PART I |
Item 1. Business
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FPL GROUP
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FPL Group is a public utility holding company, as defined in the Holding Company Act. It was incorporated in 1984 under the laws of Florida. FPL Group's principal subsidiary, FPL, is engaged in the generation, transmission, distribution and sale of electric energy. FPL Group Capital, a wholly-owned subsidiary of FPL Group, holds the capital stock and provides funding for the operating subsidiaries other than FPL. The business activities of these operating subsidiaries primarily consist of FPL Energy's non-rate regulated power projects. For financial information regarding FPL Group's business segments, see Note 16. At December 31, 2001, FPL Group and its subsidiaries employed 10,992 persons.
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FPL Group is exempt from substantially all of the provisions of the Holding Company Act on the basis that FPL Group's and FPL's businesses are predominantly intrastate in character and carried on substantially in a single state in which both are incorporated.
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FPL OPERATIONS
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General. FPL was incorporated under the laws of Florida in 1925 and is a wholly-owned subsidiary of FPL Group. FPL supplies electric service to a population of nearly eight million throughout most of the east and lower west coasts of Florida. During 2001, FPL served approximately 3.9 million customer accounts. The percentage of operating revenues by customer class were as follows:
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Years Ended December 31,
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| 2001 | | 2000 | | 1999 | |
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Residential | 56% | | 55% | | 55% | |
Commercial | 38% | | 36% | | 37% | |
Industrial | 3% | | 3% | | 3% | |
Other, including the provision for retail rate refund | | | | | | |
and the net change in unbilled revenues | 3% | | 6% | | 5% | |
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| 100% | | 100% | | 100% | |
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Regulation. FPL's retail operations provided approximately 99% of FPL's 2001 operating revenues. Such operations are regulated by the FPSC which has jurisdiction over retail rates, service territory, issuances of securities, planning, siting and construction of facilities and other matters. FPL is also subject to regulation by the FERC in various respects, including the acquisition and disposition of facilities, interchange and transmission services and wholesale purchases and sales of electric energy.
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FPL's nuclear power plants are subject to the jurisdiction of the NRC. NRC regulations govern the granting of licenses for the construction and operation of nuclear power plants and subject these plants to continuing review and regulation.
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Federal, state and local environmental laws and regulations cover air and water quality, land use, power plant and transmission line siting, EMF from power lines and substations, noise and aesthetics, solid waste and other environmental matters. Compliance with these laws and regulations increases the cost of electric service by requiring, among other things, changes in the design and operation of existing facilities and changes or delays in the location, design, construction and operation of new facilities. See Item 3. Legal Proceedings. Capital expenditures required to comply with environmental laws and regulations for 2002-04 are included in FPL's projected capital expenditures set forth in Item 1. Business - FPL Operations - Capital Expenditures and are not material.
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FPL currently holds 173 franchise agreements with varying expiration dates to provide electric service in various municipalities and counties in Florida. FPL considers its franchises to be adequate for the conduct of its business.
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Retail Ratemaking. The underlying concept of utility ratemaking is to set rates at a level that allows the utility the opportunity to collect from customers total revenues (revenue requirements) equal to its cost of providing service, including a reasonable rate of return on invested capital. To accomplish this, the FPSC uses various ratemaking mechanisms.
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The basic costs of providing electric service, other than fuel and certain other costs, are recovered through base rates, which are designed to recover the costs of constructing, operating and maintaining the utility system. These basic costs include O&M expenses, depreciation and taxes, as well as a return on FPL's investment in assets used and useful in providing electric service (rate base). The rate of return on rate base approximates FPL's weighted-average cost of capital, which includes its costs for debt and preferred stock and an allowed ROE. The FPSC monitors FPL's ROE through a surveillance report that is filed monthly by FPL with the FPSC. The FPSC does not provide assurance that the allowed ROE will be achieved. Base rates are determined in rate proceedings, which occur at irregular intervals at the initiative of FPL, the FPSC, Public Counsel or a substantially affected party.
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FPL's current rate agreement, which became effective April 15, 1999 and expires on April 14, 2002, provides for a $350 million reduction in annual revenues from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold are required to be refunded 100% to retail customers. For the twelve-month period ending April 14, 2002, the first threshold is $3.5 billion and the second threshold is $3.656 billion. Under the rate agreement, the FPSC allowed FPL to recover, as special depreciation, up to $100 million in each year of the three-year agreement period. The additional depreciation recovery was requi red to be applied to nuclear and/or fossil generating assets. This depreciation program replaced a revenue-based special amortization program. See Note 1 - Revenue and Rates and Electric Plant, Depreciation and Amortization. The rate agreement also lowered FPL's authorized regulatory ROE range to 10% - 12%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. For purposes of calculating ROE, the agreement establishes a cap on FPL's adjusted equity ratio of 55.83%. The adjusted equity ratio reflects a discounted amount for off-balance sheet obligations under certain long-term purchased power contracts. Finally, included in the rate agreement are provisions which limit depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to the then approved levels and limit amounts recoverable under the environmental clause during the term of the rate agreement. See Management's Discussion - Results of Operations.
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On March 22, 2002 the FPSC approved an agreement signed an agreement regarding FPL's retail base rates that, among other things, provides for an additional $250 million annual reduction in retail base revenues. The new rate agreement resolves all matters in FPL's base rate proceeding and will be effective April 15, 2002 through December 31, 2005. The new rate agreement is subject to approval by the FPSC. For additional information regarding the new rate agreement, see Note 18 - Base Rate Proceeding.
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Fuel costs are recovered through levelized charges per kwh established pursuant to the fuel clause and totaled $2.9 billion in 2001. These charges are calculated annually based on estimated fuel costs and estimated customer usage for the following year, plus or minus a true-up adjustment to reflect the variance of actual costs and usage from the estimates used in setting the fuel adjustment charges for prior periods. An adjustment to the levelized charges may be approved during the course of a year to reflect a projected variance based on actual costs and usage. See Management's Discussion - Results of Operations and Note 1 - Regulation.
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Capacity payments to other utilities and generating companies for purchased power are recovered through the capacity clause and base rates. In 2001, $468 million was recovered through the capacity clause. Costs associated with implementing energy conservation programs totaled $77 million in 2001 and are recovered through the conservation clause. Costs of complying with federal, state and local environmental regulations enacted after April 1993 are recovered through the environmental clause to the extent not included in base rates. The current rate agreement limited recovery under this clause to $6.4 million in 2001, with no further amounts recoverable during the remaining term of the agreement.
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The FPSC has the authority to disallow recovery of costs that it considers excessive or imprudently incurred. Such costs may include, among others, O&M expenses, the cost of replacing power lost when fossil and nuclear units are unavailable and costs associated with the construction or acquisition of new facilities.
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Competition. The electric utility industry is facing increasing competitive pressure. FPL currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups, primarily industrial customers. In 2001, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues. Various states, other than Florida, have enacted legislation or have state commissions that issued orders designed to deregulate the production and sale of electricity. By allowing customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers. Similar initiatives are also being pursued on the federal level. Although the legislation and initiatives vary substantially, common areas of focus include when m arket-based pricing will be available for wholesale and retail customers, what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It is generally believed transmission and distribution activities would remain regulated.
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In 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 commission chose to split the energy study between wholesale and retail competition.In January 2001, the commission issued an interim report containing a proposal for restructuring Florida's wholesale electricity market, and no action was taken in the 2001 legislative session, which ended in May 2001. In December 2001, the commission issued a final report that recommended the removal of statutory barriers to entry for merchant plants and, according to the report, provides a discretionary transition to a "level playing field" for all generating assets. Under the commission's proposal, investor-owned utilities such as FPL could, at their discretion, transfer or sell their existing generating assets. The utility would have the right to six-year cost-based transition contracts to commit the capacity of assets sold or transferred back to the utili ty. Transfers to affiliates would be at net book value. Gains on sales of existing generating assets within the transition contract period would be shared with customers. Any losses would be absorbed by the utility's shareholders. The load-serving utilities would acquire new capacity through competitive bidding (which would be required if acquired from affiliates), negotiated contracts or from the short-term (spot) market. Transmission assets could be transferred (at net book value) to, or operated by, a FERC-approved RTO. The final report recommends no change to the retail competition structure until an effective competitive wholesale market has been developed. The commission's proposal may be addressed in the legislative session which takes place from January through March 2002, or in a subsequent session. In addition, the FERC has jurisdiction over potential changes which could affect competition in wholesale transactions.
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In 1999, the FERC issued its final order on RTOs which, under a variety of structures, provides for the independent operation of transmission systems for a given geographic area. In November 2001, the FERC issued an order providing guidance on how the FERC will proceed with the RTO development. The issues of scope and governance will be addressed within individual RTO dockets, after consultation with the state utility commissions. The issues of standardization of tariffs and market design will be addressed in a separate rulemaking docket. With regard to the operational deadline of the RTOs initially set for December 15, 2001, the FERC, in consultation with the state utility commissions, will set revised timelines in each of the individual RTO dockets.
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In March 2002, FPL filed a modified RTO proposal with the FPSC changing the structure from a for-profit transmission company to a non-profit ISO. Under the proposal, FPL would continue to own the transmission lines and the ISO would manage them. In addition, the FPSC urged the utilities to continue participation in discussions with the FERC initiated in mid-2001 regarding the creation of a single RTO for the Southeast region of the United States, but did not recommend them joining it now.
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In the event the basis of regulation for some or all of FPL's business changes from cost-based regulation, existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund. Further, other aspects of the business, such as generation assets and long-term power purchase commitments, would need to be reviewed to assess their recoverability in a changed regulatory environment. See Note 1 - Regulation.
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System Capability and Load. FPL's resources for serving summer load as of December 31, 2001 consisted of 18,871 mw, of which 16,619 mw are from FPL-owned facilities (see Item 2. Properties - Generating Facilities) and 2,252 mw are obtained through purchased power contracts. See Note 15 - Contracts. In 2000, with the FPSC's approval, FPL and two other Florida utilities voluntarily adopted a 20% reserve margin target to be achieved by the summer of 2004. This reserve margin target will be achieved through the combination of output from FPL's generating units, purchased power contracts and load control programs.
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In 2002, FPL will continue its construction program to meet increased customer demand. FPL expects to complete the repowering of its Fort Myers steam units and one of its steam units at the Sanford site, which will add approximately 1,100 mw by mid-2002. FPL also expects to complete the repowering of another unit at Sanford in late 2002, add two new gas-fired combustion turbines at its Fort Myers site in 2003 and expand its Martin and Manatee sites, subject to approval under the Florida Electrical Power Plant Siting Act, to add approximately 3,300 mw of natural gas combined-cycle generation by mid-2005. These actions, plus other changes to FPL's existing units and purchased power contracts, are expected to increase FPL's net generating capability by approximately 8,500 mw by 2011.
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Occasionally, unusually cold temperatures during the winter months result in significant increases in electricity usage for short periods of time. However, customer usage and operating revenues are typically higher during the summer months largely due to the prevalent use of air conditioning in FPL's service territory. During the summer of 2001, FPL set two all-time records for energy peak demand; 18,354 mw on July 30 and 18,754 mw on August 16. Adequate resources were available at the time of the peaks to meet customer demand.
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Capital Expenditures. FPL's capital expenditures totaled approximately $1.1 billion in 2001, $1.3 billion in 2000 and $924 million in 1999. Capital expenditures for the 2002-04 period are expected to be $4.4 billion, including $1.3 billion in 2002. This estimate is subject to continuing review and adjustment, and actual capital expenditures may vary from this estimate. See Management's Discussion - Liquidity and Capital Resources.
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Nuclear Operations. FPL owns and operates four nuclear units, two at Turkey Point and two at St. Lucie. The operating licenses for Turkey Point Units Nos. 3 and 4 expire in 2012 and 2013, respectively. The operating licenses for St. Lucie Units Nos. 1 and 2 expire in 2016 and 2023, respectively. FPL filed applications for 20-year license extensions with the NRC for the Turkey Point units in 2000 and in 2001 for the St. Lucie units. The nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, repairs and certain other modifications. A condition of the operating license for each unit requires an approved plan for decontamination and decommissioning. FPL's current plans, under the existing operating licenses, provide for prompt dismantlement of the Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013, respectively. Current plans call for St. Lucie Unit No. 1 to be mothballed beginni ng in 2016 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 beginning in 2023. See estimated cost data in Note 1 - Decommissioning and Dismantlement of Generating Plant.
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During scheduled nuclear refueling outages for Turkey Point Unit No. 3 and St. Lucie Unit No. 2 during the fourth quarter of 2001, FPL conducted visual inspections of the reactor pressure vessel head penetration nozzles in response to a bulletin issued by the NRC on August 3, 2001. The NRC issued the bulletin to all pressurized water reactor licensees, including FPL, as a result of recent discoveries of cracked and leaking penetration nozzles in the top of certain reactor pressure vessel heads at facilities owned by other utilities. The inspections revealed no problems with the reactor vessel head at Turkey Point Unit No. 3 or St. Lucie Unit No. 2. Inspections at FPL's other two nuclear units are scheduled to be performed during their next scheduled refueling outages in 2002.
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Fuel. FPL's generating plants use a variety of fuels. See Item 2. Properties - Generating Facilities and Note 15 - Contracts. The diverse fuel options, along with purchased power, enable FPL to shift between sources of generation to achieve an economical fuel mix.
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FPL has four firm transportation contracts in place with FGT that together will satisfy substantially all of the anticipated needs for natural gas transportation of its existing units and those units currently under construction. The four existing contracts expire in 2005, 2015, 2021 and 2022, but each can be extended at FPL's option. To the extent desirable, FPL can also purchase interruptible gas transportation service from FGT based on pipeline availability. FPL has several short- and medium-term natural gas supply contracts to provide a portion of FPL's anticipated needs for natural gas. The remainder of FPL's gas requirements are purchased under other contracts and in the spot market.
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FPL has, through its joint ownership interest in SJRPP Units Nos. 1 and 2, long-term coal supply and transportation contracts for a portion of the fuel needs for those units. All of the transportation requirements and a portion of the fuel supply needs for Scherer Unit No. 4 are covered by a series of annual and long-term contracts. The remaining fuel requirements will be obtained in the spot market. FPL's oil requirements are obtained under short- and long-term contracts and in the spot market.
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FPL leases nuclear fuel for all four of its nuclear units. Currently, FPL is storing spent fuel on site pending its removal by the DOE. See Note 1 - Nuclear Fuel. Under the Nuclear Waste Policy Act, the DOE was required to construct permanent disposal facilities and take title to and provide transportation and disposal for spent nuclear fuel by January 31, 1998 for a specified fee based on current generation from nuclear power plants. Through December 2001, FPL has paid approximately $449 million in such fees to the DOE's nuclear waste fund. The DOE did not meet its statutory obligation for disposal of spent nuclear fuel under the Nuclear Waste Policy Act. In 1997, a court ruled, in response to petitions filed by utilities, state governments and utility commissions, that the DOE could not assert a claim that its delay was unavoidable in any defense against lawsuits by utilities seeking money damages arising out of the DOE's failure to perform its obligations. In 1998, FPL filed a lawsuit aga inst the DOE seeking damages caused by the DOE's failure to dispose of spent nuclear fuel from FPL's nuclear power plants. The matter is pending. In the interim, FPL is investigating other alternatives to provide adequate storage capacity for all of its spent nuclear fuel. Based on current projections, FPL will lose its ability to store spent fuel on site for St. Lucie Unit No. 1 in 2005, St. Lucie Unit No. 2 in 2007,Turkey Point Unit No. 3 in 2009 and Turkey Point Unit No. 4 in 2011. In addition, degradation in a material used in the spent fuel pools at St. Lucie Unit No. 1 and Turkey Point Units Nos. 3 and 4 could result in implementation of alternative spent fuel storage options sooner than projected. FPL is pursuing various approaches to expanding spent fuel storage at the sites, including increasing rack space in its existing spent fuel pools and/or developing the capacity to store spent fuel in dry storage containers. The dry storage containers would be either located at FPL's nuclear pla nt sites or at a facility operated by Private Fuel Storage, LLC (PFS) in Utah. PFS is a consortium of eight utilities seeking to license, construct and operate an independent spent fuel storage facility. FPL joined the consortium in May 2000. PFS has filed a license application with the NRC and hearings on the application are ongoing.
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Energy Marketing and Trading. EMT, a division of FPL, buys and sells wholesale energy commodities, such as natural gas, oil and electric power. EMT procures natural gas and oil for FPL's use in power generation and sells excess gas and electric power. EMT also uses derivative instruments, such as swaps, options, futures and forwards to manage the commodity price risk inherent in fuel purchases and electricity sales and purchases. Substantially all of the results of EMT's activities are passed through to customers in the fuel or capacity clauses. See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity and Note 5.
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Electric and Magnetic Fields. In recent years, public, scientific and regulatory attention has been focused on possible adverse health effects of EMF. These fields are created whenever electricity flows through a power line or an appliance. Several epidemiological (i.e., statistical) studies have suggested a linkage between EMF and certain types of cancer, including childhood leukemia and adult lymphoma associated with occupational exposure; other studies have been inconclusive, contradicted earlier studies or have shown no such linkage. Neither these epidemiological studies nor clinical studies have produced any conclusive evidence that EMF does or does not cause adverse health effects. In 1999, the National Institute of Environmental Health Sciences, at the culmination of a five-year federally supported research effort, pronounced that the scientific support for an EMF-cancer link is marginal and concluded that the probability that EMF exposure is truly a health hazard is small but can not be completely discounted.
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In 2001, the International Agency for Research on Cancer (IARC) conducted an evaluation of power frequency EMF and cancer; it classified power frequency magnetic fields as "possibly carcinogenic" based on an association with childhood leukemia reported in some epidemiology studies. The IARC did not conclude that power frequency EMF cause or contribute to the development of childhood leukemia or any other cancer.
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FPL is in compliance with the FDEP regulations regarding EMF levels within and at the edge of the rights of way for transmission lines. Future changes in the FDEP regulations could require additional capital expenditures by FPL for such things as increasing the right of way corridors or relocating or reconfiguring transmission facilities. It is not presently known whether any such expenditures will be required.
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Employees. FPL had 9,757 employees at December 31, 2001. Approximately 34% of the employees are represented by the IBEW under a collective bargaining agreement with FPL that will expire October 31, 2004.
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FPL ENERGY OPERATIONS
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FPL Energy. FPL Energy, a wholly-owned subsidiary of FPL Group Capital, was formed in 1998 to aggregate FPL Group's existing unregulated energy-related operations. FPL Energy owns, develops, constructs, manages and operates domestic electric-generating facilities. At December 31, 2001, FPL Energy had ownership interests in operating independent power projects with a net generating capacity of 5,063 mw. Generation capacity spans various regions thereby reducing seasonal volatility on a portfolio basis. At December 31, 2001, the percentage of capacity by region is 36% Central, 28% Northeast, 20% Mid-Atlantic and 16% West. Fuel sources for these projects are 46% natural gas, 28% wind, 15% oil, 7% hydro and 4% other. FPL Energy is actively involved in managing more than 84% of its projects, which represents approximately 98% of thenet generating capacity in which FPL Energy has an ownership interest. This active role is expected to continue as opportunities in the unregulated generation market are pursued.
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As a result of FPL Energy's continued growth, capital expenditures and investments totaled approximately $1.977 billion, $507 million and $1.540 billion in 2001, 2000 and 1999, respectively. In addition, FPL Energy has announced or is currently constructing eight plants with a total capacity of approximately 5,000 mw which will bring FPL Energy's total portfolio to approximately 10,000 mw by the end of 2004. The 5,000 mw does not include any wind projects; however, given the recent two-year extension of the federal production tax credit, FPL Energy expects to add 1,000 to 2,000 mw of new wind generation by the end of 2003. FPL Energy expects its future portfolio growth will come from a mix of development and asset acquisitions.
