) Energy & Other(c) Total FPL Energy & Other Total (millions) Total assets ........... $11,839 $2,578 $520 $14,937 $10,608 $2,212 $621 $13,441 _______________ (a) Includes effect of $104 million after-tax impairment loss. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - FPL Energy. (b) Includes $96 million after-tax gain on the sale of an investment in Adelphia Communications Corporation (Adelphia) common stock. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Corporate and Other. (c) Includes effect of $100 million net asset transfer in January 2000 from FPL to FPL FiberNet.
8. Summarized Financial Information of FPL Group Capital FPL Group Capital, a wholly-owned subsidiary of FPL Group, provides funding for and holds ownership interest in FPL Group's operating subsidiaries other than FPL. FPL Group Capital's debentures are fully and unconditionally guaranteed by FPL Group and included in FPL Group's condensed consolidated balance sheets. Summarized financial information of FPL Group Capital is as follows: Three Months Ended Nine Months Ended September 30, September 30, 2000 1999 2000 1999 (millions) (millions) Operating revenues .... $170 $123 $437 $280 Operating expenses .... $150 $112 $364 $432(a) Net income ............ $ 43 $ 33 $102 $ 63(a)(b) September 30, December 31, 2000 1999 (millions) Current assets ......... $ 810 $ 640 Noncurrent assets ...... $3,092 $2,627 Current liabilities .... $ 807 $ 414 Noncurrent liabilities.. $1,863 $1,840 _______________ (a) Includes effect of $104 million after-tax impairment loss. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - FPL Energy. (b) Includes $96 million after-tax gain on the sale of an investment in Adelphia common stock. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations - Corporate and Other. Management has not presented separate financial statements and other disclosures concerning FPL Group Capital because management has determined that such information is not material to holders of the FPL Group Capital debentures. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This discussion should be read in conjunction with the Notes to Condensed Consolidated Financial Statements contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 1999 Form 10-K for FPL Group and FPL. The results of operations for an interim period may not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year. RESULTS OF OPERATIONS FPL Group's net income for the three and nine months ended September 30, 2000 improved over the same periods last year, excluding the effects of nonrecurring transactions in the first and second quarters of 1999. The improvement is primarily the result of increased earnings at both FPL and FPL Energy. FPL - FPL's net income for the three months ended September 30, 2000 improved over the same period last year mainly due to higher energy sales and lower depreciation expense, partially offset by higher interest charges and the effect of the rate reduction agreement commencing April 15, 1999 that, among other things, reduced FPL's retail base rates and provided for refunds to customers if certain revenue thresholds are met. FPL's revenues from retail base operations for the three months ended September 30, 2000 were $989 million, up from $978 million in 1999. This increase reflects a 2.5% increase in the number of customer accounts and a slight increase in usage per retail customer, partially offset by an increase in the revenue refund accrual associated with the rate reduction agreement. During the third quarter of 2000, FPL accrued approximately $22 million associated with refunds to retail customers, compared with $12 million in the same quarter last year. The decline in depreciation expense is due to lower recorded amounts of special depreciation as provided by the rate agreement. Higher average outstanding short-term debt balances contributed to the increase in interest charges for the three months ended September 30, 2000. Net income increased for the nine months ended September 30, 2000 due to higher energy sales, lower O&M expenses and lower depreciation expense, partly offset by the effects of the rate reduction agreement. FPL's revenues from retail base operations for the nine months ended September 30, 2000 were $2,569 million compared to $2,577 million in 1999. Increased usage per retail customer of 2.2% and a 2.5% increase in the number of customer accounts was more than offset by the reduction in rates and the increase in the revenue refund accrual. During the nine months ended September 30, 2000, FPL accrued approximately $59 million relating to refunds to retail customers, compared to $12 million in 1999. Continued cost control efforts and timing of expenditures contributed to the decline in O&M for the nine month period. Special depreciation expense recorded for the nine months ended September 30, 2000 and 1999 was $70 million and $103 