Edgar Filing: FLORIDA POWER & LIGHT CO

form10q093009.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009

Commission File Number	Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number	IRS Employer Identification Number

1-8841	FPL GROUP, INC.	59-2449419
2-27612	FLORIDA POWER & LIGHT COMPANY	59-0247775
	700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000

State or other jurisdiction of incorporation or organization: Florida

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days.

FPL Group, Inc. Yes þ No ¨ Florida Power & Light Company Yes þ No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

FPL Group, Inc. Yes þ No ¨ Florida Power & Light Company Yes ¨ No ¨

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

FPL Group, Inc.	Large Accelerated Filer þ	Accelerated Filer ¨	Non-Accelerated Filer ¨	Smaller Reporting Company ¨
Florida Power & Light Company	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer þ	Smaller Reporting Company ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No þ

The number of shares outstanding of FPL Group, Inc. common stock, as of the latest practicable date: common stock, $0.01 par value, outstanding as of September 30, 2009: 413,347,264 shares.

As of September 30, 2009, there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by FPL Group, Inc.

¾¾¾¾¾¾¾¾¾¾¾¾¾¾

This combined Form 10-Q represents separate filings by FPL Group, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations.

Florida Power & Light Company meets the conditions set forth under General Instruction H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

TABLE OF CONTENTS

		Page No.

Forward-Looking Statements		2

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	46
Item 1A.	Risk Factors	46
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 5.	Other Information	47
Item 6.	Exhibits	47

Signatures		48

FPL Group, Inc., Florida Power & Light Company, FPL Group Capital Inc and NextEra Energy Resources, LLC each have subsidiaries and affiliates with names that include FPL, NextEra Energy Resources, NextEra Energy, FPL Energy, FPLE and similar references. For convenience and simplicity, in this report the terms FPL Group, FPL, FPL Group Capital and NextEra Energy Resources are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, future events or performance, climate change strategy or growth strategies (often, but not always, through the use of words or phrases such as will, will likely result, are expected to, will continue, is anticipated, aim, believe, could, should, would, estimated, may, plan, potential, projection, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward-looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on FPL Group, Inc.'s (FPL Group) and/or Florida Power & Light Company's (FPL) operations and financial results, and could cause FPL Group's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of FPL Group and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.

FPL Group and FPL are subject to complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions. FPL holds franchise agreements with local municipalities and counties, and must renegotiate expiring agreements. These factors may have a negative impact on the business and results of operations of FPL Group and FPL.

·	The operation and maintenance of power generation, transmission and distribution facilities involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.

The operation and maintenance of nuclear facilities involves inherent risks, including environmental, health, regulatory, terrorism and financial risks, that could result in fines or the closure of nuclear units owned by FPL or NextEra Energy Resources, LLC (NextEra Energy Resources), and which may present potential exposures in excess of insurance coverage.

The construction of, and capital improvements to, power generation and transmission facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful or delayed, the results of operations and financial condition of FPL Group and FPL could be adversely affected.

·	The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses or the payment of margin cash collateral that could adversely impact the results of operations or cash flows of FPL Group and FPL.

FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, including, but not limited to, the efficient development and operation of generating assets, the successful and timely completion of project restructuring activities, the price and supply of fuel and equipment, transmission constraints, competition from other generators, including those using new sources of generation, excess generation capacity and demand for power, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.

·	FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry.

·	FPL Group and FPL participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth, future income and expenditures.

·	Customer growth and customer usage in FPL's service area affect FPL Group's and FPL's results of operations.

·	Weather affects FPL Group's and FPL's results of operations, as can the impact of severe weather. Weather conditions directly influence the demand for electricity and natural gas, affect the price of energy commodities, and can affect the production of electricity at power generating facilities.

Adverse capital and credit market conditions may adversely affect FPL Group's and FPL's ability to meet liquidity needs, access capital and operate and grow their businesses, and increase the cost of capital. Disruptions, uncertainty or volatility in the financial markets can also adversely impact the results of operations and financial condition of FPL Group and FPL, as well as exert downward pressure on the market price of FPL Group's common stock.