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Currently, approximately 19% of FPL Energy's net generating capacity has qualifying facility status under the PURPA. Qualifying facility electricity may be generated from hydropower, wind, solar, geothermal, fossil fuels, biomass or waste-product combustion. Qualifying facility status exempts the projects from the application of the Holding Company Act, many provisions of the Federal Power Act, and state laws and regulations respecting rates and financial or organizational regulation of electric utilities. FPL Energy also has ownership interests in operating independent power projects that have received exempt wholesale generator status as defined in the Holding Company Act. These projects represent approximately 81% of FPL Energy's net generating capacity. Exempt wholesale generators own or operate a facility exclusively to sell electric energy to wholesale customers. They are barred from selling electricity directly to retail customers. While projects with qualifying facility and exempt wholesale gen erator status are exempt from various restrictions, each project must still comply with other federal, state and local laws, including those regarding siting, construction, operation, licensing, pollution abatement and other environmental laws.
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Deregulation of the electric utility market presents both opportunities and risks for FPL Energy. Opportunities exist for the selective acquisition of generation assets that are being divested under deregulation plans and for the construction and operation of efficient plants that can sell power in competitive markets. Current wholesale market trends indicate the potential of an oversupply of generation and lower demand as a result of a weakening economy, which would likely result in lower wholesale electricity prices. FPL Energy believes that favorable conditions continue to exist in certain areas of the country and plans to move forward with the projects currently under construction. FPL Energy seeks to minimize its market risk by having a diversified portfolio, by fuel type and location, as well as by selling a significant amount of the electricity output of its plants through power sales agreements. In 2001, approximately 86% of FPL Energy's capacity was under contract. FPL Energy has approximately 8 0% of its 2002 capacity and more than 50% of its 2003 capacity currently under contracts which expire in 2002-27. As competitive wholesale markets become more accessible to other generators, obtaining power sales agreements will become a progressively more competitive process. FPL Energy expects that as its existing power sales agreements expire, more of the energy produced will be sold through shorter-term contracts and into competitive wholesale markets.
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Competitive wholesale markets in the United States continue to evolve and vary by geographic region. Revenues from electricity sales in these markets will vary based on the prices obtainable for energy, capacity and other ancillary services. Some of the factors affecting success in these markets include the ability to operate generating assets efficiently, the price and supply of fuel, transmission constraints, competition from new sources of generation, demand growth and exposure to legal and regulatory changes.
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On March 1, 2002, FPL Energy's projects received the majority of the payments due from California utilities for electricity sold from November 2000 through March 2001, which had been past due. FPL Group's remaining earnings exposure relating to past due receivables from these California utilities is not material.
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PMI, a subsidiary of FPL Energy, buys and sells wholesale energy commodities, such as natural gas, oil and electric power. PMI procures natural gas and oil for FPL Energy's use in power generation and sells excess gas and electric power. PMI also uses derivative instruments, such as swaps, options, futures and forwards, to manage the risk associated with fluctuating commodity prices and to optimize the value of FPL Energy's power generation assets. To a lesser extent, PMI engages in limited energy trading activities to take advantage of expected future favorable price movements. The results of PMI's activities are recognized in FPL Energy's operating results. See Management's Discussion - Energy Marketing and Trading and Market Risk Sensitivity, Note 1 - Energy Trading and Note 5.
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FPL Energy had 1,054 employees at December 31, 2001. Approximately 13% of the employees are represented by the IBEW under a collective bargaining agreement with FPL Energy that expires on February 28, 2003.
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OTHER FPL GROUP OPERATIONS
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FPL FiberNet. FPL FiberNet was formed in January 2000 to enhance the value of FPL Group's fiber-optic network assets that were originally built to support FPL operations. Accordingly, in January 2000, FPL's existing fiber-optic lines were transferred to FPL FiberNet. FPL FiberNet leases wholesale fiber-optic network capacity and dark fiber to FPL and other customers, primarily telephone, cable television, internet and other telecommunications companies. At December 31, 2001, FPL FiberNet's network consists of approximately 2,500 route miles, which interconnect major cities throughout Florida. During 2001, FPL FiberNet invested approximately $128 million, primarily to expand its network within Florida's metropolitan areas. Over the next three years, FPL FiberNet plans to continue this expansion by investing a total of approximately $100 million.
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EXECUTIVE OFFICERS OF THE REGISTRANTS(a)
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Name | | Age | | Position | | Effective Date |
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Dennis P. Coyle | | 63 | | General Counsel and Secretary of FPL Group | | June 1, 1991 |
| | | | General Counsel and Secretary of FPL | | July 1, 1991 |
K. Michael Davis | | 55 | | Controller and Chief Accounting Officer of FPL Group | | May 13, 1991 |
| | | | Vice President, Accounting, Controller and Chief Accounting | | |
| | | | Officer of FPL | | July 1, 1991 |
Moray P. Dewhurst | | 46 | | Vice President, Finance and Chief Financial Officer of FPL Group | | July 17, 2001 |
| | | | Senior Vice President, Finance and Chief Financial Officer of FPL | | July 19, 2001 |
Paul J. Evanson | | 60 | | President of FPL | | January 9, 1995 |
Ronald F. Green | | 54 | | President of FPL Energy | | December 3, 2001 |
Lewis Hay III | | 46 | | President and Chief Executive Officer of FPL Group | | June 11, 2001 |
| | | | Chairman of the Board of FPL Group | | January 1, 2002 |
| | | | Chairman of the Board and Chief Executive Officer of FPL | | January 1, 2002 |
Lawrence J. Kelleher | | 54 | | Vice President, Human Resources of FPL Group | | May 13, 1991 |
| | | | Senior Vice President, Human Resources and Corporate Services of FPL | | July 1, 1999 |
Robert L. McGrath | | 48 | | Treasurer of FPL Group and FPL | | January 11, 2000 |
| | | | Vice President, Finance and Chief Financial Officer of FPL Energy | | June 6, 2000 |
Armando J. Olivera | | 52 | | Senior Vice President, Power Systems of FPL | | July 1, 1999 |
Antonio Rodriguez | | 59 | | Senior Vice President, Power Generation Division of FPL | | July 1, 1999 |
John A. Stall | | 47 | | Senior Vice President, Nuclear Division of FPL | | June 4, 2001 |
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(a) | Executive officers are elected annually by, and serve at the pleasure of, their respective boards of directors. Except as noted below, each officer has held his present position for five years or more and his employment history is continuous. The business experience of the executive officers is as follows: Mr. Dewhurst was senior partner of Dean & Company, a management consulting and investment firm that he co-founded in 1993. Mr. Green was president and chief executive officer of Duke Engineering and Services, Inc., a technical services supplier to the energy industry, and president and chief operating officer of Duke Solutions, Inc., an energy services and energy commodity supply company, from April 1999 to November 2001. He was president of power generation for an affiliate of Shell Oil Company from June 1998 to March 1999. Mr. Green was president and chief executive officer of Fluor Daniel Hanford, a nuclear waste remediation contractor for the DOE, from February 1998 to May 1998. Prior to that, he was president of Power Fluor Daniel, Inc., a designer, builder and provider of maintenance services to the electric sector. Mr. Hay was president of FPL Energy from March 2000 to December 2001. From July 1999 to March 2000, he was vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL. Prior to that, Mr. Hay was executive vice president and chief financial officer of U.S. Foodservice, a food service distributor. Mr. Kelleher was senior vice president, human resources of FPL from July 1991 to July 1999. Mr. McGrath was assistant treasurer of FPL Group and FPL from February 1998 to January 2000. Prior to that, Mr. McGrath was vice president and chief financial officer of ESI Energy, Inc., an affiliate of FPL Group. Mr. Olivera was vice president, distribution of FPL from February 1997 to July 1999. Mr. Rodriguez was vice president, power delivery of FPL from Februar y 1997 to July 1999. Mr. Stall was plant vice president at St. Lucie from 1996 to June 2001. |
Item 2. Properties |
FPL Group and its subsidiaries maintain properties which are adequate for their operations. At December 31, 2001, the electric generating, transmission, distribution and general facilities of FPL represented approximately 44%, 13%, 37% and 6%, respectively, of FPL's gross investment in electric utility plant in service.
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Generating Facilities. At December 31, 2001, FPL Group had the following generating facilities:
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Facility | | Location | | No. of Units | | Fuel | | Net Capability (mw)(a) |
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FPL | | | | | | | | | | | |
| | Steam turbines: | | | | | | | | | | | |
| | Cape Canaveral | | Cocoa, FL | | 2 | | Oil/Gas | | | 806 | | |
| | Cutler | | Miami, FL | | 2 | | Gas | | | 213 | | |
| | Manatee | | Parrish, FL | | 2 | | Oil | | | 1,619 | | |
| | Martin | | Indiantown, FL | | 2 | | Oil/Gas | | | 1,613 | | |
| | Port Everglades | | Port Everglades, FL | | 4 | | Oil/Gas | | | 1,240 | | |
| | Riviera | | Riviera Beach, FL | | 2 | | Oil/Gas | | | 567 | | |
| | St. Johns River Power Park | | Jacksonville, FL | | 2 | | Coal/Petroleum Coke | | | 254 | (b) | |
| | St. Lucie | | Hutchinson Island, FL | | 2 | | Nuclear | | | 1,553 | (c) | |
| | Sanford | | Lake Monroe, FL | | 2 | | Oil/Gas | | | 523 | | |
| | Scherer | | Monroe County, GA | | 1 | | Coal | | | 658 | (d) | |
| | Turkey Point | | Florida City, FL | | 2 | | Oil/Gas | | | 800 | | |
| | | | | | 2 | | Nuclear | | | 1,386 | | |
| | Combined-cycle: | | | | | | | | | | | |
| | Fort Myers | | Fort Myers, FL | | 1 | | Gas | | | 894 | (e) | |
| | Lauderdale | | Dania, FL | | 2 | | Gas/Oil | | | 854 | | |
| | Martin | | Indiantown, FL | | 3 | | Gas | | | 1,233 | | |
| | Putnam | | Palatka, FL | | 2 | | Gas/Oil | | | 498 | | |
| | Combustion turbines: | | | | | | | | | | | |
| | Fort Myers | | Fort Myers, FL | | 12 | | Oil | | | 636 | | |
| | Lauderdale | | Dania, FL | | 24 | | Oil/Gas | | | 840 | | |
| | Port Everglades | | Port Everglades, FL | | 12 | | Oil/Gas | | | 420 | | |
| | Diesel units: | | | | | | | | | | | |
| Turkey Point | | Florida City, FL | | 5 | | Oil | | | 12 | | |
|
| TOTAL | | | | | | | | | 16,619 | | |
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FPL Energy:
| | | | | | | | | | | |
| | East | | | | | | | | | | | |
| | Northeast: | | | | | | | | | | | |
| | Maine | | Various- ME | | 9 | | Oil | | | 755 | | |
| | Maine | | Various- ME | | 89 | | Hydro | | | 373 | | |
| Investments in joint ventures | | MA, NJ | | 2 | | Gas | | | 295 | | |
|
| | Total Northeast | | | | | | | | | 1,423 | | |
| | Mid-Atlantic: | | | | | | | | | | | |
| | Doswell | | Ashland, VA | | 5 | | Gas | | | 879 | | |
| | Marcus Hook 50 | | Marcus Hook, PA | | 1 | | Gas | | | 50 | | |
| Investments in joint ventures | | Various | | (f) | | Various | | | 105 | | |
|
| | Total Mid-Atlantic | | | | | | | | | 1,034 | | |
| | West | | | | | | | | | | | |
| | Central: | | | | | | | | | | | |
| | Cerro Gordo | | Ventura, IA | | 55 | | Wind | | | 42 | | |
| | Gray County | | Montezuma, KS | | 170 | | Wind | | | 112 | | |
| | King Mountain | | Upton County, TX | | 214 | | Wind | | | 278 | | |
| | Lake Benton II | | Ruthton, MN | | 138 | | Wind | | | 104 | | |
| | Lamar Power Partners | | Paris, TX | | 2 | | Gas | | | 990 | | |
| | Montfort | | Montfort, WI | | 20 | | Wind | | | 30 | | |
| | Southwest Mesa | | McCamey, TX | | 107 | | Wind | | | 75 | | |
| Woodward Mountain | | McCamey, TX | | 242 | | Wind | | | 160 | | |
|
| | Total Central | | | | | | | | | 1,791 | | |
| | West: | | | | | | | | | | | |
| | Stateline | | WA/OR border | | 399 | | Wind | | | 263 | | |
| | Vansycle | | Helix, OR | | 38 | | Wind | | | 25 | | |
| Investments in joint ventures | | Various- CA | | (g) | | Various | | | 527 | | |
| | | | | | | | | | | |
| | Total West | | | | | | | | | 815 | | |
|
| TOTAL | | | | | | | | | 5,063 | | |
|
_____________________ |
(a) | Represents FPL's and FPL Energy's net ownership interest in plant capacity. After including the 1,101 mw FPL expects to add by mid-2002, FPL's expected net capability for the summer of 2002 is approximately 17,720 mw. |
(b) | Represents FPL's 20% ownership interest in each of SJRPP Units Nos. 1 and 2, which are jointly owned with the JEA. |
(c) | Excludes Orlando Utilities Commission's and the FMPA's combined share of approximately 15% of St. Lucie Unit No. 2. |
(d) | Represents FPL's approximately 76% ownership of Scherer Unit No. 4, which is jointly owned with the JEA. |
(e) | Represents six gas-combustion turbines in simple-cycle operation as part of a repowering project. Plant is expected to be in combined-cycle operation by June 2002. |
(f) | Represents plants providing less than 50 mw each using fuel and technology such as gas and waste-to-energy. |
(g) | Includes 1,448 units at a wind project (83 mw). The remaining 444 mw are provided by plants with less than 50 mw each using fuels and technologies such as solar, gas, geothermal, coal and petroleum coke. |
| |
Transmission and Distribution. At December 31, 2001, FPL owned and operated 505 substations and the following electric transmission and distribution lines: |
Nominal
Voltage
| | |
Overhead Lines
Pole Miles
| |
Trench and Submarine
Cable Miles
| |
| | |
| | | | | | | | | |
500 | kv | | 1,107 | (a) | | - | | |
230 | kv | | 2,304 | | | 31 | | |
138 | kv | | 1,448 | | | 50 | | |
115 | kv | | 671 | | | - | | |
69 | kv | | 164 | | | 14 | | |
Less than 69kv | | | 40,458 | | | 22,779 | | |
| |
Total | | 46,152 | | | 22,874 | | |
| |
_____________________ | |
(a) | Includes approximately 75 miles owned jointly with the JEA. |
Character of Ownership. Substantially all of FPL's properties are subject to the lien of FPL's mortgage, which secures most debt securities issued by FPL. The majority of FPL Group's principal properties are held by FPL in fee and are free from other encumbrances, subject to minor exceptions, none of which is of such a nature as to substantially impair the usefulness to FPL of such properties. FPL Energy's Doswell generating facility is encumbered by liens against its assets securing bonds issued in July 2001. See Management's Discussion - Liquidity and Capital Resources and Note 8. Some of FPL's electric lines are located on land not owned in fee but are covered by necessary consents of governmental authorities or rights obtained from owners of private property.
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Item 3. Legal Proceedings
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In November 1999, the Attorney General of the United States, on behalf of the U.S. Environmental Protection Agency (EPA) brought an action in the U.S. District Court for the Northern District of Georgia against Georgia Power Company and other subsidiaries of The Southern Company for certain alleged violations of the Prevention of Significant Deterioration (PSD) provisions and the New Source Performance Standards (NSPS) of the Clean Air Act. In May 2001, the EPA amended its complaint. The amended complaint alleges, among other things, that Georgia Power Company constructed and is continuing to operate Scherer Unit No. 4, in which FPL owns a 76% interest, without obtaining a PSD permit, without complying with NSPS requirements, and without applying best available control technology for nitrogen oxides, sulfur dioxides and particulate matter as required by the Clean Air Act. It also alleges that unspecified major modifications have been made at Scherer Unit No. 4 that require its compliance with the aforemen tioned Clean Air Act provisions. The EPA seeks injunctive relief requiring the installation of best available control technology and civil penalties of up to $25,000 per day for each violation from an unspecified date after June 1, 1975 through January 30, 1997, and $27,500 per day for each violation thereafter. Georgia Power Company has answered the amended complaint, asserting that it has complied with all requirements of the Clean Air Act, denying the plaintiff's allegations of liability, denying that the plaintiff is entitled to any of the relief that it seeks and raising various other defenses. In June 2001, the federal district court stayed discovery and administratively closed the case pending resolution of the EPA's motion for consolidation of discovery in several Clean Air Act cases that was filed with a Multi-District Litigation (MDL) panel. In August 2001, the MDL panel denied the motion for consolidation. In September 2001, the EPA moved that the federal district court reopen this case for pu rposes of discovery. Georgia Power Company has opposed that motion asking that the case remain closed until the Eleventh Circuit Court of Appeals rules on the Tennessee Valley Authority's (TVA) appeal of an EPA administrative order relating to legal issues that are also central to this case. In January 2002, the Eleventh Circuit Court of Appeals determined that it has jurisdiction to review the EPA's administrative order and will now move to the merits of the TVA's appeal. The federal district court has not yet ruled upon the EPA's motion to reopen.
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In June 2000, Southern California Edison Company (SCE) filed with the FERC a Petition for Declaratory Order (petition) asking the FERC to apply the November 1999 decision of the U.S. Court of Appeals for the District of Columbia Circuit in Southern California Edison Co. v. FERC, to all qualifying small power production facilities, including the SEGS VIII and SEGS IX facilities owned by Luz Solar Partners Ltd., VIII and Luz Solar Partners Ltd., IX (collectively, the partnerships), indirectly owned in part by FPL Energy, which have power purchase agreements with SCE. The federal circuit court of appeals' decision invalidated the FERC's so-called essential fixed assets standard, which permitted uses of fossil fuels by qualifying small power production facilities beyond those expressly set forth in PURPA. The petition requests that the 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 mak e refunds with respect to past usage. In August 2000, the partnerships filed motions to intervene and protest before the FERC, vigorously objecting to the position taken by SCE in its petition. The partnerships contend that they have always operated the solar facilities in accordance with certification orders issued to them 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. Briefing in this proceeding is complete and the parties are currently awaiting a final determination from the FERC. In June 2001, SCE and the partnerships entered into an agreement that provides, among other things, that SCE and the partnerships will take all necessary steps to suspend or stay, during a specified period of time, the proceeding initiated by the petition. The agreement is conditioned upon, among other things, completion of SCE's financing plan. The agreement provides that, if the conditions of the agr eement are satisfied, then SCE and each of the partnerships agree to release and discharge each other from any and all claims of any kind arising from either parties' performance under the power purchase agreements. Such a release would include release of the claim made by SCE in the petition for refunds with respect to past usage. The conditions of the agreement were fully satisfied in March 2002.
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In November 2001, J. W. and Ernestine M. Thomas, Chester and Marie Jenkins, and Ray Norman and Jack Teague, as Co-Personal Representatives on behalf of the Estate of Robert L. Johns, filed suit against FPL Group, FPL, FPL FiberNet, FPL Group Capital and FPL Investments, Inc. in the Circuit Court for Suwanee County, Florida. This action is purportedly on behalf of all property owners in Florida (excluding railroad and public rights of way) whose property is encumbered by easements in favor of defendants, and on whose property defendants have installed or intend to install fiber-optic cable which defendants currently lease, license or convey or intend to lease, license or convey for non-electric transmission or distribution purposes. The lawsuit alleges that FPL's easements do not permit the installation and use of fiber-optic cable for general communication purposes. The plaintiffs have asserted claims for unlawful detainer, unjust enrichment and constructive trust and seek injunctive relief and compensatory damages. In December 2001, all defendants filed a motion to dismiss the complaint for, among other things, the failure to state a valid cause of action.