million, respectively, including $63 million recorded in 1999 under a previous program that ended when the rate reduction agreement became effective. FPL Energy - FPL Energy's net income for the three and nine months ended September 30, 2000 benefitted from the expansion of its generating portfolio. For the three months ended September 30, 2000, net income increased as a result of the start-up of a new gas-fired plant in Texas and the purchase of an existing wind-powered plant in Minnesota. The increase was partly offset by milder weather in the Northeast during the third quarter of 2000. FPL Energy's net income increased for the nine months ended September 30, 2000 primarily as a result of increased revenues generated by the Maine assets due to warmer weather and higher prices in the Northeast during May 2000. The capacity additions discussed above also contributed to the improvement for the year-to-date 2000 period. FPL Energy's net income for the nine months ended September 30, 1999, includes the effect of a $176 million ($104 million after-tax) impairment loss recorded in the second quarter of 1999. Corporate and Other - Net income for the nine months ended September 30, 1999 reflects a $149 million ($96 million after-tax) gain recorded by FPL Group Capital on the sale of an investment in Adelphia common stock in the first quarter of 1999. For information concerning the proposed merger of FPL Group and Entergy, see Note 1. LIQUIDITY AND CAPITAL RESOURCES For financing activity during the nine months ended September 30, 2000, see Note 4 - Long-Term Debt. In addition, during the nine months ended September 30, 2000, FPL Group increased its outstanding commercial paper by $597 million ($241 million for FPL), and contributed $400 million to FPL. The increase in FPL's commercial paper and the capital contribution from FPL Group were used primarily to fund FPL's unrecovered fuel expenses (see Note 3), and its capital expansion program. The balance of FPL Group's commercial paper increase was used primarily to repurchase shares and fund capital expansion at FPL Energy and FPL FiberNet. During the three and nine months ended September 30, 2000, FPL Group repurchased 862,000 and 1,612,400 shares of common stock, respectively. See Note 1 and Note 4 - FPL Group Common Stock. For information concerning capital commitments, see Note 6 - Commitments. NEW ACCOUNTING RULE In June 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 138 (FAS 138), "Accounting for Certain Derivative Instruments and Certain Hedging Activities," which amends FAS 133, "Accounting for Derivative Instruments and Hedging Activities." FAS 138 addresses certain FAS 133 implementation issues, including the application and expansion of provisions that allow normal purchases and normal sales to be excluded from the scope of FAS 133/138. FPL and FPL Energy have various commodity contracts which are used to manage price risk. After reviewing these contracts FPL Group believes, based on current interpretations of FAS 133, that some of these contracts will be subject to fair value accounting under FAS 133. For FPL, the initial adjustment to fair value and any subsequent changes in fair values for these contracts will be deferred in a regulatory asset or liability until the contract is settled. For FPL Energy, hedge accounting is expected to be available for some of the contracts and FPL Group is in the process of documenting its hedging strategies and assessing effectiveness in preparation for implementation of the new rules. FPL Group expects to report a cumulative effect of a change in accounting principle in the first quarter of 2001 as a result of adopting FAS 133/138. The effect of implementation will be to adjust other comprehensive income (in stockholders' equity) for the effective portion of cash flow hedges and to adjust net income for the remainder. FPL Group has not estimated the impact on earnings and other comprehensive income that will result from the adoption of FAS 133/138. The amount of the cumulative effect could be significantly influenced by a number of factors, including resolution by the FASB's Derivatives Implementation Group of a number of issues affecting the power industry. PART II - OTHER INFORMATION Item 1. Legal Proceedings Reference is made to Item 3. Legal Proceedings in the 1999 Form 10-K for FPL Group and FPL, and Item 1. Legal Proceedings in the June 30, 2000 Form 10-Q for FPL Group and FPL. On September 5, 2000, the bankruptcy court approved the settlement of a contract dispute between FPL and two qualifying facilities. The settlement was approved by the FPSC on October 17, 2000. On November 9, 2000, an individual filed a petition with the FPSC protesting the FPSC's approval of the settlement and requesting a hearing. The petition will prevent the FPSC's approval order from becoming final until the issues raised by it are resolved. FPL