·	FPL Group's, FPL Group Capital Inc's (FPL Group Capital) and FPL's inability to maintain their current credit ratings may adversely affect FPL Group's and FPL's liquidity, limit the ability of FPL Group and FPL to grow their businesses, and would likely increase interest costs.

·	FPL Group and FPL are subject to credit and performance risk from third parties under supply and service contracts.

FPL Group and FPL are subject to costs and other potentially adverse effects of legal and regulatory proceedings, as well as regulatory compliance and changes in or additions to applicable tax laws, rates or policies, rates of inflation, accounting standards, securities laws, corporate governance requirements and labor and employment laws.

·	Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt FPL Group's and FPL's business may impact the operations of FPL Group and FPL in unpredictable ways.

·	The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be adversely affected by international, national, state or local events and company-specific events.

·	FPL Group and FPL are subject to employee workforce factors that could adversely affect the businesses and financial condition of FPL Group and FPL.

These and other risk factors are included in Part I, Item 1A. Risk Factors in FPL Group's and FPL's Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K) and investors should refer to those sections of the 2008 Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and FPL Group and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.

Website Access to U.S. Securities and Exchange Commission (SEC) Filings. FPL Group and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on FPL Group's internet website, www.fplgroup.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information on FPL Group's website (or any of its subsidiaries' websites) is not incorporated by reference in this combined Form 10-Q. The SEC maintains an internet website at www.sec.gov that contains reports, proxy and other information about FPL Group and FPL filed electronically with the SEC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions, except per share amounts)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008

OPERATING REVENUES	$	4,473		$	5,387		$	11,988		$	12,407

OPERATING EXPENSES
Fuel, purchased power and interchange		2,164			2,728			5,773			6,418
Other operations and maintenance		682			633			1,972			1,926
Storm cost amortization		3			20			29			46
Depreciation and amortization		430			348			1,248			1,025
Taxes other than income taxes		345			342			929			919
Total operating expenses		3,624			4,071			9,951			10,334

OPERATING INCOME		849			1,316			2,037			2,073

OTHER INCOME (DEDUCTIONS)
Interest expense		(204	)		(203	)		(631	)		(597	)
Equity in earnings of equity method investees		29			46			49			85
Allowance for equity funds used during construction		15			9			46			22
Interest income		15			13			58			49
Other than temporary impairment losses on securities held in nuclear decommissioning funds		-			(40	)		(54	)		(60	)
Other - net		11			(6	)		34			2
Total other deductions - net		(134	)		(181	)		(498	)		(499	)

INCOME BEFORE INCOME TAXES		715			1,135			1,539			1,574

INCOME TAXES		182			361			272			342

NET INCOME	$	533		$	774		$	1,267		$	1,232

Earnings per share of common stock:
Basic	$	1.32		$	1.93		$	3.14		$	3.08
Assuming dilution	$	1.31		$	1.92		$	3.12		$	3.06

Dividends per share of common stock	$	0.4725		$	0.4450		$	1.4175		$	1.3350

Weighted-average number of common shares outstanding:
Basic		405.1			400.4			403.7			399.8
Assuming dilution		408.0			403.0			406.4			402.5

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	September 30, 2009			December 31, 2008
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service and other property	$	43,456		$	41,638
Nuclear fuel		1,499			1,260
Construction work in progress		4,270			2,630
Less accumulated depreciation and amortization		(14,009	)		(13,117	)
Total property, plant and equipment - net		35,216			32,411

CURRENT ASSETS
Cash and cash equivalents		164			535
Customer receivables, net of allowances of $23 and $29, respectively		1,594			1,443
Other receivables, net of allowances of $1 and $2, respectively		304			264
Materials, supplies and fossil fuel inventory - at average cost		884			968
Regulatory assets:
Deferred clause and franchise expenses		68			248
Securitized storm-recovery costs		68			64
Derivatives		344			1,109
Pension		19			19
Other		4			4
Derivatives		435			433
Other		292			305
Total current assets		4,176			5,392

OTHER ASSETS
Special use funds		3,322			2,947
Other investments		979			923
Prepaid benefit costs		975			914
Regulatory assets:
Securitized storm-recovery costs		669			697
Deferred clause expenses		-			79
Pension		114			100
Unamortized loss on reacquired debt		30			32
Other		165			138
Other		1,509			1,188
Total other assets		7,763			7,018