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On January 15, 2002, Roy Oorbeek and Richard Berman filed suit in the U.S. District Court for the Southern District of Florida against FPL Group (as an individual and nominal defendant); its current and certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Lewis Hay III, Dennis P. Coyle, Paul J. Evanson and Lawrence J. Kelleher. The lawsuit alleges that the proxy statements relating to shareholder approval of FPL Group's Long Term Incentive Plan (LTIP) and FPL Group's proposed, but unconsummated, merger with Entergy were false and misleading because they did not affirmatively state that payments made to certain officers under FPL Group's LTIP upon shareholder approval of the merger would be retained by the officers even if the merger with Entergy was not consummated and did not state that under some circumstances payments made pursuant to FPL Group's LTIP might not be deductible by FPL Group for federal income tax purposes. It also alleges tha t FPL Group's LTIP required either consummation of the merger as a condition to the payments or the return of the payments if the transaction did not close, and that the actions of the director defendants in approving the proxy statements, causing the payments to be made, and failing to demand their return constitute corporate waste. The plaintiffs seek to have the shareholder votes approving FPL Group's LTIP and the merger declared null and void, the return to FPL Group of the payments received by the officers, compensatory damages from the individual defendants and attorneys' fees. The defendants have filed a motion to stay the proceeding for failure to make a demand, as required by the Florida Business Corporation Act, that the board of directors of FPL Group take action with respect to the matters alleged in the complaint. FPL Group's board of directors had previously established a special committee to investigate a demand by another shareholder that the board take action to obtain the return of the p ayments made to the officers.
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On March 8, 2002, William M. Klein, by Stephen S. Klein under power of attorney, on behalf of himself and all others similarly situated, filed suit in the U.S. District Court for the Southern District of Florida against FPL Group (as nominal defendant); its current and certain former directors; and certain current and former officers of FPL Group and FPL, including James L. Broadhead, Paul J. Evanson, Lewis Hay III and Dennis P. Coyle. The lawsuit alleges that the payments made to certain officers under FPL Group's LTIP upon shareholder approval of the proposed merger with Entergy were improper and constituted corporate waste because the merger was not consummated. The suit alleges that the LTIP required consummation of the merger as a condition to the payments. The plaintiff seeks the return to FPL Group of the payments received by the officers; contribution, restitution and/or damages from the individual defendants; and attorneys' fees. The plaintiff had made a demand in January 2002 that the directors of FPL Group take action to obtain the return of the payments to the officers. The plaintiff was promptly notified that this demand was being referred to a special committee of FPL Group's board of directors that was established to investigate a demand by another shareholder that the board take action to obtain the return of the payments made to the officers. The defendants intend to file a motion to stay this lawsuit pending the outcome of the special committee's investigation.
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In the event that FPL Group and FPL do not prevail in these suits, there may be a material adverse effect on their financial statements. However, FPL Group and FPL believe that they have meritorious defenses to the pending litigation discussed above and are vigorously defending these suits. Accordingly, management does not anticipate that the liabilities, if any, arising from these proceedings would have a material adverse effect on the financial statements.
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Item 4. Submission of Matters to a Vote of Security Holders
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None
|
Item 6. Selected Financial Data |
| Years Ended December 31, | |
|
| 2001 | | 2000 | | 1999 | | 1998 | | | 1997 | |
| | | | |
SELECTED DATA OF FPL GROUP | | | | | | | | | | | | | | | | | | | |
| | (millions, except per share amounts): | | | | | | | | | | | | | | | | | | | |
| | Operating revenues | $ | 8,475 | | | $ | 7,082 | | | $ | 6,438 | | | $ | 6,661 | | | $ | 6,369 | |
| | Net income | $ | 781 | (a) | | $ | 704 | (b) | | $ | 697 | (c) | | $ | 664 | | | $ | 618 | |
| | Earnings per share of common stock: | | | | | | | | | | | | | | | | | | | |
| | Basic | $ | 4.63 | (a) | | $ | 4.14 | (b) | | $ | 4.07 | (c) | | $ | 3.85 | | | $ | 3.57 | |
| | Assuming dilution | $ | 4.62 | (a) | | $ | 4.14 | (b) | | $ | 4.07 | (c) | | $ | 3.85 | | | $ | 3.57 | |
| | Dividends paid per share of common stock | $ | 2.24 | | | $ | 2.16 | | | $ | 2.08 | | | $ | 2.00 | | | $ | 1.92 | |
| | Total assets | $ | 17,463 | | | $ | 15,300 | | | $ | 13,441 | | | $ | 12,029 | | | $ | 12,449 | |
| | Long-term debt, excluding current maturities | $ | 4,858 | | | $ | 3,976 | | | $ | 3,478 | | | $ | 2,347 | | | $ | 2,949 | |
| | Obligations of FPL under capital lease, excluding current maturities | $ | 133 | | | $ | 127 | | | $ | 157 | | | $ | 146 | | | $ | 186 | |
SELECTED DATA OF FPL (millions):
| | | | | | | | | | | | | | | | | | | |
| | Operating revenues | $ | 7,477 | | | $ | 6,361 | | | $ | 6,057 | | | $ | 6,366 | | | $ | 6,132 | |
| | Net income available to FPL Group | $ | 679 | (d) | | $ | 607 | (d) | | $ | 576 | (c) | | $ | 616 | | | $ | 608 | |
| | Total assets | $ | 11,924 | | | $ | 12,020 | | | $ | 10,608 | | | $ | 10,748 | | | $ | 11,172 | |
| | Long-term debt, excluding current maturities | $ | 2,579 | | | $ | 2,577 | | | $ | 2,079 | | | $ | 2,191 | | | $ | 2,420 | |
| | Energy sales (kwh) | | 93,488 | | | | 91,969 | | | | 88,067 | | | | 89,362 | | | | 82,734 | |
| | Energy sales: | | | | | | | | | | | | | | | | | | | |
| | Residential | | 50.9 | % | | | 50.4 | % | | | 50.2 | % | | | 50.9 | % | | | 50.6 | % |
| | Commercial | | 40.6 | | | | 40.2 | | | | 40.3 | | | | 38.8 | | | | 39.8 | |
| | Industrial | | 4.4 | | | | 4.1 | | | | 4.5 | | | | 4.4 | | | | 4.7 | |
| | Interchange power sales | | 2.2 | | | | 3.1 | | | | 3.0 | | | | 3.2 | | | | 2.1 | |
| Other(e) | | 1.9 | | | | 2.2 | | | | 2.0 | | | | 2.7 | | | | 2.8 | |
| | | | |
| Total | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % |
| | | | |
| | Approximate 60-minute peak load (mw)(f): | | | | | | | | | | | | | | | | | | | |
| | Summer season | | 18,754 | | | | 17,808 | | | | 17,615 | | | | 17,897 | | | | 16,613 | |
| | Winter season | | 17,585 | | | | 18,219 | | | | 17,057 | | | | 16,802 | | | | 13,047 | |
| | Average number of customer accounts (thousands): | | | | | | | | | | | | | | | | | | | |
| | Residential | | 3,491 | | | | 3,414 | | | | 3,332 | | | | 3,266 | | | | 3,209 | |
| | Commercial | | 427 | | | | 415 | | | | 405 | | | | 397 | | | | 389 | |
| | Industrial | | 15 | | | | 16 | | | | 16 | | | | 15 | | | | 15 | |
| Other | | 2 | | | | 3 | | | | 3 | | | | 2 | | | | 3 | |
| | | | | | | | | |
| Total | | 3,935 | | | | 3,848 | | | | 3,756 | | | | 3,680 | | | | 3,616 | |
| | | | | | | | | |
| | Average price per kwh (cents)(g) | | 8.05 | | | | 6.86 | | | | 6.87 | | | | 7.13 | | | | 7.37 | |
_____________________ |
(a) | Includes merger-related expenses and the net positive effects of applying FAS 133. Excluding these items, FPL Group's net income and earnings per share (basic and assuming dilution) would have been $792 million and $4.69, respectively. |
(b) | Includes merger-related expenses. Excluding these expenses, FPL Group's net income and earnings per share would have been $745 million and $4.38, respectively. |
(c) | Includes effects of gains on divestiture of cable investments, impairment loss and litigation settlement. Excluding these items, FPL Group's net income and earnings per share would have been $681 million and $3.98, respectively. Excluding the litigation settlement, FPL's net income available to FPL Group would have been $618 million. |
(d) | Includes merger-related expenses. Excluding these expenses, FPL's net income available to FPL Group would have been $695 million in 2001 and $645 million in 2000. |
(e) | Includes the net change in unbilled sales. |
(f) | Winter season includes November and December of the current year and January to March of the following year. |
(g) | Excludes interchange power sales, net change in unbilled revenues, deferrals/recoveries under cost recovery clauses and the provision for retail rate refund. |
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
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This discussion should be read in conjunction with the Notes to Consolidated Financial Statements contained herein. In the discussion of Results of Operations below, all comparisons are with the corresponding items in the prior year.
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Critical Accounting Policies and Estimates
|
The preparation of financial statements requires the application of numerous complex accounting principles. One of the more significant accounting principles considered in the preparation of FPL Group's and FPL's financial statements is FAS 71, "Accounting for the Effects of Certain Types of Regulation." FAS 71 requires rate-regulated public utilities companies (such as FPL) to alter the accounting for certain costs and revenues from what would otherwise be reported by an unregulated entity to more closely reflect the ratemaking process. As described in Note 1 - Regulation, significant regulatory assets and liabilities have been recorded on FPL's books as a result of applying FAS 71. In the event that FPL is no longer subject to cost-based rate regulation, these regulatory assets and liabilities would be written off unless regulators specify another means of recovery or refund. See Note 1 for a discussion of FPL Group's and FPL's other significant accounting policies.
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Management is often required to use its judgment and make assumptions in the calculation of estimates that affect the recorded amounts of assets, liabilities, revenues and expenses in the financial statements of FPL Group and FPL. One of the more significant estimates affecting the financial statements of FPL Group and FPL is the estimated cost to decommission and dismantle their generating units. See Note 1 - Decommissioning and Dismantlement of Generating Plant for a description of the significant assumptions used to calculate estimated decommissioning and dismantlement costs.
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Results of Operations
|
FPL Group's net income and earnings per share in 2001 and 2000 increased despite charges for merger-related expenses in both periods. These charges reduced net income and earnings per share in 2001 by $19 million and $0.11, respectively, and in 2000 by $41 million and $0.24, respectively. Also impacting 2001 earnings was the implementation of FAS 133, "Accounting for Derivative Instruments and Hedging Activities." Net unrealized gains related to derivative instruments accounted for under FAS 133 during 2001 increased net income and earnings per share by $8 million and $0.04, respectively. Net income and earnings per share in 1999 included the net effect of several nonrecurring transactions that resulted in additional net income of $16 million, or $0.09 per share. Excluding the merger-related expenses in 2001 and 2000 and the net unrealized mark-to-market gains recorded in accordance with FAS 133 in 2001, FPL Group's net income in 2001 increased 6.3% to $792 million, and e arnings per share (basic and assuming dilution) increased 7.1% to $4.69. The comparable growth rates for 2000, excluding also the nonrecurring items in 1999, were 9.4% and 10.1%, respectively. In 2001 and 2000, both FPL and FPL Energy contributed to the growth. The discussion of results of operations below excludes the effects of FAS 133 net unrealized gains (see Note 5) and merger-related expenses (see Note 11).
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FPL - FPL's net income for 2001, 2000 and 1999, excluding the nonrecurring charges, was $695 million, $645 million and $618 million, respectively. FPL's results for 2001 reflect continued customer growth, slightly higher electricity usage per retail customer despite a slowing economy and the terrorist attacks on the United States on September 11, and lower depreciation expense. A higher retail refund provision under the revenue sharing mechanism of the rate agreement, as well as higher O&M and interest expenses, partly offset the positive factors. FPL's results for 2000 benefited from customer growth, increased electricity usage per retail customer and lower O&M expenses. The effect of the rate reduction and higher interest charges partly offset these positives.
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FPL's operating revenues consist primarily of revenues from retail base operations, cost recovery clauses, certain revenue taxes and franchise fees. Revenues from retail base operations were $3.6 billion, $3.5 billion and $3.5 billion in 2001, 2000 and 1999, respectively. Revenues from cost recovery clauses and franchise fees represent a pass-through of costs and do not significantly affect net income. Fluctuations in these revenues are primarily driven by changes in energy sales, fuel prices and capacity charges. Ordinarily, the fuel charge is set annually based on estimated fuel costs and estimated customer usage, plus or minus a true-up for prior period estimates. As a result of significant volatility in oil and gas prices in the last couple of years, FPL has received permission from the FPSC for mid-course changes to the annual retail customer fuel rate. The fuel rate was increased in June 2000 and April 2001 (in addition to another increase on January 1, 2001 as part of the normal fuel setting process) but was decreased in October 2001. This has resulted in a significant increase in clause revenues in 2001 and, to a lesser extent, in 2000. FPL's annual fuel filing for 2001, as approved by the FPSC, included approximately $518 million of under-recovered fuel costs from 2000, of which one-half ($259 million) was recovered in 2001. The remaining $259 million is being recovered in 2002. FPL agreed to this two-year recovery, rather than the typical one-year time frame, to ease the impact to customers' bills. FPL also agreed that, instead of receiving a return at the commercial paper rate on this unrecovered portion through the fuel clause, the under-recovery will be included as a rate base regulatory asset over the two-year recovery period. See Note 1 - Regulation.
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FPL's current rate agreement, which became effective April 15, 1999 and expires on April 14, 2002, provides for a $350 million reduction in annual revenues from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold are required to be refunded 100% to retail customers. For the twelve-month period ending April 14, 2002, the first threshold is $3.5 billion and the second threshold is $3.656 billion. During 2001, 2000 and 1999, FPL accrued approximately $110 million, $60 million and $20 million, respectively, relating to refunds to retail customers. At December 3 1, 2001 and 2000, the accrual for the revenue refund was approximately $62 million and $57 million, respectively. Actual refunds to retail customers, including interest, for the twelve-month periods ending April 14, 2001 and 2000 were $109 million and $23 million, respectively. The final refund under the rate agreement will be distributed to customers in June 2002.
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The earnings effect of the annual revenue reduction was offset by lower special depreciation. Under the rate agreement, the FPSC allowed FPL to recover, as special depreciation, up to $100 million in each year of the three-year agreement period. The additional depreciation recovery was required to be applied to nuclear and/or fossil generating assets. Under this depreciation program, FPL recorded $100 million of special depreciation in the first twelve-month period and $71 million in the second twelve-month period. Through December 31, 2001, FPL has not recorded any special depreciation for the third twelve-month period. On a calendar year basis, FPL recorded approximately $101 million and $70 million of special depreciation in 2000 and 1999, respectively, and nothing in 2001. FPL also recorded special amortization in the amount of $63 million in 1999 under a previous program approved by the FPSC.
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The rate agreement also lowered FPL's authorized regulatory ROE range to 10% - 12%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. FPL reported an ROE of 12.3%, 12.2% and 12.1% in 2001, 2000 and 1999, respectively. See Note 1 - Revenues and Rates.
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The increase in retail base revenues in 2001 was due to a 2.3% increase in retail customer accounts and a 0.4% increase in electricity usage per retail customer. This was partly offset by a higher provision for refund to retail customers. Revenues from retail base operations were flat during 2000. Customer growth of 2.5% and a 1.9% increase in electricity usage per retail customer was almost entirely offset by the effect of the rate reduction and a higher provision for refund to retail customers.
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On March 22, 2002, the FPSC approved an agreement signed an agreement regarding FPL's retail base rates that, among other things, provides for an additional $250 million annual reduction in retail base revenues. The new rate agreement resolves all matters in FPL's base rate proceeding and will be effective April 15, 2002 through December 31, 2005. The new rate agreement is subject to approval by the FPSC. For additional information regarding the new rate agreement, see Note 18 - Base Rate Proceeding.
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FPL's O&M expenses increased in 2001 after several years of decline. The increase can be attributed to system growth, reliability improvements, costs incurred at fossil production plants to comply with regulations and maintain operating service availability, as well as costs associated with weaker economic conditions. O&M expenses in 2000 declined due to improved productivity. FPL's O&M expenses are expected to increase in 2002 and 2003 reflecting continued pressure from inflation, customer growth and an aging asset base.
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Interest charges increased in both 2001 and 2000 reflecting increased debt activity to fund FPL's capital expansion program and under-recovered fuel costs.
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The electric utility industry is facing increasing competitive pressure. FPL currently faces competition from other suppliers of electrical energy to wholesale customers and from alternative energy sources and self-generation for other customer groups, primarily industrial customers. In 2001, operating revenues from wholesale and industrial customers combined represented approximately 4% of FPL's total operating revenues. Various states, other than Florida, have enacted legislation or have state commissions that issued orders designed to deregulate the production and sale of electricity. By allowing customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers. Similar initiatives are also being pursued on the federal level. Although the legislation and initiatives vary substantially, common areas of focus include when market-based pricing will be available fo r wholesale and retail customers, what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It is generally believed transmission and distribution activities would remain regulated.
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In 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 commission chose to split the energy study between wholesale and retail competition.In January 2001, the commission issued an interim report containing a proposal for restructuring Florida's wholesale electricity market, and no action was taken in the 2001 legislative session, which ended in May 2001. In December 2001, the commission issued a final report that recommended the removal of statutory barriers to entry for merchant plants and, according to the report, provides a discretionary transition to a "level playing field" for all generating assets. Under the commission's proposal, investor-owned utilities such as FPL could, at their discretion, transfer or sell their existing generating assets. The utility would have the right to six-year cost-based transition contracts to commit the capacity of assets sold or transferred back to the util ity. Transfers to affiliates would be at net book value. Gains on sales of existing generating assets within the transition contract period would be shared with customers. Any losses would be absorbed by the utility's shareholders. The load-serving utilities would acquire new capacity through competitive bidding (which would be required if acquired from affiliates), negotiated contracts or from the short-term (spot) market. Transmission assets could be transferred (at net book value) to, or operated by, a FERC-approved RTO. The final report recommends no change to the retail competition structure until an effective competitive wholesale market has been developed. The commission's proposal may be addressed in the legislative session which takes place from January through March 2002, or in a subsequent session. In addition, the FERC has jurisdiction over potential changes which could affect competition in wholesale transactions.
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In 1999, the FERC issued its final order on RTOs which, under a variety of structures, provides for the independent operation of transmission systems for a given geographic area. In November 2001, the FERC issued an order providing guidance on how the FERC will proceed with the RTO development. The issues of scope and governance will be addressed within individual RTO dockets, after consultation with the state utility commissions. The issues of standardization of tariffs and market design will be addressed in a separate rulemaking docket. With regard to the operational deadline of the RTOs initially set for December 15, 2001, the FERC, in consultation with the state utility commissions, will set revised timelines in each of the individual RTO dockets.
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In March 2002, FPL filed a modified RTO proposal with the FPSC changing the structure from a for-profit transmission company to a non-profit ISO. Under the proposal, FPL would continue to own the transmission lines and the ISO would manage them. In addition, the FPSC urged the utilities to continue participation in discussions with the FERC initiated in mid-2001 regarding the creation of a single RTO for the Southeast region of the United States, but did not recommend them joining it now.
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In the event the basis of regulation for some or all of FPL's business changes from cost-based regulation, existing regulatory assets and liabilities would be written off unless regulators specify an alternative means of recovery or refund. Further, other aspects of the business, such as generation assets and long-term power purchase commitments, would need to be reviewed to assess their recoverability in a changed regulatory environment. See Note 1 - Regulation.
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FPL Energy - FPL Energy's 2001 earnings growth was driven mainly by the expansion of its independent power generation portfolio. Portfolio additions that contributed to the earnings growth included a 495 mw natural gas-fired unit at Lamar Power Partners in the Central region, which became operational in late 2000, a 171 mw natural gas-fired peaking unit at its Doswell plant in the Mid-Atlantic region and five new wind projects totaling 843 mw in the Central and West regions. Earnings in 2001 also benefited from improved results from the Maine assets, primarily the result of asset optimization activities and higher capacity revenues, partly offset by higher administrative and interest expenses associated with the growth of the business.