expects to recover the cost of the settlement through the fuel and capacity clauses over a five-year period beginning January 1, 2002. FPL also expects that from the date the settlement payment is made until December 31, 2001, FPL will not receive a return on the unrecovered amount through the fuel and capacity clauses, but instead, the settlement amount will be included as a rate base regulatory asset over that period. FPL estimates the net present value of the savings to its customers from the settlement versus the payments that would have been due under the power purchase agreements to be in excess of $400 million. On October 30, 2000, the Florida First District Court of Appeal affirmed the trial court's decision per curiam on the Cedar Bay claim. FPL has filed a motion for rehearing and rehearing en banc. On September 29, 2000, Karen and Bruce Alexander filed suit against FPL Group, FPL, FPL FiberNet, FPL Group Capital and FPL Investments, Inc. in the Circuit Court for Palm Beach County, Florida, purportedly on behalf of all property owners in Florida whose property is encumbered by defendants' easements and on whose property the defendants have installed or intend to install fiber optic cable which defendants lease, license or convey for non-electric transmission or distribution purposes, or intend to do so. The lawsuit alleges that FPL's easements do not permit the installation and use of fiber optic cable for general communication purposes. The plaintiffs seek injunctive relief, compensatory damages, interest and attorneys' fees. Item 5. Other Information Reference is made to Item 1. Business - FPL Operations - Competition in the 1999 Form 10-K for FPL Group and FPL. On September 18, 2000, FERC approved the settlement agreement between FPL and its wholesale customers that provided for lower rates to wholesale customers through the adoption of new fixed rates, rather than formula rates. The refund amounts provided for in the settlement, which were previously accrued, have been paid. On October 16, 2000, FPL, together with Florida Power Corporation and Tampa Electric Company, filed a joint proposal in response to the FERC's final order requiring all investor-owned utilities to submit plans to create RTOs that would become operational by December 15, 2001. The joint filing proposes a fully independent for-profit transmission company that will be responsible for the transmission lines that carry electricity from power plants primarily within the state to substations in peninsular Florida. Under the proposed form of RTO, FPL would contribute its transmission assets to an independent transmission company, GridFlorida, that would own and operate the system. In return, FPL would receive a non-voting ownership interest in GridFlorida and account for its interest using the equity method. A separate corporation will be formed that will own and manage GridFlorida. In May 2000, the Governor of Florida signed an executive order creating the Energy 2020 Study Commission to propose an energy plan and strategy for Florida. The order requires that recommendations be made to the legislature and Governor by December 1, 2001. The members of the Commission were appointed in July 2000, and they held their first meeting in September 2000. The first meeting resulted in a proposal to split the energy study between wholesale and retail, with the Commission's recommendations on wholesale restructuring to be provided by January 2001. Reference is made to Item 1. Business - FPL Operations - Employees in the 1999 Form 10-K for FPL Group and FPL. The International Brotherhood of Electrical Workers voted to extend the collective bargaining agreement with FPL to November 2001. Meanwhile, the voting process for a final contract proposal of the successor agreement is expected to be complete by the end of 2000. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit FPL Number Description Group FPL 12(a) Computation of Ratio of Earnings to Fixed Charges x 12(b) Computation of Ratios x 27 Financial Data Schedule x x
(b) Reports on Form 8-K A Current Report on Form 8-K was filed with the Securities Exchange Commission on July 31, 2000 by FPL Group reporting one event under Item 5. Other Events. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 3, 2000 by FPL Group and FPL reporting one event under Item 5. Other Events. A Current Report on Form 8-K was filed with the Securities and Exchange Commission on August 4, 2000 by FPL reporting one event under Item 5. Other Events. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized. FPL GROUP, INC. FLORIDA POWER & LIGHT COMPANY (Registrants) Date: November 13, 2000 K. MICHAEL DAVIS K. Michael Davis Controller and Chief Accounting Officer of FPL Group, Inc. Vice President, Accounting, Controller and Chief Accounting Officer of Florida Power & Light Company (Principal Accounting Officer of the Registrants)