TOTAL ASSETS	$	47,155		$	44,821

CAPITALIZATION
Common stock	$	4		$	4
Additional paid-in capital		5,013			4,805
Retained earnings		7,583			6,885
Accumulated other comprehensive income (loss)		132			(13	)
Total common shareholders' equity		12,732			11,681
Long-term debt		15,601			13,833
Total capitalization		28,333			25,514

CURRENT LIABILITIES
Commercial paper		1,581			1,835
Notes payable		-			30
Current maturities of long-term debt		662			1,388
Accounts payable		1,057			1,062
Customer deposits		601			575
Accrued interest and taxes		605			374
Regulatory liabilities - deferred clause and franchise revenues		168			11
Derivatives		519			1,300
Other		1,364			1,114
Total current liabilities		6,557			7,689

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		2,384			2,283
Accumulated deferred income taxes		4,493			4,231
Regulatory liabilities:
Accrued asset removal costs		2,231			2,142
Asset retirement obligation regulatory expense difference		655			520
Other		251			218
Derivatives		206			218
Other		2,045			2,006
Total other liabilities and deferred credits		12,265			11,618

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	47,155		$	44,821

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Nine Months Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,267		$	1,232
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		1,248			1,025
Nuclear fuel amortization		186			146
Recoverable storm-related costs of FPL		(16	)		47
Storm cost amortization		29			46
Unrealized (gains) losses on marked to market energy contracts		63			(170	)
Deferred income taxes		182			508
Cost recovery clauses and franchise fees		417			(465	)
Change in prepaid option premiums and derivative settlements		11			(6	)
Equity in earnings of equity method investees		(49	)		(85	)
Distributions of earnings from equity method investees		33			50
Changes in operating assets and liabilities:
Customer receivables		(146	)		(235	)
Other receivables		14			(6	)
Materials, supplies and fossil fuel inventory		74			(156	)
Other current assets		(32	)		(47	)
Other assets		(44	)		(108	)
Accounts payable		(99	)		234
Customer deposits		26			27
Margin cash collateral		(191	)		28
Income taxes		39			(173	)
Interest and other taxes		229			242
Other current liabilities		(61	)		73
Other liabilities		8			(15	)
Other - net		138			167
Net cash provided by operating activities		3,326			2,359

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures of FPL		(1,841	)		(1,665	)
Independent power investments		(1,884	)		(1,854	)
Funds received from the spent fuel settlement agreement		86			-
Nuclear fuel purchases		(278	)		(164	)
Other capital expenditures		(37	)		(32	)
Sale of independent power investments		15			-
Proceeds from sale of securities in special use funds		2,713			1,718
Purchases of securities in special use funds		(2,783	)		(1,797	)
Proceeds from sale of other securities		542			84
Purchases of other securities		(556	)		(188	)
Other - net		5			41
Net cash used in investing activities		(4,018	)		(3,857	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		2,389			2,587
Retirements of long-term debt		(1,412	)		(1,324	)
Net change in short-term debt		(284	)		2,023
Issuances of common stock		186			32
Dividends on common stock		(574	)		(535	)
Change in funds held for storm-recovery bond payments		18			14
Other - net		(2	)		3
Net cash provided by financing activities		321			2,800

Net increase (decrease) in cash and cash equivalents		(371	)		1,302
Cash and cash equivalents at beginning of period		535			290
Cash and cash equivalents at end of period	$	164		$	1,592

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions)

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008

OPERATING REVENUES	$	3,301		$	3,423		$	8,738		$	8,829

OPERATING EXPENSES
Fuel, purchased power and interchange		1,786			1,992			4,810			5,047
Other operations and maintenance		392			356			1,108			1,114
Storm cost amortization		3			20			29			46
Depreciation and amortization		260			200			757			596
Taxes other than income taxes		306			306			821			817
Total operating expenses		2,747			2,874			7,525			7,620