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In 2000, FPL Energy's earnings also benefited from the expansion of its independent power generation portfolio, as well as increased revenues generated by the Maine assets as a result of warmer weather and higher prices in the Northeast during May 2000 and lower O&M expenses at Doswell. In 1999, the effect of a $176 million ($104 million after-tax) impairment loss (see Note 13) and higher administrative expenses to accommodate future growth more than offset the benefits of the growing generation portfolio and improved results from Doswell.
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Deregulation of the electric utility market presents both opportunities and risks for FPL Energy. Opportunities exist for the selective acquisition of generation assets that are being divested under deregulation plans and for the construction and operation of efficient plants that can sell power in competitive markets. Current wholesale market trends indicate the potential of an oversupply of generation and lower demand as a result of a weakening economy, which would likely result in lower wholesale electricity prices. FPL Energy believes that favorable conditions continue to exist in certain areas of the country and plans to move forward with the projects currently under construction. FPL Energy seeks to minimize its market risk by having a diversified portfolio, by fuel type and location, as well as by selling a significant amount of the electricity output of its plants through power sales agreements. In 2001, approximately 86% of FPL Energy's capacity was under contract. FPL Energy has approximately 8 0% of its 2002 capacity and more than 50% of its 2003 capacity currently under contracts which expire in 2002-27. As competitive wholesale markets become more accessible to other generators, obtaining power sales agreements will become a progressively more competitive process. FPL Energy expects that as its existing power sales agreements expire, more of the energy produced will be sold through shorter-term contracts and into competitive wholesale markets.
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Competitive wholesale markets in the United States continue to evolve and vary by geographic region. Revenues from electricity sales in these markets will vary based on the prices obtainable for energy, capacity and other ancillary services. Some of the factors affecting success in these markets include the ability to operate generating assets efficiently, the price and supply of fuel, transmission constraints, competition from new sources of generation, demand growth and exposure to legal and regulatory changes.
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On March 1, 2002, FPL Energy's projects received the majority of the payments due from California utilities for electricity sold from November 2000 through March 2001, which had been past due. FPL Group's remaining earnings exposure relating to past due receivables from these California utilities is not material.
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Corporate and Other - FPL FiberNet's 2001 earnings were more than offset by corporate expenses. FPL FiberNet's operating results were included in the corporate and other segment beginning in 2000. FPL FiberNet was formed in January 2000 to enhance the value of FPL Group's fiber-optic network assets that were originally built to support FPL operations. Accordingly, in January 2000, FPL's existing fiber-optic lines were transferred to FPL FiberNet. In 1999, net income for the corporate and other segment reflects a $149 million ($96 million after-tax) gain on the sale of an investment in Adelphia Communications Corporation common stock, a $108 million ($66 million after-tax) gain recorded by FPL Group Capital on the redemption of its one-third interest in a cable limited partnership, costs associated with closing a retail marketing business of $11 million ($7 million after-tax) and the favorable resolution of a prior year state tax matter of $10 million ($7 million after-tax). For information relate d to the positive resolution in March 2002 of a prior year tax matter, see Note 18 - Income Taxes.
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Merger
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In July 2000, FPL Group and Entergy announced a proposed merger, which was approved by the shareholders of the respective companies in December 2000. Subsequently, a number of factors led FPL Group to conclude the merger would not achieve the synergies or create the shareholder value originally contemplated when the merger was announced. As a result, on April 1, 2001, FPL Group and Entergy mutually terminated the merger agreement.
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In 2001, FPL Group recorded $30 million in merger-related expenses, of which FPL recorded $26 million ($16 million after-tax) and Corporate and Other recorded $4 million ($3 million after-tax). In 2000, FPL Group recorded $67 million in merger-related expenses, of which FPL recorded $62 million ($38 million after-tax), FPL Energy recorded $2 million ($1 million after-tax) and Corporate and Other recorded $3 million ($2 million after-tax). For additional information concerning the merger, see Note 11.
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Liquidity and Capital Resources
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In 2001, FPL Group Capital and a subsidiary of FPL Energy issued debt totaling $935 million and FPL redeemed approximately $65 million of bonds. The proceeds from the debt issuances were used in part to reduce FPL Group Capital's commercial paper balance. Debt maturities of FPL Group's subsidiaries will require cash outflows of approximately $1.750 billion ($795 million for FPL) through 2006, including $32 million in 2002. It is anticipated that cash requirements for capital expenditures, energy-related investments and debt maturities in 2002 will be satisfied with internally generated funds and from the issuance of debt and other securities. Internally generated funds may be affected by, among other things, regulatory actions, including the resolution of FPL's rate proceeding, weather conditions, changes in competitive wholesale markets and pricing and transportation of fuel and other energy commodities. Any internally generated funds not required for capital expenditures and current maturities may be used to reduce outstanding debt or repurchase common stock, or for investment. Any temporary cash needs will be met by short-term bank borrowings. Bank lines of credit currently available to FPL Group and its subsidiaries aggregate $3 billion ($2 billion for FPL Group Capital and $1 billion for FPL). One-half of these facilities have a 364-day term, with the remainder being a three-year term. These facilities are available to support the companies' commercial paper programs as well as for general corporate purposes.
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FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000 and 1999
Various states, other than Florida, have enacted legislation or have state commissions that issued orders designed to deregulate the production and sale of electricity. By allowing customers to choose their electricity supplier, deregulation is expected to result in a shift from cost-based rates to market-based rates for energy production and other services provided to retail customers. Similar initiatives are also being pursued on the federal level. Although the legislation and initiatives vary substantially, common areas of focus include when market-based pricing will be available for wholesale and retail customers, what existing prudently incurred costs in excess of the market-based price will be recoverable and whether generating assets should be separated from transmission, distribution and other assets. It is generally believed transmission and distribution activities would remain regulated.
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In 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 commission chose to split the energy study between wholesale and retail competition.In January 2001, the commission issued an interim report containing a proposal for restructuring Florida's wholesale electricity market, and no action was taken in the 2001 legislative session, which ended in May 2001. In December 2001, the commission issued a final report that recommended the removal of statutory barriers to entry for merchant plants and, according to the report, provides a discretionary transition to a "level playing field" for all generating assets. Under the commission's proposal, investor-owned utilities such as FPL could, at their discretion, transfer or sell their existing generating assets. The utility would have the right to six-year cost-based transition contracts to commit the capacity of assets sold or transferred back to the utili ty. Transfers to affiliates would be at net book value. Gains on sales of existing generating assets within the transition contract period would be shared with customers. Any losses would be absorbed by the utility's shareholders. The load-serving utilities would acquire new capacity through competitive bidding (which would be required if acquired from affiliates), negotiated contracts or from the short-term (spot) market. Transmission assets could be transferred (at net book value) to, or operated by, a FERC-approved regional transmission organization (RTO). The final report recommends no change to the retail competition structure until an effective competitive wholesale market has been developed. The commission's proposal may be addressed in the legislative session which takes place from January through March 2002, or in a subsequent session. In addition, the FERC has jurisdiction over potential changes which could affect competition in wholesale transactions.
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In 1999, the FERC issued its final order on RTOs which, under a variety of structures, provides for the independent operation of transmission systems for a given geographic area. In November 2001, the FERC issued an order providing guidance on how the FERC will proceed with the RTO development. The issues of scope and governance will be addressed within individual RTO dockets, after consultation with the state utility commissions. The issues of standardization of tariffs and market design will be addressed in a separate rulemaking docket. With regard to the operational deadline of the RTOs initially set for December 15, 2001, the FERC, in consultation with the state utility commissions, will set revised timelines in each of the individual RTO dockets.
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FPL as well as other investor-owned utilities in Florida had requested that the FPSC open a separate generic docket to address issues related to the utilities' participation in an independent RTO, pursuant to the FERC's 1999 order on RTOs. In June 2001, the FPSC decided to address on an expedited basis the RTO matters in conjunction with the base rate proceeding instead of in a generic docket. In December 2001, the FPSC ordered the utilities to file a modified RTO proposal by March 20, 2002. The FPSC has stated that the proposal should not involve the divestiture of transmission assets initially, but does not preclude the RTO from building or owning transmission assets in the future. In addition, the FPSC urged the utilities to continue participation in discussions with the FERC initiated in mid-2001 regarding the creation of a single RTO for the Southeast region of the United States, but did not recommend them joining it now. For subsequent events, see Note 18 -RTO.
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Revenues and Rates-FPL's retail and wholesale utility rate schedules are approved by the FPSC and the FERC, respectively. FPL records unbilled base revenues for the estimated amount of energy delivered to customers but not yet billed. Unbilled base revenues are included in customer receivables and amounted to $146 million and $137 million at December 31, 2001 and 2000, respectively. FPL's operating revenues also include amounts resulting from cost recovery clauses (see Regulation), certain revenue taxes and franchise fees. The majority of the energy produced by FPL Energy's independent power projects is sold through power sales agreements with utilities and revenue is recorded as electricity is delivered.
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FPL's current rate agreement, which became effective April 15, 1999 and expires on April 14, 2002, provides for a $350 million reduction in annual revenues from retail base operations allocated to all customers on a cents-per-kilowatt-hour basis. Additionally, the agreement sets forth a revenue sharing mechanism for each of the twelve-month periods covered by the agreement, whereby revenues from retail base operations in excess of a stated threshold are required to be shared on the basis of two-thirds refunded to retail customers and one-third retained by FPL. Revenues from retail base operations in excess of a second threshold are required to be refunded 100% to retail customers. For the twelve-month period ending April 14, 2002, the first threshold is $3.5 billion and the second threshold is $3.656 billion.
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The accrual for the refund associated with the revenue sharing mechanism is computed monthly for each twelve-month period of the rate agreement. At the beginning of each twelve-month period, planned revenues are reviewed to determine if it is probable that the threshold will be exceeded. If so, an accrual is recorded each month for a portion of the anticipated refund based on the relative percentage of year-to-date planned revenues to the total estimated revenues for the twelve-month period, plus accrued interest. In addition, if in any month actual revenues are above or below planned revenues, the accrual is increased or decreased as necessary to recognize the effect of this variance on the expected refund amount. The annual refund (including interest) is paid to customers as a credit to their June electric bill. At December 31, 2001 and 2000, the accrual for the revenue refund was approximately $62 million and $57 million, respectively.
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The rate agreement also lowered FPL's authorized regulatory return on common equity (ROE) range to 10% - 12%. During the term of the agreement, the achieved ROE may from time to time be outside the authorized range, and the revenue sharing mechanism described above is specified to be the appropriate and exclusive mechanism to address that circumstance. For purposes of calculating ROE, the agreement establishes a cap on FPL's adjusted equity ratio of 55.83%. The adjusted equity ratio reflects a discounted amount for off-balance sheet obligations under certain long-term purchased power contracts. Finally, the rate agreement established a new special depreciation program (see Electric Plant, Depreciation and Amortization) and includes provisions which limit depreciation rates and accruals for nuclear decommissioning and fossil dismantlement costs to the then approved levels and limit amounts recoverable under the environmental compliance cost recovery clause during the term of the rate agreement.
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In May 2001, the FPSC ordered FPL to submit minimum filing requirements (MFRs) to initiate a base rate proceeding regarding FPL's future retail rates. FPL completed the filing of MFRs with the FPSC on October 15, 2001 and supplemented these filings with information filed on November 9, 2001. Hearings are scheduled for April 2002 and a final decision is scheduled for June 2002. Any change in base rates would not become effective until after the expiration of FPL's current rate agreement on April 14, 2002. FPL is conducting settlement discussions with the FPSC staff, the State of Florida Office of Public Counsel and other parties. Also, as part of the rate case, the FPSC will consider FPL's request to increase the annual accrual to the storm and property insurance reserve fund (storm fund) by $30 million to $50.3 million. FPL has requested approval to establish a corresponding storm fund reserve objective of $500 million to be achieved over five years. At December 31, 2001, the storm fund reserve totale d approximately $235 million. See Storm Fund. For subsequent events, see Note 18 - Base Rate Proceeding.
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Electric Plant, Depreciation and Amortization - The cost of additions to units of utility property of FPL and FPL Energy is added to electric utility plant. In accordance with regulatory accounting, the cost of FPL's units of utility property retired, less net salvage, is charged to accumulated depreciation. Maintenance and repairs of property as well as replacements and renewals of items determined to be less than units of utility property are charged to other operations and maintenance (O&M) expenses. At December 31, 2001, the electric generating, transmission, distribution and general facilities of FPL represented approximately 44%, 13%, 37% and 6%, respectively, of FPL's gross investment in electric utility plant in service. Substantially all electric utility plant of FPL is subject to the lien of a mortgage securing FPL's first mortgage bonds. FPL Energy's Doswell generating facility is encumbered by liens against its assets securing bonds issued by an FPL Energy subsidiary in July 20 01.
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Depreciation of electric property is primarily provided on a straight-line average remaining life basis. FPL includes in depreciation expense a provision for fossil plant dismantlement and nuclear plant decommissioning (see Decommissioning and Dismantlement of Generating Plant). For substantially all of FPL's property, depreciation studies are performed and filed with the FPSC at least every four years. In April 1999, the FPSC granted final approval of FPL's most recent depreciation studies, which were effective January 1, 1998. The weighted annual composite depreciation rate for FPL's electric plant in service was approximately 4.2% for 2001, 4.2% for 2000 and 4.3% for 1999, excluding the effects of decommissioning and dismantlement. Further, these rates exclude the special and plant-related deferred cost amortization discussed below.
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Under the current rate agreement that reduced FPL's base rates (see Revenues and Rates), the FPSC allowed FPL to recover, as special depreciation, up to $100 million in each year of the three-year agreement period. The additional depreciation recovery was required to be applied to nuclear and/or fossil generating assets. Under this depreciation program, FPL recorded $100 million of special depreciation in the first twelve-month period and $71 million through December 31, 2000 of the second twelve-month period. Through December 31, 2001, FPL has not recorded any special depreciation for the third twelve-month period. On a calendar year basis, FPL recorded approximately $101 million and $70 million of special depreciation in 2000 and 1999, respectively, and nothing in 2001. FPL also recorded special amortization in the amount of $63 million in 1999 under a previous program approved by the FPSC. These costs are considered recoverable costs and are monitored through the monthly reporting process with the F PSC.
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Nuclear Fuel - FPL leases nuclear fuel for all four of its nuclear units. Nuclear fuel lease expense was $70 million, $82 million and $83 million in 2001, 2000 and 1999, respectively. Included in this expense was an interest component of $5 million, $9 million and $8 million in 2001, 2000 and 1999, respectively. Nuclear fuel lease payments and a charge for spent nuclear fuel disposal are charged to fuel expense on a unit of production method. These costs are recovered through the fuel clause. Under certain circumstances of lease termination, FPL is required to purchase all nuclear fuel in whatever form at a purchase price designed to allow the lessor to recover its net investment cost in the fuel, which totaled $133 million at December 31, 2001. For ratemaking, these leases are classified as operating leases. For financial reporting, the capital lease obligation is recorded at the amount due in the event of lease termination.
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Decommissioning and Dismantlement of Generating Plant - FPL accrues nuclear decommissioning costs over the expected service life of each unit. Nuclear decommissioning studies are performed at least every five years and are submitted to the FPSC for approval. FPL's latest nuclear decommissioning studies were approved by the FPSC in December 2001 and are effective in May 2002. The changes include a reduction in the annual decommissioning expense accrual to $79 million from $85 million and the reclassification of approximately $99 million of accumulated nuclear amortization to a regulatory liability, which will be amortized over the remaining life of the nuclear units. These studies assume prompt dismantlement for the Turkey Point Units Nos. 3 and 4 with decommissioning activities commencing in 2012 and 2013, respectively, when the current operating licenses expire. Current plans, which are consistent with the term of the existing operating licenses, call for St. Lucie Unit No. 1 to be mothballed begin ning in 2016 with decommissioning activities to be integrated with the prompt dismantlement of St. Lucie Unit No. 2 beginning in 2023. These studies also assume that FPL will be storing spent fuel on site pending removal to a U.S. government facility. The studies indicate FPL's portion of the ultimate costs of decommissioning its four nuclear units, including costs associated with spent fuel storage, to be $6.4 billion. Decommissioning expense accruals included in depreciation and amortization expense, were $85 million in each of the years 2001, 2000 and 1999. FPL's portion of the ultimate cost of decommissioning its four units, expressed in 2001 dollars, is currently estimated to aggregate $1.9 billion. At December 31, 2001 and 2000, the accumulated provision for nuclear decommissioning totaled approximately $1.7 billion and $1.5 billion, respectively, and is included in accumulated depreciation. See Electric Plant, Depreciation and Amortization and Accounting for Asset Retirement Obligations.
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Similarly, FPL accrues the cost of dismantling its fossil fuel plants over the expected service life of each unit. Fossil fuel plant dismantlement studies are performed and filed with the FPSC at least every four years. FPL's latest fossil fuel plant dismantlement studies were effective January 1, 1999. Fossil dismantlement expense was $16 million in 2001, $14 million in 2000 and $17 million in 1999 and is included in depreciation and amortization expense. FPL's portion of the ultimate cost to dismantle its fossil units is $482 million. At December 31, 2001 and 2000, the accumulated provision for fossil dismantlement totaled $253 million and $246 million, respectively, and is included in accumulated depreciation. See Electric Plant, Depreciation and Amortization.
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Restricted trust funds for the payment of future expenditures to decommission FPL's nuclear units are included in special use funds of FPL. Securities held in the decommissioning funds are carried at market value with market adjustments resulting in a corresponding adjustment to the accumulated provision for nuclear decommissioning. See Note 3 - Special Use Funds. Contributions to the funds are based on current period decommissioning expense. Additionally, fund earnings, net of taxes are reinvested in the funds. The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes.
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Accrual for Major Maintenance Costs -Consistent with regulatory treatment, FPL's estimated nuclear maintenance costs for each nuclear unit's next planned outage are accrued over the period from the end of the last outage to the end of the next planned outage. The accrual for nuclear maintenance costs at December 31, 2001 and 2000 totaled $23 million and $31 million, respectively, and is included in other liabilities. Any difference between the estimated and actual costs is included in O&M expenses when known.
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FPL Energy's estimated major maintenance costs for each unit's next planned outage are accrued over the period from the end of the last outage to the end of the next planned outage. The accrual for FPL Energy's major maintenance costs totaled $28 million and $33 million at December 31, 2001 and 2000, respectively. Any difference between the estimated and actual costs is included in O&M expenses when known.
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Construction Activity - In accordance with FPSC guidelines, FPL has elected not to capitalize interest or a return on common equity on construction projects. The cost of these construction projects is allowed as an element of rate base. FPL Group's unregulated operations capitalize interest on construction projects. Capitalized interest amounted to $55 million, $23 million and $9 million in 2001, 2000 and 1999, respectively.
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Storm Fund - The storm fund provides coverage toward storm damage costs and possible retrospective premium assessments stemming from a nuclear incident under the various insurance programs covering FPL's nuclear generating plants. Securities held in the fund are carried at market value with market adjustments resulting in a corresponding adjustment to the storm and property insurance reserve. See Note 3 - Special Use Funds and Note 15 - Insurance. Fund earnings, net of taxes, are reinvested in the fund. The tax effects of amounts not yet recognized for tax purposes are included in accumulated deferred income taxes. For information concerning FPL's request to the FPSC for an increase in contributions to the storm fund, see Revenues and Rates.
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Investments in Partnerships and Joint Ventures - FPL Energy has non-controlling non-majority owned interests in partnerships and joint ventures, essentially all of which are accounted for under the equity method. At December 31, 2001 and 2000, FPL Energy's investment in partnerships and joint ventures totaled $276 million and $196 million, respectively, which are included in other investments on FPL Group's consolidated balance sheets. FPL Energy provides certain services to the partnerships and joint ventures, including O&M and business management services. FPL Group's operating revenues for the years ended December 31, 2001, 2000 and 1999 include approximately $14 million, $15 million and $12 million, respectively, related to such services. The receivables at December 31, 2001 and 2000 for these services, as well as payroll and other payments made on behalf of these investments, were approximately $23 million and $20 million, respectively, and are included in other current assets on FPL Group's consolidated balance sheets. For information regarding notes receivable from these investments, see Note 3.
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Investments in Leveraged Leases- Subsidiaries of FPL Group have investments in leveraged leases, which at December 31, 2001 and 2000, totaled $155 million and $154 million, respectively, and are included in other investments on FPL Group's consolidated balance sheets. The related deferred tax liabilities totaled $135 million and $143 million at December 31, 2001 and 2000, respectively, and are included in accumulated deferred income taxes.
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Impairment of Long-Lived Assets - FPL Group evaluates on an ongoing basis the recoverability of its assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable as described in FAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." See Note 13.
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Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.
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Retirement of Long-Term Debt - The excess of FPL's reacquisition cost over the book value of long-term debt is deferred and amortized to expense ratably over the remaining life of the original issue, which is consistent with its treatment in the ratemaking process. See Regulation. FPL Group Capital Inc (FPL Group Capital) expenses this cost in the period incurred.
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Income Taxes - Deferred income taxes are provided on all significant temporary differences between the financial statement and tax bases of assets and liabilities. FPL Group's subsidiaries are included in the consolidated federal income tax return and determine their income tax provisions on the "separate return method." The deferred regulatory credit - income taxes of FPL represents the revenue equivalent of the difference in accumulated deferred income taxes computed under FAS 109, "Accounting for Income Taxes," as compared to regulatory accounting rules. This amount is being amortized in accordance with the regulatory treatment over the estimated lives of the assets or liabilities which resulted in the initial recognition of the deferred tax amount. Investment tax credits (ITC) for FPL are deferred and amortized to income over the approximate lives of the related property in accordance with the regulatory treatment. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets unless it is more likely than not that such assets will be realized.
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Energy Trading - FPL Energy engages in limited energy trading activities to optimize the value of electricity and fuel contracts and generating facilities, as well as to take advantage of expected favorable commodity price movements. These activities are accounted for at market value. FPL Energy's unrealized net trading gains and losses are recognized in other-net in FPL Group's consolidated statements of income. FPL Energy's realized gains and losses from trading in financial instruments are recorded net in operating revenues and realized gains and losses from trading in physical power contracts are recorded gross in operating revenues and fuel, purchased power and interchange in FPL Group's consolidated statements of income.
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Goodwill and Other Intangible Assets- Effective January 1, 2002, FPL Group adopted FAS 142, "Goodwill and Other Intangible Assets." Under this statement, the amortization of goodwill is no longer permitted. Instead, goodwill is assessed for impairment at least annually by applying a fair-value based test, with the initial impairment test to be completed by June 30, 2002. FPL Group recorded approximately $10 million in goodwill amortization expense in 2001. At December 31, 2001, FPL Group had approximately $365 million of goodwill recorded in other assets. Management is in the process of conducting the initial impairment test and is unable to estimate the effect, if any, on FPL Group's financial statements.
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Accounting for Asset Retirement Obligations- In August 2001, the Financial Accounting Standards Board (FASB) issued FAS 143, "Accounting for Asset Retirement Obligations." The statement requires that a liability for the fair value of an asset retirement obligation be recognized in the period in which it is incurred with the offsetting associated asset retirement costs capitalized as part of the carrying amount of the long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over its useful life. FPL and FPL Energy currently accrue for asset retirement obligations over the life of the related asset through depreciation and O&M expenses, respectively. At FPL, the net effect of recording the full fair value of asset retirement obligations and the associated increase in assets pursuant to FAS 143 will, in accordance with regulatory treatment, be recorded as a regulatory asset. Management is in the process of evaluating the impac t of implementing FAS 143 and is unable to estimate the effect, if any, on FPL Group's and FPL's financial statements. FPL Group and FPL will be required to adopt FAS 143 beginning in 2003. See Decommissioning and Dismantlement of Generating Plant.
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2. Employee Retirement Benefits
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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, fair value of assets and a statement of the funded status:
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Pension Benefits
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Other Benefits
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| 2001 | | 2000 | | 2001 | | 2000 | |
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| (millions) | |
Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Obligation at October 1 of prior year | $ | 1,205 | | | $ | 1,178 | | | $ | 350 | | | $ | 335 | | |
| Service cost | | 48 | | | | 44 | | | | 6 | | | | 5 | | |
| Interest cost | | 82 | | | | 77 | | | | 23 | | | | 22 | | |
| Participant contributions | | - | | | | - | | | | 1 | | | | 1 | | |
| Plan amendments | | 42 | | | | 6 | | | | - | | | | - | | |
| Actuarial (gains) losses- net | | 55 | | | | (20 | ) | | | 29 | | | | 4 | | |
| Benefit payments | | (79 | ) | | | (80 | ) | | | (22 | ) | | | (17 | ) | |
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Obligation at September 30 | | 1,353 | | | | 1,205 | | | | 387 | | | | 350 | | |
| | | | | | | |
Change in plan assets:
| | | | | | | | | | | | | | | | |
| Fair value of plan assets at October 1 of prior year | | 2,750 | | | | 2,555 | | | | 98 | | | | 111 | | |
| Actual return on plan assets | | (117 | ) | | | 284 | | | | (1 | ) | | | 7 | | |
| Participant contributions | | - | | | | - | | | | 1 | | | | 1 | | |
| Benefit payments and expenses | | (87 | ) | | | (89 | ) | | | (24 | ) | | | (21 | ) | |
| | | | | | | |
Fair value of plan assets at September 30 | | 2,546 | | | | 2,750 | | | | 74 | | | | 98 | | |
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Funded Status:
| | | | | | | | | | | | | | | | |
| Funded status at September 30 | | 1,193 | | | | 1,545 | | | | (313 | ) | | | (252 | ) | |
| Unrecognized prior service cost | | (39 | ) | | | (76 | ) | | | - | | | | - | | |
| Unrecognized transition (asset) obligation | | (70 | ) | | | (93 | ) | | | 38 | | | | 42 | | |
| Unrecognized (gain) loss | | (591 | ) | | | (993 | ) | | | 53 | | | | 15 | | |
| | | | | | | |
| Prepaid (accrued) benefit cost at FPL Group at December 31 | $ | 493 | | | $ | 383 | | | $ | (222 | ) | | $ | (195 | ) | |
| | | | | | | |
| Prepaid (accrued) benefit cost at FPL at December 31 | $ | 473 | | | $ | 371 | | | $ | (216 | ) | | $ | (191 | ) | |
| | | | | | | |
The following table provides the components of net periodic benefit cost for the plans:
|
|
| Pension Benefits | | Other Benefits | |
| |
| Years Ended December 31, | | Years Ended December 31, | |
| |
| 2001 | | 2000 | | 1999 | | 2001 | | 2000 | | 1999 | |
| | | | | |
| (millions) | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Service cost | $ | 48 | | | $ | 44 | | | $ | 46 | | | $ | 6 | | | $ | 5 | | | $ | 6 | | |
Interest cost | | 82 | | | | 77 | | | | 71 | | | | 24 | | | | 21 | | | | 21 | | |
Expected return on plan assets | | (185 | ) | | | (172 | ) | | | (156 | ) | | | (7 | ) | | | (7 | ) | | | (7 | ) | |
Amortization of transition (asset) obligation | | (23 | ) | | | (23 | ) | | | (23 | ) | | | 3 | | | | 4 | | | | 3 | | |
Amortization of prior service cost | | 5 | | | | (7 | ) | | | (8 | ) | | | - | | | | - | | | | - | | |
Amortization of (gains) losses | | (37 | ) | | | (31 | ) | | | (22 | ) | | | - | | | | - | | | | 1 | | |
Effect of Maine acquisition | | - | | | | - | | | | - | | | | - | | | | - | | | | 2 | | |
| | | | | | | | | | | |
Net periodic (benefit) cost at FPL Group | $ | (110 | ) | | $ | (112 | ) | | $ | (92 | ) | | $ | 26 | | | $ | 23 | | | $ | 26 | | |
| | | | | | | | | | | |
Net periodic (benefit) cost at FPL | $ | (102 | ) | | $ | (108 | ) | | $ | (89 | ) | | $ | 25 | | | $ | 23 | | | $ | 23 | | |
| | | | | | | | | | | |
The weighted-average discount rate used in determining the benefit obligations was 6.25% and 6.75% for 2001 and 2000, 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 (as related to other benefits), the projected 2002 trend assumptions used to measure the expected cost of benefits covered by the plans are 5.4% for persons up to age 65 and 5.2% thereafter. The rate is assumed to decrease over the next two years to the ultimate trend rate of 5% for all age groups and remain at that level thereafter.
|
Assumed health care cost trend rates can have a significant effect on the amounts reported for the health care plans. A 1% increase or decrease in assumed health care cost trend rates would have a corresponding effect on the service and interest cost components and the accumulated obligation of other benefits of approximately $1 million and $12 million, respectively. |
3. Financial Instruments
|
The carrying amounts of cash equivalents, commercial paper and note payable approximate fair values. At December 31, 2001 and 2000, other investments of FPL Group included financial instruments of approximately $600 million and $300 million, respectively, the majority of which consist of notes receivable that are carried at estimated fair value or cost, which approximates fair value. Notes receivable (long-and short-term) include approximately $120 million and $160 million at December 31, 2001 and 2000, respectively, due from partnerships and joint ventures in which FPL Energy has an ownership interest. The notes receivable mature 2002-14 and the majority bear interest at variable rates, which ranged from 5.575% to 8.7% at December 31, 2001 and 7% to 11.66% at December 31, 2000. Interest income on these notes totaling approximately $12 million, $13 million and $11 million for the years ended December 31, 2001, 2000 and 1999, respectively, is included in other-net in FPL Group's consolidated stat ements of income. The associated receivables as of December 31, 2001 and 2000 were approximately $0.5 million and $2 million, respectively, and are included in other current assets on FPL Group's consolidated balance sheets.
|
The following estimates of the fair value of financial instruments have been made using available market information and other valuation methodologies. However, the use of different market assumptions or methods of valuation could result in different estimated fair values.
|
|
December 31,
| |
|
| 2001 | | 2000 | |
| |
| Carrying
Amount | | Estimated
Fair Value | | Carrying
Amount | | Estimated
Fair Value | |
| | | |
| (millions) | |
Long-term debt of FPL, including current maturities
|
$
|
2,579
| | |
$
|
2,653
|
(a)
| |
$
|
2,642
| | |
$
|
2,621
|
(a)
| |
Long-term debt of FPL Group, including current maturities | $ | 4,890 | | | $ | 5,080 | (a) | | $ | 4,041 | | | $ | 4,080 | (a) | |
_____________________ |
(a) | Based on quoted market prices for these or similar issues. |
Special Use Funds- The special use funds consist of storm fund assets totaling $145 million and $140 million, and nuclear decommissioning fund assets totaling $1.463 billion and $1.357 billion at December 31, 2001 and 2000, respectively. Securities held in the special use funds are carried at estimated fair value based on quoted market prices. The nuclear decommissioning fund consists of approximately 40% equity securities and 60% municipal, government, corporate and mortgage- and other asset-backed debt securities with a weighted-average maturity of approximately eight years. The storm fund primarily consists of municipal debt securities with a weighted-average maturity of approximately five years. The cost of securities sold is determined on the specific identification method. The funds had approximate realized gains of $30 million and approximate realized losses of $16 million in 2001, $8 million and $15 million in 2000 and $32 million and $22 million in 1999, respectively. The funds had unrealized gains of approximately $208 million and $258 million at December 31, 2001 and 2000, respectively; the unrealized losses at those dates were approximately $9 million and $4 million. The proceeds from the sale of securities in 2001, 2000 and 1999 were approximately $1.8 billion, $2.0 billion and $2.7 billion, respectively.
|
4. Common Stock
|
Earnings per share- The reconciliation of basic and diluted earnings per share is shown below:
|
|
| Years Ended December 31, | |
|
| 2001 | | 2000 | | 1999 | |
| | |
| (millions, except per share amounts) | |
| | | | | | | | | |
Numerator (basic and assuming dilution): | | | | | | | | | |
Net income | $ | 781 | | $ | 704 | | $ | 697 | |
| | | | | |
| | | | | | | | | |
Denominator: | | | | | | | | | |
Weighted-average number of shares outstanding- basic | | 168.7 | | | 169.9 | | | 171.3 | |
Performance awards and options | | 0.2 | | | 0.3 | | | 0.2 | |
| | | | | |
Weighted-average number of shares outstanding- assuming dilution | | 168.9 | | | 170.2 | | | 171.5 | |
| | | | | |
| | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic | $ | 4.63 | | $ | 4.14 | | $ | 4.07 | |
Assuming dilution | $ | 4.62 | | $ | 4.14 | | $ | 4.07 | |
Shares issuable upon the exercise of stock options, which were not included in the denominator above due to their antidilutive effect, were 1.6 million in 2001, none in 2000 and 0.2 million in 1999.
|
In February 2002, FPL Group issued publicly-traded equity units which include a purchase contract that will be reflected in diluted earnings per share calculations using the treasury stock method. See Note 8.
|
Common Stock Dividend Restrictions- FPL Group's charter does not limit the dividends that may be paid on its common stock. As a practical matter, the ability of FPL Group to pay dividends on its common stock is dependent upon dividends paid to it by its subsidiaries, primarily FPL. FPL's charter and a mortgage securing FPL's first mortgage bonds contain provisions that, under certain conditions, restrict the payment of dividends and other distributions to FPL Group. These restrictions do not currently limit FPL's ability to pay dividends to FPL Group. In 2001, 2000 and 1999, FPL paid, as dividends to FPL Group, its net income available to FPL Group on a one-month lag basis.
|
Employee Stock Ownership Plan (ESOP)- The employee thrift plans of FPL Group include a leveraged ESOP feature. Shares of common stock held by the Trust for the thrift plans (Trust) are used to provide all or a portion of the employers' matching contributions. Dividends received on all shares, along with cash contributions from the employers, are used to pay principal and interest on an ESOP loan held by FPL Group Capital. Dividends on shares allocated to employee accounts and used by the Trust for debt service are replaced with an equivalent amount of shares of common stock at prevailing market prices.
|
ESOP-related compensation expense of approximately $24 million, $22 million and $21 million in 2001, 2000 and 1999, respectively, was recognized based on the fair value of shares allocated to employee accounts during the period. Interest income on the ESOP loan is eliminated in consolidation. ESOP-related unearned compensation included as a reduction of shareholders' equity at December 31, 2001 was approximately $202 million, representing 7 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 at December 31, 2001 was approximately $393 million.
|
Long-Term Incentive Plan- At December 31, 2001, approximately 9 million shares of common stock are reserved and 8.7 million available for awards to officers and employees of FPL Group and its subsidiaries under FPL Group's long-term incentive plan. Restricted stock is issued at market value at the date of grant, typically vests within four years and is subject to, among other things, restrictions on transferability. Performance awards are typically payable at the end of a three- or four-year performance period and are subject to risk of forfeiture if the specified performance criteria are not met within the vesting period.
|
The changes in awards under the incentive plan are as follows:
|
| | | | | Options(a) | |
|
| Restricted
Stock | | Performance
Awards(a) | |
Number
| | Weighted-Average
Exercise Price | |
| | | |
| | | | | | | | | | | | | | | | | |
Balances, December 31, 1998 | 216,800 | | | | 510,620 | | | | - | | | | | | - | | |
| Granted | 210,100 | (b) | | | 294,662 | (c) | | | 1,300,000 | (d) | | | | $ | 51.53 | | |
| Paid/released | - | | | | (78,640 | ) | | | - | | | | | | - | | |
| Forfeited | (13,500 | ) | | | (80,027 | ) | | | (200,000 | ) | | | | $ | 51.16 | | |
| | |
Balances, December 31, 1999 | 413,400 | | | | 646,615 | | | | 1,100,000 | | | | | $ | 51.59 | | |
| Granted | 28,350 | (b) | | | 465,614 | (c) | | | 564,950 | (d) | | | | $ | 39.64 | | |
| Paid/released/exercised | (264,800 | ) | | | (1,038,375 | ) | | | (1,060,726 | ) | | | | $ | 49.88 | | |
| Forfeited | (95,700 | ) | | | (54,854 | ) | | | (212,056 | ) | | | | $ | 50.51 | | |
| | |
Balances, December 31, 2000 | 81,250 | | | | 19,000 | | | | 392,168 | | | | | $ | 39.58 | | |
| Granted | 263,825 | (b) | | | 617,420 | (c) | | | 2,009,200 | (d) | | | | $ | 62.04 | | |
| Paid/released/exercised | (6,600 | ) | | | (41,492 | ) | | | (120,380 | ) | | | | $ | 39.01 | | |
| Forfeited | (30,750 | ) | | | (49,849 | ) | | | (137,174 | ) | | | | $ | 62.61 | | |
| | |
Balances, December 31, 2001 | 307,725 | | | | 545,079 | | | | 2,143,814 | (e) | | | | $ | 59.19 | | |
| | |
_____________________ | |
(a) | Performance awards and options resulted in 169,621, 373,431 and 252,572 assumed incremental shares of common stock outstanding for purposes of computing diluted earnings per share in 2001, 2000 and 1999, respectively. |
(b) | The weighted-average grant date fair value of restricted stock granted in 2001, 2000 and 1999 was $60.19, $45.55 and $53.21 per share, respectively. |
(c) | The weighted-average grant date fair value of performance awards in 2001, 2000 and 1999 was $70.25, $41.25 and $61.19 per share, respectively. |
(d) | The exercise price of each option granted in 2001, 2000 and 1999 equaled the market price of FPL Group stock on the date of grant. |
(e) | Of the options outstanding at December 31, 2001, 271,514 options were exercisable and had an exercise price ranging from $38.13 to $47.63 per share with a weighted-average exercise price of $39.83 per share and a weighted-average remaining contractual life of 8.2 years. The remainder of the outstanding options had exercise prices ranging from $54.00 to $65.13 per share with a weighted-average exercise price of $61.99 per share and a weighted-average remaining contractual life of 9.3 years. |
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 valuebased method of accounting as permitted by the statement. Stock-based compensation expense was approximately $22 million, $80 million and $13 million in 2001, 2000 and 1999, respectively. Stock-based compensation expense in 2000 reflects merger-related costs associated with the change in control provisions in FPL Group's long-term incentive plan. Compensation expense for restricted stock and performance shares is the same under the fair value and the intrinsic value based methods. Had compensation expense for the options been determined as prescribed by the fair value based method, FPL Group's net income and earnings per share would have been $775 million and $4.60 ($4.59 assuming dilution) in 2001, $696 million and $4.10 ($4.09 assuming dilution) in 2000 and $696 million and $4.06 (basic and assuming dilution) in 1999, respectively.
|
The fair value of the options granted in 2001, 2000 and 1999 were estimated on the date of the grant using the Black-Scholes option-pricing model with a weighted-average expected dividend yield of 4.23%, 3.82% and 3.81%, a weighted-average expected volatility of 19.01%, 20.27% and 17.88%, a weighted-average risk-free interest rate of 4.98%, 6.59% and 5.46% and a weighted-average expected term of 7 years, 10 years and 9.3 years, respectively.
|
Other- Each share of common stock has been granted a Preferred Share Purchase Right (Right), at an exercise price of $120, subject to adjustment, in the event of certain attempted business combinations. The Rights will cause substantial dilution to a person or group attempting to acquire FPL Group on terms not approved by FPL Group's board of directors.
|
5. Accounting for Derivative Instruments
|
Effective January 1, 2001, FPL Group and FPL adopted FAS 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by FAS 137 and 138 (collectively, FAS 133). As a result, beginning in January 2001, derivative instruments are recorded on FPL Group's and FPL's balance sheets as either an asset or liability (in other current assets, other assets, other current liabilities and other liabilities) measured at fair value. FPL Group and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in fuel purchases and electricity sales, as well as to optimize the value of power generation assets.
|
At FPL, changes in fair value are deferred as a regulatory asset or liability until the contracts are settled. Upon settlement, any gains or losses will be passed through the fuel clause and the capacity cost recovery clause (capacity clause).
|
For FPL Group's unregulated operations, predominantly FPL Energy, changes in the derivatives' fair value are recognized currently in earnings (in other-net) unless hedge accounting is applied. While substantially all of FPL Energy's derivative transactions are entered into for the purposes described above, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective. The hedging instrument's effectiveness is assessed utilizing regression analysis at the inception of the hedge and on at least a quarterly basis throughout its life. Hedges are considered highly effective when a correlation coefficient of .8 or higher is achieved. Substantially all of the transactions that FPL Group has designated as hedges are cash flow hedges which have expiration dates through December 2005. The effective portion of the gain or loss on a derivative instrument d esignated as a cash flow hedge is reported as a component of other comprehensive income and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. The ineffective portion of these hedges flows through earnings in the current period. Settlement gains and losses are included within the line items in the statements of income to which they relate.
|
In January 2001, FPL Group recorded in other-net a $2 million loss as the cumulative effect on FPL Group's earnings of a change in accounting principle representing the effect of those derivative instruments for which hedge accounting was not applied. For those contracts where hedge accounting was applied, the adoption of the new rules resulted in a credit of approximately $10 million to other comprehensive income for FPL Group.
|
During 2001, the FASB discussed and, from time to time throughout the year, issued guidance regarding when certain contracts for the purchase and sale of power and certain fuel supply contracts can be excluded from the provisions of FAS 133. In December 2001, final guidance on these issues was released and will be effective beginning April 1, 2002. Management is in the process of evaluating the new guidance and is unable to estimate the effects, if any, on FPL Group's and FPL's financial statements. One possible result of management's evaluation could be that certain of these contracts will have to be recorded on the balance sheet at fair value, with changes in fair value recorded in the income statement each reporting period.
|
6. Comprehensive Income
|
The following table provides the components of comprehensive income and accumulated other comprehensive income (loss):
|
|
| | | Accumulated
Other Comprehensive Income (Loss) | | | |
|
|
Net Income
| | Net Unrealized
Gains (Losses)
On Cash Flow
Hedges | |
Other
| | |
Total
| | |
Comprehensive
Income
| |
| | | | |
| (millions) | |
Balances, December 31, 1998
| | | | | | | |
$
|
- -
| | | |
$
|
1
| | |
$
|
1
| | | | | | | | |
| Net income | | $ | 697 | | | | | | | | | | | | | | | | | | | $ | 697 | | | |
| Net unrealized loss on securities (net of $1 tax benefit) | | | | | | | | | - | | | | | (2 | ) | | | (2 | ) | | | | (2 | ) | | |
| | | | | | | |
Balances, December 31, 1999 | | | | | | | | | - | | | | | (1 | ) | | | (1 | ) | | | $ | 695 | | | |
| |
| Net income | | $ | 704 | | | | | | | | | | | | | | | | | | | $ | 704 | | | |
| Net unrealized gain on securities (net of $1 tax expense) | | | | | | | | | - | | | | | 1 | | | | 1 | | | | | 1 | | | |
| | | | | | | |
Balances, December 31, 2000 | | | | | | | | | - | | | | | - | | | | - | | | | $ | 705 | | | |
| |
| Net income | | $ | 781 | | | | | | | | | | | | | | | | | | | $ | 781 | | | |
| Net unrealized loss on cash flow hedges: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| FAS 133 transition adjustment (net of $6 tax expense) | | | | | | | | | 10 | | | | | - | | | | 10 | | | | | 10 | | | |
| Net unrealized loss (net of $13 tax benefit) | | | | | | | | | (21 | ) | | | | - | | | | (21 | ) | | | | (21 | ) | | |
| Reclassification adjustment (net of $2 tax expense) | | | | | | | | | 3 | | | | | - | | | | 3 | | | | | 3 | | | |
| | | | | | | |
Balances, December 31, 2001 | | | | | | | | $ | (8 | ) | | | $ | - | | | $ | (8 | ) | | | $ | 773 | | | |
| | | | | | | |
The carryforward period for a capital loss from the disposition in a prior year of an FPL Group Capital subsidiary expired at the end of 1996. The amount of the deductible loss from this disposition was limited by Internal Revenue Service (IRS) rules. FPL Group is challenging the IRS loss limitation and the IRS is disputing certain other positions taken by FPL Group. Tax benefits, if any, associated with these matters will be reported in future periods when resolved. For subsequent events, see Note 18- Income Taxes.
|
10. Jointly-Owned Electric Utility Plant
|
FPL owns approximately 85% of St. Lucie Unit No. 2, 20% of the St. Johns River Power Park units and coal terminal and approximately 76% of Scherer Unit No. 4. At December 31, 2001, the proportionate share of FPL's gross investment in these units was $1.171 billion, $328 million and $566 million, respectively; accumulated depreciation was $793 million, $178 million and $308 million, respectively.
|
FPL is responsible for its share of the operating costs, as well as providing its own financing. These costs are included in FPL Group's and FPL's consolidated statements of income. At December 31, 2001, there was no significant balance of construction work in progress on these facilities. See Note 15- Litigation.
|
11. Merger
|
In July 2000, FPL Group and Entergy Corporation (Entergy) announced a proposed merger, which was approved by the shareholders of the respective companies in December 2000. Subsequently, a number of factors led FPL Group to conclude the merger would not achieve the synergies or create the shareholder value originally contemplated when the merger was announced. As a result, on April 1, 2001, FPL Group and Entergy mutually terminated the merger agreement. Both companies agreed that no termination fee is payable under the terms of the merger agreement as a result of this termination. Each company will bear its own merger-related expenses.
|
FPL Group recorded $30 million and $67 million in merger-related expenses in 2001 and 2000, respectively, of which FPL recorded $26 million ($16 million after-tax) and $62 million ($38 million after-tax). FPL Energy recorded $2 million ($1 million after-tax) in 2000 and Corporate and Other recorded $4 million ($3 million after-tax) and $3 million ($2 million after-tax) in 2001 and 2000, respectively.
|
12. Settlement of Litigation
|
In October 1999, FPL and the Florida Municipal Power Agency (FMPA) entered into a settlement agreement pursuant to which FPL agreed to pay FMPA a cash settlement; FPL agreed to reduce the demand charge on an existing power purchase agreement; and FPL and FMPA agreed to enter into a new power purchase agreement giving FMPA the right to purchase limited amounts of power in the future at a specified price. FMPA agreed to dismiss the lawsuit with prejudice, and both parties agreed to exchange mutual releases. The settlement reduced FPL's 1999 net income by $42 million.
|
In September 2000, a bankruptcy court approved the settlement of a contract dispute between FPL and two qualifying facilities. The settlement was approved by the FPSC in October 2000. In December 2000, under the terms of the settlement, the trustee was paid $222.5 million plus security deposits. The funds were subsequently distributed by the trustee as directed by the bankruptcy court. FPL will recover the cost of the settlement through the fuel and capacity clauses over a five-year period beginning January 1, 2002. Also, from the payment date to December 31, 2001, FPL did not receive a return on the unrecovered amount through the fuel and capacity clauses, but instead, the settlement amount was included as a rate base regulatory asset over that period. See Note 1 - Regulation.
|
13. Acquisition of Maine Assets
|
In 1999, FPL Energy completed the purchase of Central Maine Power Company's (CMP) non-nuclear generating assets, primarily fossil and hydro power plants, for $866 million. The purchase price was based on an agreement, subject to regulatory approvals, reached with CMP in January 1998. In October 1998, the FERC struck down transmission rules that had been in effect in New England since the 1970s. FPL Energy filed a lawsuit in November 1998 requesting a declaratory judgment that CMP could not meet the essential terms of the purchase agreement and, as a result, FPL Energy should not be required to complete the transaction. FPL Energy believed these FERC rulings regarding transmission constituted a material adverse effect under the purchase agreement because of the significant decline in the value of the assets caused by the rulings. The request for declaratory judgment was denied in 1999 and the acquisition was completed. The acquisition was accounted for under the purchase method of accounting, and the res ults of operating the Maine plants have been included in the consolidated financial statements since the acquisition date.
|
The FERC rulings regarding transmission, as well as the announcement of new entrants into the market and changes in fuel prices since January 1998, resulted in FPL Energy recording a $176 million pre-tax impairment loss to write down the fossil assets to their fair value, which was determined based on a discounted cash flow analysis. The impairment loss reduced FPL Group's 1999 results of operations and earnings per share by $104 million and $0.61 per share, respectively.
|
Most of the remainder of the purchase price was allocated to the hydro operations. The hydro plants and related goodwill are being amortized on a straight-line basis over the 40-year term of the hydro plant operating licenses. See Note 1 - Goodwill and Other Intangible Assets.
|
14. Divestiture of Cable Investments
|
In January 1999, an FPL Group Capital subsidiary sold 3.5 million common shares of Adelphia Communications Corporation stock and in October 1999 had its one-third ownership interest in a cable limited partnership redeemed, resulting in after-tax gains of approximately $96 million and $66 million, respectively. Both investments had been accounted for under the equity method.
|
15. 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 $4.4 billion for 2002 through 2004, including approximately $1.3 billion for 2002. At December 31, 2001, FPL Energy has made commitments in connection with the development and expansion of independent power projects totaling approximately $828 million. At December 31, 2001, subsidiaries of FPL Group, other than FPL, have guaranteed approximately $966 million of lease obligations, prompt performance payments, purchase and sale of power and fuel agreement obligations, debt service payments and other payments subject to certain contingencies.
|
Off-Balance Sheet Financing Arrangements-In 2000, an FPL Energy subsidiary entered into an operating lease agreement with a special purpose entity (SPE) lessor to lease a 535 megawatt (mw) combined-cycle power generation plant. At the inception of the lease, the lessor obtained the funding commitments required to complete the acquisition, development and construction of the plant through debt and equity contributions from investors who are not affiliated with FPL Group. At December 31, 2001 and 2000, the lessor had drawn $298 million and $127million, respectively, on a $425 million total commitment. Construction is expected to be completed in the third quarter of 2002. The FPL Energy subsidiary is acting as the lessor's agent to construct the plant and, upon completion, will lease the plant for a term of five years. Generally, if the FPL Energy subsidiary defaults during the construction period on its obligations under the agreement, a residual value guarantee payment equal to 89.9% of lessor capitalized costs incurred to date must be made by the FPL Energy subsidiary. However, under certain limited events of default during the construction period and the post-construction lease term, the FPL Energy subsidiary can be required to purchase the plant for 100% of costs incurred to date. Once construction is complete, the FPL Energy subsidiary is required to make rent payments in amounts intended to cover the lessor's debt service, a stated yield to equity holders and certain other costs; these payments are estimated to be $3 million in 2002, $13 million in each of the years 2003-06 and $10 million thereafter. The FPL Energy subsidiary has the option to purchase the plant for 100% of costs incurred to date at any time during construction or the remaining lease term. If the FPL Energy subsidiary does not elect to purchase the plant at the end of the lease term, a residual value guarantee (equal to 85% of total costs) must be paid and the plant will be sold. Any proceeds received by the l essor in excess of the outstanding debt and equity will be given to the FPL Energy subsidiary. FPL Group Capital has guaranteed the FPL Energy subsidiary's obligations under the lease agreement, which are included in the $966 million of guarantees discussed above. Additionally, at December 31, 2001, FPL Energy has posted cash collateral related to this transaction of $256 million (included in other assets on FPL Group's consolidated balance sheets). The equity holder controls the lessor. The lessor has represented that it has essentially no assets or obligations other than the plant under construction and the related debt and that total assets, total liabilities and equity of the lessor at December 31, 2001 were $307 million, $296 million and $11 million, respectively.
|
Also in 2000, another FPL Energy subsidiary entered into an operating lease agreement with an SPE related to the construction of certain turbines and related equipment (equipment). At the inception of the lease, the SPE arranged a total credit facility of $650 million to be funded through debt and equity contributions from investors who are not affiliated with FPL Group. At December 31, 2001 and 2000, the amounts outstanding under the facility were $42 million and $14million, respectively. Generally, if the FPL Energy subsidiary defaults during the construction period on its obligations under the agreement, a residual value guarantee payment equal to 89.9% of costs incurred to date must be made by the FPL Energy subsidiary. However, under certain limited events of default, the FPL Energy subsidiary can be required to purchase all equipment then in the facility for 100% of costs incurred to date. At any time during the construction period, FPL Energy may purchase any equipment for 100% o f payments made to date by the SPE to the equipment vendors. Upon completion of each item of equipment, FPL Energy may choose to purchase the equipment, remarket the equipment to another party or continue under the operating lease agreement to lease the equipment for the remainder of the five year term. The minimum annual lease payments are estimated to be $1 million, $6 million, $8 million, $7 million and $2 million for 2002, 2003, 2004, 2005 and 2006, respectively. If FPL Energy chooses to continue the lease, and does not choose to purchase the equipment at the end of the lease term, the FPL Energy subsidiary is subject to a residual value guarantee payment of 84% of the equipment cost. FPL Group Capital has guaranteed the FPL Energy subsidiary's obligations under the agreement, which are included in the $966 million of guarantees discussed above. The equity holder controls the lessor. The lessor has represented that it has essentially no assets or obligations other than the equipment under constructi on and the related debt and that total assets, total liabilities and equity of the SPE at December 31, 2001 were $41.7 million, $40.4 million and $1.3 million, respectively.
|
Insurance - Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of the insurance available from private sources and under an industry retrospective payment plan. In accordance with this Act, FPL maintains $200 million of private liability insurance, which is the maximum obtainable, and participates in a secondary financial protection system under which it is subject to retrospective assessments of up to $363 million per incident at any nuclear utility reactor in the United States, payable at a rate not to exceed $43 million per incident per year.
|
FPL participates in nuclear insurance mutual companies that provide $2.75 billion of limited insurance coverage for property damage, decontamination and premature decommissioning risks at its nuclear plants. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. FPL also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service because of an accident. In the event of an accident at one of FPL's or another participating insured's nuclear plants, FPL could be assessed up to $71 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 $235 million at December 31, 2001, 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 provide additional liquidity in the event of a T&D property loss. See Note 8.
|
Contracts - FPL Group has a long-term agreement for the supply of gas turbines through 2004 and for parts, repairs and on-site services through 2011, some of which have been assigned to the SPE that is funding the construction of turbines. See Off-Balance Sheet Financing Arrangements. In addition, FPL Energy has entered into various engineering, procurement and construction contracts to support its development activities through 2004. All of these contracts are intended to support expansion, primarily at FPL Energy, and the related commitments 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 mw of power through mid-2010 and 388 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 and the Southern Companies' contract is subject to minimum quantities. Capacity payments for the pay-for-performance contracts are subject to the qualifying facilities meeting certain contract conditions. In 2001, FPL entered into agreements with several electricity suppliers to purchase an aggregate of up to approximately 1,300 mw of pow er with expiration dates ranging from 2003 through 2007. In general, the agreements require FPL to make capacity payments and supply the fuel consumed by the plants under the contracts. FPL has medium- to long-term contracts for the transportation and supply of natural gas, coal and oil with various expiration dates through 2022. FPL Energy has long-term contracts for the transportation and supply 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 through 2006 under these contracts are estimated to be as follows:
|
| | | | | | | | | | |
| 2002 | | 2003 | | 2004 | | 2005 | | 2006 | |
| | | | |
| (millions) | |
FPL: | | | | | | | | | | | | | | | |
| Capacity payments: | | | | | | | | | | | | | | | |
| JEA and Southern Companies | $ | 190 | | $ | 190 | | $ | 190 | | $ | 190 | | $ | 200 | |
| Qualifying facilities | $ | 340 | | $ | 350 | | $ | 360 | | $ | 360 | | $ | 310 | |
| Other electricity suppliers | $ | 80 | | $ | 100 | | $ | 100 | | $ | 45 | | $ | 35 | |
| Minimum payments, at projected prices: | | | | | | | | | | | | | | | |
| Southern Companies - energy | $ | 50 | | $ | 60 | | $ | 50 | | $ | 60 | | $ | 60 | |
| Natural gas, including transportation | $ | 580 | | $ | 240 | | $ | 200 | | $ | 200 | | $ | 180 | |
| Coal | $ | 40 | | $ | 25 | | $ | 15 | | $ | 15 | | $ | 10 | |
| Oil | $ | 375 | | $ | - | | $ | - | | $ | - | | $ | - | |
FPL Energy:
| | | | | | | | | | | | | | | |
| Natural gas transportation | $ | 20 | | $ | 20 | | $ | 15 | | $ | 15 | | $ | 15 | |
Summary Compensation Table |
| |
| | | Annual Compensation | | Long-Term Compensation | | | |
| | | | | | | | |
Name and Principal Position
|
Year
| |
Salary
| |
Bonus(a)
| | Other
Annual
Compen-
sation | |
Restricted
Stock
Awards(b)
| | Securities
Underlying
Options
(#) | |
LTIP
Payouts(c)
| |
All Other
Compensa-
sation(d)
| |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
James L. Broadhead(e) | | 2001 | | $ | 992,750 | | $ | 3,137,210 | | $ | 19,760 | | $ | 2,785,115 | | 250,000 | | $ | - | | $ | 7,750 | |
| | Chairman of the Board | | 2000 | | | 974,400 | | | 1,132,740 | | | 20,632 | | | - | | - | | | 21,053,233 | | | 13,563,705 | |
| | of FPL Group and | | 1999 | | | 943,000 | | | 895,850 | | | 18,850 | | | 2,412,005 | | 250,000 | | | 1,083,272 | | | 12,658 | |
| | Chairman of the Board | | | | | | | | | | | | | | | | | | | | | | | |
| | and Chief Executive | | | | | | | | | | | | | | | | | | | | | | | |
| | Officer of FPL | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Lewis Hay III(f) | | 2001 | | | 254,264 | | | 522,806 | | | 6,435 | | | 1,116,930 | | 200,000 | | | - | | | 7,059 | |
| | President and Chief | | 2000 | | | 298,705 | | | 231,675 | | | 9,957 | | | - | | - | | | 4,859,143 | | | 11,059 | |
| | Executive Officer of | | 1999 | | | 145,077 | | | 212,364 | | | 6,151 | | | 1,281,891 | | 50,000 | | | 61,672 | | | 2,873 | |
| | FPL Group | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Paul J. Evanson | | 2001 | | | 693,000 | | | 1,652,207 | | | 11,113 | | | 1,157,250 | | 150,000 | | | - | | | 11,174 | |
| | President of FPL | | 2000 | | | 660,000 | | | 660,700 | | | 11,105 | | | - | | - | | | 10,395,654 | | | 8,544 | |
| | | | 1999 | | | 628,500 | | | 616,900 | | | 8,656 | | | 1,278,900 | | 150,000 | | | 458,985 | | | 13,539 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Dennis P. Coyle | | 2001 | | | 418,489 | | | 772,302 | | | 11,268 | | | 835,535 | | 100,000 | | | - | | | 8,372 | |
| | General Counsel and | | 2000 | | | 410,640 | | | 310,045 | | | 8,487 | | | - | | - | | | 5,892,417 | | | 7,900 | |
| | Secretary of FPL | | 1999 | | | 399,832 | | | 259,891 | | | 7,964 | | | 964,802 | | 100,000 | | | 236,783 | | | 10,259 | |
| | and FPL Group | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Lawrence J. Kelleher | | 2001 | | | 323,366 | | | 600,855 | | | 10,169 | | | 1,392,558 | | 100,000 | | | - | | | 10,511 | |
| | Senior Vice President | | 2000 | | | 316,680 | | | 240,723 | | | 11,952 | | | - | | - | | | 5,757,767 | | | 7,616 | |
| | Human Resources and | | 1999 | | | 306,475 | | | 220,662 | | | 10,213 | | | 964,802 | | 100,000 | | | 267,694 | | | 10,661 | |
| | Corporate Services of | | | | | | | | | | | | | | | | | | | | | | | |
| | FPL and Vice President, | | | | | | | | | | | | | | | | | | | | | | | |
| | Human Resources of | | | | | | | | | | | | | | | | | | | | | | | |
| | FPL Group | | | | | | | | | | | | | | | | | | | | | | | |
_____________________ | | | | | | | | | | | | | | | | | | | | | | | |
(a) | For 2001, represents annual incentive award payouts for each of the officers as follows: Mr. Broadhead $1,109,353, Mr. Hay $407,813, Mr. Evanson $707,200, Mr. Coyle $309,648 and Mr. Kelleher $244,126. In addition, for 2001, represents performance share award payouts under FPL Group's 1994 Long Term Incentive Plan for the performance period beginning January 1, 2001 and ending December 31, 2001. See note (c) below. The payout related to performance share awards for each of the officers was as follows: Mr. Broadhead $2,027,857, Mr. Hay $114,993, Mr. Evanson $945,007, Mr. Coyle $462,654 and Mr. Kelleher $356,729. Payouts were made in a combination of cash (for payment of income taxes) and shares of FPL Group common stock, valued at the closing price on the last business day preceding payout. Mr. Evanson deferred his performance share award payouts under FPL Group's Deferred Compensation Plan. |
(b) | At December 31, 2001, Mr. Broadhead held 50,000 shares of restricted common stock with a value of $2,820,000 that vest on January 2, 2002; Mr. Hay held 32,500 shares of restricted common stock with a value of $1,833,000 that vest as to 14,584 shares in 2002, 14,583 shares in 2003, and 3,333 shares in 2004; Mr. Evanson held 18,750 shares of restricted common stock with a value of $1,057,500 that vest as to 9,375 shares in each of years 2002 and 2003; Mr. Coyle held 15,000 shares of restricted common stock with a value of $846,000 that vest as to 7,500 shares in each of years 2002 and 2003; and Mr. Kelleher held 25,000 shares of restricted common stock with a value of $1,410,000 that vest as to 12,500 shares in each of years 2002 and 2003. Dividends at normal rates are paid on restricted common stock. |
(c) | For 2001, payouts were based on a performance period of one fiscal year and, in accordance with SEC rules, are reported under the "Bonus" column of this table. For 2000, upon a change of control as defined in the FPL Group's 1994 Long Term Incentive Plan on December 15, 2000, all performance criteria of performance-based awards, restricted stock and other stock-based awards held by executive officers were deemed fully achieved, and all such awards were deemed fully earned and vested. The performance criteria of performance-based awards were waived and the awards were paid out using an assumption of maximum performance for the named officers. |
(d) | For 2001, represents employer matching contributions to employee thrift plans and employer contributions for life insurance as follows: |
| |
| | Thrift Match | | Life Insurance | | | |
| |
| | Mr. Broadhead | $ | 7,288 | | | | $ | 462 | | | | | |
| | Mr. Hay | | 3,379 | | | | | 3,680 | | | | | |
| | Mr. Evanson | | 8,075 | | | | | 3,099 | | | | | |
| | Mr. Coyle | | 7,288 | | | | | 1,084 | �� | | | | |
| | Mr. Kelleher | | 7,288 | | | | | 3,223 | | | | | |
| | |
(e) | Mr. Broadhead resigned as president and chief executive officer of FPL Group on June 11, 2001, and resigned as chairman of the board of FPL Group and FPL and as chief executive officer of FPL on December 31, 2001. |
(f) | Mr. Hay joined FPL Group in July 1999 as vice president, finance and chief financial officer of FPL Group and senior vice president, finance and chief financial officer of FPL. He served as president of FPL Energy from March 2000 to December 2001 and was elected president and chief executive officer of FPL Group on June 11, 2001. He was elected chairman of the board of FPL Group and FPL and chief executive officer of FPL on January 1, 2002. |
Long Term Incentive Plan Awards - In 2001, performance share awards, shareholder value awards and non-qualified stock option awards under FPL Group's Long Term Incentive Plan were made to the executive officers named in the Summary Compensation Table as set forth in the following tables.
|
|
Performance Share Awards |
|
| | Number of Shares for Performance Period Until Payout | | |
| |
|
1/1/01 -
12/31/01
| |
1/1/01 -
12/31/02
| |
1/1/01 -
12/31/03
| |
1/1/01 -
12/31/04
| Estimated Future Payouts Under
Non-Stock Price-Based Plans |
|
Name | | | | Target # | | Maximum # |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
James L. Broadhead | | 29,140 | | | | 29,140 | | | | 29,140 | | | | 19,453 | | | | 106,873 | | | | 170,997 | | |
Lewis Hay III | | 5,294 | | | | 5,294 | | | | 5,294 | | | | 4,511 | | | | 20,393 | | | | 32,629 | | |
Paul J. Evanson | | 11,631 | | | | 11,631 | | | | 11,630 | | | | 7,799 | | | | 42,691 | | | | 68,306 | | |
Dennis P. Coyle | | 6,693 | | | | 6,693 | | | | 6,692 | | | | 4,473 | | | | 24,551 | | | | 39,282 | | |
Lawrence J. Kelleher | | 5,058 | | | | 5,058 | | | | 5,058 | | | | 3,456 | | | | 18,630 | | | | 29,808 | | |
The performance share awards in the preceding table are, under normal circumstances, payable at the end of the performance period indicated. The amount of the payout is determined by multiplying the participant's target number of shares by his average level of attainment, expressed as a percentage, which may not exceed 160%, of his targeted awards under the Annual Incentive Plans for the year or each of the years encompassed by the award period. Annual incentive compensation is based on the attainment of net income goals for FPL and FPL Group, which are established by the Compensation Committee of FPL Group's Board of Directors (the Committee) at the beginning of the year. The amounts earned on the basis of this performance measure are subject to reduction based on the degree of achievement of other corporate and business unit performance measures, and in the discretion of the Committee. FPL's portion of the performance share award payouts for the performance period ended December 31, 2001 are included i n the Summary Compensation Table above in the column entitled "Bonus". Mr. Broadhead's and Mr. Hay's annual incentive compensation for 2001 were based on the achievement of FPL Group's net income goals and the following performance measures for FPL (weighted 75%) and the non-utility and/or new businesses (weighted 25%) and upon certain qualitative factors. For FPL, the incentive performance measures were financial indicators (weighted 50%) and operating indicators (weighted 50%). The financial indicators were operations and maintenance costs, capital expenditure levels, net income, regulatory return on equity and operating cash flow. The operating indicators were service reliability as measured by the frequency and duration of service interruptions and service unavailability; system performance as measured by availability factors for the fossil power plants and an industry index for the nuclear power plants; employee safety; number of significant environmental violations; customer satisfaction survey re sults; load management installed capability; and conservation programs' annual installed capacity. For the non-utility and/or new businesses, the performance measures included total combined return on equity; non-utility net income and return on equity; corporate and other net income; creation of an asset optimization organization; employee safety; and number of significant environmental violations. The qualitative factors included measures to position FPL Group for increased competition and initiating other actions that significantly strengthen FPL Group and enhance shareholder value.
|
|
Shareholder Value Awards |
|
| | Number of Shares for Performance
Period Until Payout | | | |
| |
|
1/1/01 - 12/31/01
| |
1/1/01 - 12/31/02
| |
1/1/01 - 12/31/03
| | Estimated Future Payouts Under
Non-Stock Price-Based Plans | |
| | |
Name | | | Target # | | Maximum # | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | |
James L. Broadhead | | 22,197 | | | | 22,196 | | | | 13,264 | | | | 57,657 | | | | 92,251 | | |
Lewis Hay III | | 4,996 | | | | 4,996 | | | | 3,383 | | | | 13,375 | | | | 21,400 | | |
Paul J. Evanson | | 11,139 | | | | 11,138 | | | | 6,685 | | | 28,962 | | | | 46,339 | | |
Dennis P. Coyle | | 5,622 | | | | 5,622 | | | | 3,355 | | | | 14,599 | | | | 23,358 | | |
Lawrence J. Kelleher | | 4,296 | | | | 4,296 | | | | 2,592 | | | | 11,184 | | | | 17,894 | | |
The shareholder value awards in the preceding table are payable, under normal circumstances, at the end of the performance period indicated. The amount of the payout is determined by multiplying the participant's target number of shares by a factor derived by comparing the annual total shareholder return of FPL Group (price appreciation of FPL Group common stock plus dividends) to the total shareholder return of the Dow Jones Electric Utilities Index companies over the performance period. The payout may not exceed 160% of targeted awards. No payment was made with respect to the shareholder value awards for the performance period ended December 31, 2001.
|
Retirement Plans - FPL Group maintains a non-contributory defined benefit pension plan and a supplemental executive retirement plan (SERP). The FPL Group Employee Pension Plan and SERP were amended to a cash balance style plan effective April 1, 1997. Employees who were SERP participants on that date were not affected by the change, however. The following table shows the estimated annual benefits to employees not affected by the change, which includes all of the executive officers named in the Summary Compensation Table except Mr. Hay. Benefits are calculated on a straight-line annuity basis, payable on retirement in 2001 at age 65 after the indicated years of service. |
Pension Plan Table
|
|
Eligible Average
Annual Compensation
| |
Years of Service
| |
|
10 | | 20 | | 30 | | 40 | | 50 |
| | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | $ | 300,000 | | | $ | 58,588 | | $ | 117,165 | | $ | 145,753 | | $ | 154,137 | | $ | 156,525 | |
| | | 400,000 | | | | 78,588 | | | 157,165 | | | 195,753 | | | 206,637 | | | 209,025 | |
| | | 500,000 | | | | 98,588 | | | 197,165 | | | 245,753 | | | 259,137 | | | 261,525 | |
| | | 600,000 | | | | 118,588 | | | 237,165 | | | 295,753 | | | 311,637 | | | 314,025 | |
| | | 700,000 | | | | 138,588 | | | 277,165 | | | 345,753 | | | 364,137 | | | 366,525 | |
| | | 800,000 | | | | 158,588 | | | 317,165 | | | 395,753 | | | 416,637 | | | 419,025 | |
| | | 900,000 | | | | 178,588 | | | 357,165 | | | 445,753 | | | 469,137 | | | 471,525 | |
| | | 1,000,000 | | | | 198,588 | | | 397,165 | | | 495,753 | | | 521,637 | | | 524,025 | |
| | | 1,100,000 | | | | 218,588 | | | 437,165 | | | 545,753 | | | 574,137 | | | 576,525 | |
| | | 1,200,000 | | | | 238,588 | | | 477,165 | | | 595,753 | | | 626,637 | | | 629,025 | |
| | | 1,300,000 | | | | 258,588 | | | 517,165 | | | 645,753 | | | 679,137 | | | 681,525 | |
| | | 1,400,000 | | | | 278,588 | | | 557,165 | | | 695,753 | | | 731,637 | | | 734,025 | |
| | | 1,500,000 | | | | 298,588 | | | 597,165 | | | 745,753 | | | 784,137 | | | 786,525 | |
| | | 1,600,000 | | | | 318,588 | | | 637,165 | | | 795,753 | | | 836,637 | | | 839,025 | |
| | | 1,700,000 | | | | 338,588 | | | 677,165 | | | 845,753 | | | 889,137 | | | 891,525 | |
| | | 1,800,000 | | | | 358,588 | | | 717,165 | | | 895,753 | | | 941,637 | | | 944,025 | |
| | | 1,900,000 | | | | 378,588 | | | 757,165 | | | 945,753 | | | 994,137 | | | 996,525 | |
| | | 2,000,000 | | | | 398,588 | | | 797,165 | | | 995,753 | | | 1,046,637 | | | 1,049,025 | |
| | | 2,100,000 | | | | 418,588 | | | 837,165 | | | 1,045,753 | | | 1,099,137 | | | 1,101,525 | |
| | | 2,200,000 | | | | 438,588 | | | 877,165 | | | 1,095,753 | | | 1,151,637 | | | 1,154,025 | |
| | | 2,300,000 | | | | 458,588 | | | 917,165 | | | 1,145,753 | | | 1,204,137 | | | 1,206,525 | |
| | | 2,400,000 | | | | 478,588 | | | 957,165 | | | 1,195,753 | | | 1,256,637 | | | 1,259,025 | |
| | | 2,500,000 | | | | 498,588 | | | 997,165 | | | 1,245,753 | | | 1,309,137 | | | 1,311,525 | |
| | | 2,600,000 | | | | 518,588 | | | 1,037,165 | | | 1,295,753 | | | 1,361,637 | | | 1,364,025 | |
| | | 2,700,000 | | | | 538,588 | | | 1,077,165 | | | 1,345,753 | | | 1,414,137 | | | 1,416,525 | |
| | | 2,800,000 | | | | 558,588 | | | 1,117,165 | | | 1,395,753 | | | 1,466,637 | | | 1,469,025 | |
The compensation covered by the plans includes the annual salaries and annual incentive awards of the executive officers named in the above Summary Compensation Table, but no other amounts shown in the table. Estimated credited years of service for four of such executive officers are: Mr. Broadhead, 13 years; Mr. Evanson, 9 years; Mr. Coyle, 12 years and Mr. Kelleher, 34 years. Amounts shown in the table reflect deductions to partially cover employer contributions to social security.
|
Under the cash balance benefit formula, credits are accumulated in an employee's account and are determined as a percentage of the employee's monthly recognized earnings in accordance with the following formula:
|
|
|
Years of Service
| | Percent of
Compensation | | |
| |
| | | | | |
| | 0-5 | | | 4.5% | | |
| | 5 or more | | | 6.0% | | |
In addition, the employee's account is credited monthly with interest at an annual rate that is based upon the yield on one-year Treasury Constant Maturities. A higher rate can be provided at FPL Group's discretion.
|
Mr. Hay is the only named executive officer covered by the cash balance plan. His estimated age 65 annual retirement benefit payable under that plan is $219,128. This estimate assumes his 2001 pensionable earnings (which includes annual salary and annual incentive award as shown in the Summary Compensation Table) remain level and a cash balance interest crediting rate of 5.0%. The estimated age 65 cash balance account was converted to an annuity based on a 5.48% discount rate and 1983 GAM Unisex mortality. Mr. Hay's covered 2001 compensation for the cash balance plan for FPL Group and affiliates was $1,245,050.
|
A supplemental retirement plan for Mr. Hay provides a benefit equal to 65% of Mr. Hay's highest average annual compensation (annual salary plus annual incentive award) for the three consecutive calendar year periods out of the four consecutive calendar year period ending with the calendar year in which he retires (final average pay), reduced by the then annual amount of a joint and 50% survivor benefit (which is the actuarial equivalent of the benefits to which he is entitled under the non-contributory defined benefit pension plan and the SERP). If Mr. Hay terminates his employment prior to age 65, the benefit will be reduced on a pro rata basis if he fails to complete at least fifteen years of service with FPL Group, and it will be further reduced on an actuarial basis as a result of its early distribution. The plan provides a minimum annual joint and 50% survivor benefit (50% of final average pay) payable to Mr. Hay and his surviving spouse upon his termination of employment with FPL Group on his normal retirement age (age 65), reduced on an actuarial basis if he terminates before that age.
|
A supplemental retirement plan for Mr. Coyle provides for benefits based on two times his credited years of service. A supplemental retirement plan for Mr. Evanson provides for benefits based on two times his credited years of service up to age 65 and one times his credited years of service thereafter.
|
FPL Group sponsors a split-dollar life insurance plan for certain of FPL's and FPL Group's senior officers, including the FPL executive officers named in the Summary Compensation Table. Benefits under the split-dollar plan are provided by universal life insurance policies purchased by FPL Group. If the officer dies prior to retirement (defined to include age plus years of service), or for Mr. Kelleher during employment or after retirement but prior to age 65, the officer's beneficiaries generally receive two and one-half times the officer's annual salary at the time of death. If the officer dies after retirement, or for Mr. Kelleher on or after 65, but before termination of his split-dollar agreement, the officer's beneficiaries receive between 50% to 100% (100% to 180% depending upon age at time of death for Mr. Kelleher) of the officer's final annual salary. Upon termination of the agreement after 10 years, at age 65 or termination of employment which qualifies as retirement, whichever is later, the li fe insurance policies will be assigned to the officer or his beneficiary. Each officer is taxable on the insurance carrier's one-year term rate for his life insurance coverage.
|
Employment Agreements
|
2000 Agreements - On December 15, 2000, when FPL Group's shareholders approved a proposed merger with Entergy Corporation, previously-existing employment agreements between FPL Group and certain officers, including the individuals named in the Summary Compensation Table, became effective (the 2000 Agreements). The 2000 Agreements provide that the officer shall be employed by FPL Group or its affiliates for a period of four years (five years in the case of Mr. Broadhead) in a position at least commensurate with his position with FPL Group and/or its affiliates in December 2000. During the employment period the officer shall be paid an annual base salary at least equal to his annual base salary for 2000, with annual increases consistent with those awarded to other peer officers of FPL Group, but not less than the increases in the consumer price index; shall be paid an annual bonus at least equal to the highest bonus paid to him for any of the three years immediately preceding 2000; be given the opport unity to earn long term incentive compensation at least as favorable as such opportunities given to other peer officers of FPL Group during 2000 or thereafter and shall be entitled to participate in employee benefit plans providing benefits at least as favorable as those provided to other peer officers of FPL Group during 2000 or thereafter.
|
In the event that during the employment period the officer's employment is terminated by FPL Group (except for death, disability, or cause) or if the officer terminates his employment for good reason, as defined in the 2000 Agreement, the officer is entitled to severance benefits in the form of a lump-sum payment equal to the compensation due for the remainder of the employment period or for two years, whichever is longer. Such benefits would be based on the officer's then base salary plus an annual bonus at least equal to the bonus for the year 2000. The officer is also entitled to the maximum amount payable under all long term incentive compensation grants outstanding, continued coverage under all employee benefit plans, supplemental retirement benefits and a full gross-up in respect of any excise tax incurred as a result of the benefits received pursuant to the 2000 Agreement.
|
Amendments to 2000 Agreements - In February 2002, each executive officer named in the Summary Compensation Table (other than Mr. Broadhead who retired December 31, 2001) agreed to amend his 2000 Agreement, and, at the same time, enter into a new executive retention employment agreement with FPL Group (the 2002 Agreements). The definition of good reason contained in each 2000 Agreement was amended to provide FPL Group with greater flexibility to assign different duties and responsibilities to the named executive officers without triggering the officer's rights to terminate employment and be entitled to severance and other benefits. In order to avoid duplication of benefits, each 2000 Agreement was also amended to provide that if a change of control, as defined in the named executive officer's 2002 Agreement, occurs prior to the expiration of the 2000 Agreement, the 2000 Agreement will terminate and the 2002 Agreement will become effective.
|
2002 Agreements - If a change of control does not occur prior to the expiration of a named executive officer's 2000 Agreement, his 2002 Agreement will not become effective until the expiration of his 2000 Agreement and the subsequent occurrence of a potential change of control or a change of control, each as defined in the 2002 Agreement.
|
Change of control is defined in the 2002 Agreements as (i) the acquisition by any individual, entity, or group of 20% or more of either FPL Group's common stock or the combined voting power of FPL Group other than directly from FPL Group or pursuant to a merger or other business combination which does not itself constitute a change of control, (ii) the incumbent directors of FPL Group ceasing, for any reason, to constitute a majority of the board of directors, unless each director who was not an incumbent director was elected, or nominated for election, by a majority of the incumbent directors and directors subsequently so elected or appointed (excluding those elected as a result of an election contest), (iii) approval by shareholders or, if specified by the board of directors in the exercise of its discretion, consummation of a merger, sale of assets or other business combination as a result of which (x) the voting securities of FPL Group outstanding immediately prior to the transaction do not immediately f ollowing the transaction represent more than 60% of the common stock and the voting power of all voting securities of the resulting ultimate parent entity or (y) members of the board of directors of FPL Group constitute less than a majority of the members of the board of directors of the resulting ultimate parent entity, or there is no assurance that they, or their nominees, will constitute at least a majority of that board of directors for at least two years, or (iv) the shareholders approve the liquidation or dissolution of FPL Group. A potential change of control is defined as (i) announcement of an intention to take or consider taking actions which, if consummated or approved by shareholders, would constitute a change of control, or (ii) the acquisition by any individual, entity, or group of 15% or more of either the Common Stock or the combined voting power of the Corporation other than directly from the Corporation or pursuant to a merger or other business combination which does not itself constitute a change of control.
|
Once effective, each named executive officer's 2002 Agreement provides that he shall be employed by FPL Group for a period of three years in a position at least commensurate with his position with FPL Group in the ninety day period immediately preceding the effective date of the 2002 Agreement. During this three year employment period, each named executive officer shall be (i) paid an annual base salary at least equal to his annual base as in effect on the effective date, with annual increases consistent with those awarded to other peer officers of FPL Group, but not less than the increases in the consumer price index; (ii) paid an annual bonus (expressed as a percentage of his annual base salary) consistent with those of peer executives at FPL Group, but at least equal to the higher of (x) his targeted annual bonus for the then current fiscal year divided by his then current annual base salary or (y) the average percentage of his annual base salary (as in effect for the app licable years) that was paid or payable as an annual bonus for each of the three fiscal years preceding the fiscal year in which the effective date occurs (or, if higher, for each of the three fiscal years immediately preceding the fiscal year in which a change of control occurs, if a change of control occurs after the effective date); (iii) given the opportunity to earn long term incentive compensation no less favorable than such opportunities given to him at any time during the 90 days preceding the effective date or, if more favorable, those provided at any time after the effective date to peer officers of FPL Group (but without duplication of awards granted in connection with the shareholder approval of the proposed merger with Entergy); and (iv) entitled to participate in savings, retirement and other employee benefit plans providing benefits no less favorable than those provided to him at any time during the 90 days preceding the effective date or, if more favorable, those provided at any time after th e effective date to peer officers of FPL Group.
|
In the event of a change of control, each 2002 Agreement provides that (i) 50% of a named executive officer's outstanding performance stock-based awards (performance share awards and shareholder value awards) shall be vested and earned at an achievement level equal to the higher of (x) the targeted level of performance of each such award or (y) the average level (expressed as a percentage of target) of achievement in respect of similar awards maturing over the three fiscal years immediately prior to the year in which the change of control occurred; (ii) all other outstanding stock-based awards granted to the named executive officer shall be fully vested and earned; (iii) all options and other exercisable rights granted to the named executive officer shall become exercisable and vested; and (iv) the restrictions, deferral limitations and forfeiture conditions applicable to all outstanding awards granted to the named executive officer shall lapse and such awards shall be deemed fully vested. However, no awards which were granted to a named executive officer in connection with the shareholder approval of the proposed merger with Entergy shall become vested, earned or exercisable under the 2002 Agreements as a result of a change of control.
|
A named executive officer will receive the remaining 50% of the outstanding performance stock-based awards (calculated in the same manner as described above) on the first anniversary of the change of control if he has remained employed by FPL Group or an affiliate through such date or upon an earlier termination of employment by FPL Group (except for death, disability or cause) or by the named executive officer for good reason (defined in the same manner as in the amended 2000 Agreement). Upon such a termination of employment following a change of control and during the employment period, the named executive officer is entitled to, among other things, a lump sum severance payment equal to three times the sum of his annual base salary plus his annual bonus; a payment in respect of three years of foregone supplemental retirement benefits; continued coverage under all employee benefit plans, and certain other benefits and perquisites, for three years; and a full gross-up in respect of any excise tax incurred a s a result of the benefits received pursuant to the 2002 Agreement. Such amounts and benefits would also be provided if such a termination of a named executive officer occurs following a potential change of control and prior to an actual change of control, and during the employment period, except that 100% of the outstanding performance stock-based awards (calculated as described above) would be vested and earned, excluding any such awards granted in connection with the shareholder approval of the proposed merger with Entergy. In addition, each named executive officer will also receive a pro rata portion (based upon deemed employment until the end of the three year employment period) of each long term incentive compensation award granted to him on or after the date of the change of control; provided that a named executive officer will not be eligible to receive any payment with respect to any non-vested portion of an award which was granted in connection with the shareholder approval of the proposed merge r with Entergy.
|
| | Exhibit
Number | | |
Description
| | FPL
Group | |
FPL
| |
| | | |
| | | | | | | |
| | *2 | Merger Termination and Release Agreement dated April 1, 2001 (filed as
Exhibit 2 to FPL Group's and FPL's Form 8-K dated April 1, 2001, File
Nos. 1-8841 and 1-3545, respectively) | x | | x | |
| |
*3(i)a
|
Restated Articles of Incorporation of FPL Group dated December 31, 1984,
as amended through December 17, 1990 (filed as Exhibit 4(a) to Post-
Effective Amendment No. 5 to Form S-8, File No. 33-18669)
|
x
| | | |
| |
*3(i)b
|
Amendment to FPL Group's Restated Articles of Incorporation dated June 27,
1996 (filed as Exhibit 3 to Form 10-Q for the quarter ended June 30, 1996,
File No. 1-8841)
|
x
| | | |
| |
*3(i)c
|
Restated Articles of Incorporation of FPL dated March 23, 1992 (filed as
Exhibit 3(i)a to Form 10-K for the year ended December 31, 1993, File No.
1-3545)
| | |
x
| |
| |
*3(i)d
|
Amendment to FPL's Restated Articles of Incorporation dated March 23, 1992
(filed as Exhibit 3(i)b to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
| | |
x
| |
| |
*3(i)e
|
Amendment to FPL's Restated Articles of Incorporation dated May 11, 1992
(filed as Exhibit 3(i)c to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
| | |
x
| |
| |
*3(i)f
|
Amendment to FPL's Restated Articles of Incorporation dated March 12, 1993
(filed as Exhibit 3(i)d to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
| | |
x
| |
| |
*3(i)g
|
Amendment to FPL's Restated Articles of Incorporation dated June 16, 1993
(filed as Exhibit 3(i)e to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
| | |
x
| |
| |
*3(i)h
|
Amendment to FPL's Restated Articles of Incorporation dated August 31, 1993
(filed as Exhibit 3(i)f to Form 10-K for the year ended December 31, 1993,
File No. 1-3545)
| | |
x
| |
| |
*3(i)i
|
Amendment to FPL's Restated Articles of Incorporation dated November 30,
1993 (filed as Exhibit 3(i)g to Form 10-K for the year ended December 31,
1993, File No. 1-3545)
| | |
x
| |
| |
*3(ii)a
|
Bylaws of FPL Group as amended February 12, 2001 (filed as Exhibit 3(ii)a
to Form 10-K for the year ended December 31, 2000, File No. 1-8841)
|
x
| |
| |
| |
*3(ii)b
|
Bylaws of FPL dated May 11, 1992 (filed as Exhibit 3 to Form 8-K dated
May 1, 1992, File No. 1-3545)
| | |
x
| |
| |
*4(a)
|
Form of Rights Agreement, dated as of July 1, 1996, between FPL Group
and Equiserve Trust Company, N.A. as successor to Fleet National Bank
(f/k/a The First National Bank of Boston), as Rights Agent (filed as Exhibit
4 to Form 8-K dated June 17, 1996, File No. 1-8841)
|
x
| | | |
| |
*4(b)
|
Amendment to Rights Agreement dated as of July 30, 2000, between FPL
Group and Equiserve Trust Company, N.A. as successor to Fleet National
Bank (f/k/a The First National Bank of Boston), as the Rights Agent (filed as
Exhibit 2 to Form 8-A/A dated July 31, 2000, File No. 1-8841)
|
x
| | | |
| |
*4(c)
|
Mortgage and Deed of Trust dated as of January 1, 1944, and One hundred
and one Supplements thereto, between FPL and Bankers Trust Company
and The Florida National Bank of Jacksonville, Trustees (as of
September 2, 1992, the sole trustee is Bankers Trust Company) (filed as
Exhibit B-3, File No. 2-4845; Exhibit 7(a), File No. 2-7126; Exhibit 7(a),
File No. 2-7523; Exhibit 7(a), File No. 2-7990; Exhibit 7(a), File No. 2-9217;
Exhibit 4(a)-5, File No. 2-10093; Exhibit 4(c), File No. 2-11491;
Exhibit 4(b)-1, File No. 2-12900; Exhibit 4(b)-1, File No. 2-13255;
Exhibit 4(b)-1, File No. 2-13705; Exhibit 4(b)-1, File No. 2-13925;
Exhibit 4(b)-1, File No. 2-15088; Exhibit 4(b)-1, File No. 2-15677; Exhibit
4(b)-1, File No. 2-20501; Exhibit 4(b)-1, File No. 2-22104; Exhibit 2(c),
File No. 2-23142; Exhibit 2(c), File No. 2-24195; Exhibit 4(b)-1, File No.
2-25677; Exhibit 2(c), File No. 2-27612; Exhibit 2(c), File No. 2-29001;
Exhibit 2(c), File No. 2-30542; Exhibit 2(c), File No. 2-33038; Exhibit 2(c),
File No. 2-37679; Exhibit 2(c), File No. 2-39006; Exhibit 2(c), File
No. 2-41312; Exhibit 2(c), File No. 2-44234; Exhibit 2(c), File No. 2-46502;
Exhibit 2(c), File No. 2-48679; Exhibit 2(c), File No. 2-49726; Exhibit 2(c),
File No. 2-50712; Exhibit 2(c), File No. 2-52826; Exhibit 2(c), File No.
2-53272; Exhibit 2(c), File No. 2-54242; Exhibit 2(c), File No. 2-56228;
Exhibits 2(c) and 2(d), File No. 2-60413; Exhibits 2(c) and 2(d), File
No. 2-65701; Exhibit 2(c), File No. 2-66524; Exhibit 2(c), File No.
2-67239; Exhibit 4(c), File No. 2-69716; Exhibit 4(c), File No. 2-70767;
Exhibit 4(b), File No. 2-71542; Exhibit 4(b), File No. 2-73799; Exhibits
4(c), 4(d) and 4(e), File No. 2-75762; Exhibit 4(c), File No. 2-77629;
Exhibit 4(c), File No. 2-79557; Exhibit 99(a) to Post-Effective Amendment
No. 5 to Form S-8, File No. 33-18669; Exhibit 99(a) to Post-Effective
Amendment No. 1 to Form S-3, File No. 33-46076; Exhibit 4(b) to Form
10-K for the year ended December 31, 1993, File No. 1-3545; Exhibit
4(i) to Form 10-Q for the quarter ended June 30, 1994, File No. 1-3545;
Exhibit 4(b) to Form 10-Q for the quarter ended June 30, 1995, File
No. 1-3545; Exhibit 4(a) to Form 10-Q for the quarter ended March 31,
1996, File No. 1-3545; Exhibit 4 to Form 10-Q for the quarter ended
June 30, 1998, File No. 1-3545; Exhibit 4 to Form 10-Q for the
quarter ended March 31, 1999, File No. 1-3545; Exhibit 4(f) to Form 10-K
for the year ended December 31, 2000, File No. 1-3545; and Exhibit 4(g)
to Form 10-K for the year ended December 31, 2000, File No. 1-3545)
|
x
| |
x
| |
| |
*4(d)
|
Indenture, dated as of June 1, 1999, between FPL Group Capital Inc and
The Bank of New York, as Trustee (filed as Exhibit 4(a) to Form 8-K
dated July 16, 1999, File No. 1-8841)
|
x
| | | |
| |
*4(e)
|
Guarantee Agreement between FPL Group, Inc. (as Guarantor) and
The Bank of New York (as Guarantee Trustee) dated as of June 1, 1999
(filed as Exhibit 4(b) to Form 8-K dated July 16, 1999, File No. 1-8841)
|
x
| | | |
| |
*4(f)
|
Officer's Certificate of FPL Group Capital Inc, dated June 29, 1999,
creating the 6 7/8% Debentures, Series due June 1, 2004 (filed as
Exhibit 4(c) to Form 8-K dated July 16, 1999, File No. 1-8841)
|
x
| | | |
| |
*4(g)
|
Officer's Certificate of FPL Group Capital Inc, dated June 29, 1999,
creating the 7 3/8% Debentures, Series due June 1, 2009 (filed as
Exhibit 4(d) to Form 8-K dated July 16, 1999, File No. 1-8841)
|
x
| | | |
| |
*4(h)
|
Officer's Certificate of FPL Group Capital Inc, dated September 7, 1999,
creating the 7 5/8% Debentures, Series due September 15, 2006
(filed as Exhibit 4 to Form 10-Q for the quarter ended September 30,
1999, File No. 1-8841)
|
x
| | | |
| |
*4(i)
|
Officer's Certificate of FPL Group Capital Inc, dated May 11, 2001,creating
the 6 1/8% Debentures, Series due May 15, 2007 (filedas Exhibit 4 to
Form 10-Q for the quarter ended June 30, 2001, File No. 1-8841)
|
x
| | | |
| |
4(j)
|
Officer's Certificate of FPL Group Capital Inc, dated February 4, 2002,
creating the Series A Debentures due February 16, 2007
|
x
| | | |
| |
4(k)
|
Purchase Contract Agreement, dated as of February 1, 2002, between
FPL Group, Inc. and The Bank of New York, as Purchase Contract Agent
and Trustee
|
x
| |
x
| |
| |
4(l)
|
Pledge Agreement, dated as of February 1, 2002, among FPL Group, Inc.,
JPMorgan Chase Bank, as Collateral Agent, Custodial Agent and Securities
Intermediary, and The Bank of New York, as Purchase Contract Agent
|
x
| | | |
| |
*10(a)
|
FPL Group Supplemental Executive Retirement Plan, amended and
restated effective April 1, 1997 (filed as Exhibit 10(a) to Form 10-K for the
year ended December 31, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(b)
|
Amendments # 1 and 2 effective January 1, 1998 to FPL Group
Supplemental Executive Retirement Plan, amended and restated effective
April 1, 1997 (filed as Exhibit 10(b) to Form 10-K for the year ended
December 31, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(c)
|
Amendment #3 effective January 1, 1999 to FPL Group Supplemental
Executive Retirement Plan, amended and restated effective April 1, 1997
(filed as Exhibit 10(c) to Form 10-K for the year ended December 31,
1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(d)
|
Supplement to the FPL Group Supplemental Executive Retirement Plan
as it applies to Paul J. Evanson effective January 1, 1996 (filed as
Exhibit 10(b) to Form 10-K for the year ended December 31, 1996, File
No. 1-8841)
|
x
| |
x
| |
| |
*10(e)
|
Supplement to the FPL Group Supplemental Executive Retirement Plan
as it applies to Thomas F. Plunkett (filed as Exhibit 10(e) to Form 10-K
for the year ended December 31, 1997, File No. 1-8841)
|
x
| |
x
| |
| |
*10(f)
|
Supplemental Executive Retirement Plan for Dennis P. Coyle effective
November 15, 1993 (filed as Exhibit 10(f) to Form 10-K for the year
ended December 31, 2000, File No. 1-8841)
|
x
| |
x
| |
| |
10(g)
|
Supplement to the FPL Group Supplemental Executive Retirement Plan
as it applies to Lewis Hay III effective March 22, 2002
|
x
| |
x
| |
| |
10(h)
|
Supplement to the FPL Group Supplemental Executive Retirement Plan
as it applies to Ronald F. Green effective December 17, 2001
|
x
| | | |
| |
10(i)
|
FPL Group, Inc. Amended and Restated Long Term Incentive Plan,
as amended and restated February 11, 2002
|
x
| |
x
| |
| |
*10(j)
|
Annual Incentive Plan (filed as Exhibit 10(h) to Form 10-K for the
year ended December 31, 2000, File No. 1-8841)
|
x
| |
x
| |
| |
*10(k)
|
FPL Group, Inc. Deferred Compensation Plan, amended and restated
effective January 1, 2001 (filed as Exhibit 10(a) to Form 10-Q for the
quarter ended June 30, 2001, File No. 1-8841)
|
x
| |
x
| |
| |
*10(l)
|
FPL Group Executive Long Term Disability Plan effective January 1, 1995
(filed as Exhibit 10(g) to Form 10-K for the year ended December 31,
1995, File No. 1-8841)
|
x
| |
x
| |
| |
*10(m)
|
Employment Agreement between FPL Group and James L. Broadhead,
amended and restated as of May 10, 1999 (filed as Exhibit 10(a) to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(n)
|
Employment Agreement between FPL Group and Dennis P. Coyle,
amended and restated as of May 10, 1999 (filed as Exhibit 10(b) to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(o)
|
Employment Agreement between FPL Group and Paul J. Evanson,
amended and restated as of May 10, 1999 (filed as Exhibit 10(c) to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(p)
|
Employment Agreement between FPL Group and Lewis Hay III, dated
as of September 13, 1999 (filed as Exhibit 10(d) to Form 10-Q for the
quarter ended September 30, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(q)
|
Employment Agreement between FPL Group and Lawrence J. Kelleher,
amended and restated as of May 10, 1999 (filed as Exhibit 10(e) to
Form 10-Q for the quarter ended September 30, 1999, File No. 1-8841)
|
x
| |
x
| |
| |
*10(r)
|
Employment Agreement between FPL Group and Armando J. Olivera,
dated as of June 12, 2000 (filed as Exhibit 10(a) to Form 10-Q for the
quarter ended June 30, 2000, File No. 1-8841)
|
x
| |
x
| |
| |
*10(s)
|
Employment Agreement between FPL Group and Antonio Rodriguez,
dated as of June 12, 2000 (filed as Exhibit 10(b) to Form 10-Q for the
quarter ended June 30, 2000, File No. 1-8841)
|
x
| |
x
| |
| |
*10(t)
|
FPL Group, Inc. Non-Employee Directors Stock Plan dated as of March 17,
1997 (filed as Appendix A to FPL Group's 1997 Proxy Statement, File No.
1-8841)
|
x
| | | |
| |
*10(u)
|
Form of Split-Dollar Agreement between FPL Group and each of James L.
Broadhead, Dennis P. Coyle, Paul J. Evanson, Lewis Hay III, Lawrence J.
Kelleher, Armando J. Olivera and Thomas F. Plunkett (filed as Exhibit 10(w)
to Form 10-K for the year ended December 31, 2000, File No. 1-8841)
|
x
| |
x
| |
| |
10(v)
|
Consulting Agreement between FPL Group and James L. Broadhead,
dated as of December 17, 2001 |
x
| |
x
| |
| |
10(w)
|
Form of Amendment to Employment Agreement between FPL Group and
each of Dennis P. Coyle, Paul J. Evanson, Lewis Hay III, Lawrence J. Kelleher,
Armando J. Olivera and Antonio Rodriguez
|
x
| |
x
| |
| |
10(x)
|
Generic Form of Executive Retention Employment Agreement between
FPL Group and each of Dennis P. Coyle, Paul J. Evanson, Lewis Hay III,
Lawrence J. Kelleher, Armando J. Olivera and Antonio Rodriguez
|
x
| |
x
| |
| |
10(y)
|
Guarantee Agreement between FPL Group, Inc. and FPL Group Capital Inc,
dated as of October 14, 1998
|
x
| | | |
| |
12(a)
|
Computation of Ratio of Earnings to Fixed Charges
|
x
| | | |
| |
12(b)
|
Computation of Ratios
|
| |
x
| |
| |
21
|
Subsidiaries of the Registrant
|
x
| | | |
| |
23
|
Independent Auditors' Consent
|
x
| |
x
| |
____________________ | |
*Incorporated herein by reference |
|
FPL Group and FPL agree to furnish to the Securities and Exchange Commission upon request any instrument with respect to long-term debt that FPL Group and FPL have not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.
|
(b)
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Reports on Form 8-K
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A Current Report on Form 8-K was filed with the Securities and Exchange Commission on October 10, 2001 by FPL Group and FPL reporting one event under Item 9. Regulation FD Disclosure.
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