OPERATING INCOME		554			549			1,213			1,209

OTHER INCOME (DEDUCTIONS)
Interest expense		(78	)		(83	)		(235	)		(252	)
Allowance for equity funds used during construction		15			9			46			22
Interest income		-			2			1			10
Other - net		(5	)		(2	)		(10	)		(9	)
Total other deductions - net		(68	)		(74	)		(198	)		(229	)

INCOME BEFORE INCOME TAXES		486			475			1,015			980

INCOME TAXES		180			161			369			342

NET INCOME	$	306		$	314		$	646		$	638

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	September 30, 2009			December 31, 2008
ELECTRIC UTILITY PLANT
Plant in service	$	27,767		$	26,497
Nuclear fuel		726			613
Construction work in progress		1,949			1,862
Less accumulated depreciation and amortization		(10,538	)		(10,189	)
Electric utility plant - net		19,904			18,783

CURRENT ASSETS
Cash and cash equivalents		34			120
Customer receivables, net of allowances of $22 and $19, respectively		1,022			796
Other receivables, net of allowances of $1 and $1, respectively		117			143
Materials, supplies and fossil fuel inventory - at average cost		550			563
Regulatory assets:
Deferred clause and franchise expenses		68			248
Securitized storm-recovery costs		68			64
Derivatives		344			1,109
Derivatives		13			4
Other		129			125
Total current assets		2,345			3,172

OTHER ASSETS
Special use funds		2,375			2,158
Prepaid benefit costs		1,024			968
Regulatory assets:
Securitized storm-recovery costs		669			697
Deferred clause expenses		-			79
Unamortized loss on reacquired debt		30			32
Other		162			133
Other		252			153
Total other assets		4,512			4,220

TOTAL ASSETS	$	26,761		$	26,175

CAPITALIZATION
Common stock	$	1,373		$	1,373
Additional paid-in capital		4,393			4,393
Retained earnings		2,484			2,323
Total common shareholder's equity		8,250			8,089
Long-term debt		5,782			5,311
Total capitalization		14,032			13,400

CURRENT LIABILITIES
Commercial paper		827			773
Current maturities of long-term debt		42			263
Accounts payable		612			645
Customer deposits		596			570
Accrued interest and taxes		466			449
Regulatory liabilities - deferred clause and franchise revenues		168			11
Derivatives		357			1,114
Other		548			598
Total current liabilities		3,616			4,423

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		1,813			1,743
Accumulated deferred income taxes		3,509			3,105
Regulatory liabilities:
Accrued asset removal costs		2,231			2,142
Asset retirement obligation regulatory expense difference		655			520
Other		251			218
Other		654			624
Total other liabilities and deferred credits		9,113			8,352

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	26,761		$	26,175

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Nine Months Ended September 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	646		$	638
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		757			596
Nuclear fuel amortization		93			78
Recoverable storm-related costs		(16	)		47
Storm cost amortization		29			46
Deferred income taxes		383			317
Cost recovery clauses and franchise fees		417			(465	)
Change in prepaid option premiums and derivative settlements		(1	)		-
Changes in operating assets and liabilities:
Customer receivables		(226	)		(257	)
Other receivables		54			(6	)
Materials, supplies and fossil fuel inventory		13			(42	)
Other current assets		(31	)		(46	)
Other assets		(82	)		(66	)
Accounts payable		(44	)		228
Customer deposits		26			28
Margin cash collateral		6			18
Income taxes		(228	)		88
Interest and other taxes		224			221
Other current liabilities		(24	)		81
Other liabilities		32			14
Other - net		3			23
Net cash provided by operating activities		2,031			1,541

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,841	)		(1,665	)
Funds received from the spent fuel settlement agreement		71			-
Nuclear fuel purchases		(132	)		(88	)
Proceeds from sale of securities in special use funds		1,940			1,102
Purchases of securities in special use funds		(1,982	)		(1,168	)
Other - net		(1	)		1
Net cash used in investing activities		(1,945	)		(1,818	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		505			589
Retirements of long-term debt		(263	)		(241	)
Net change in short-term debt		54			708
Dividends		(485	)		(50	)
Change in funds held for storm-recovery bond payments		18			14
Capital contribution from FPL Group		-			75
Other - net		(1	)		-
Net cash provided by (used in) financing activities		(172	)		1,095

Net increase (decrease) in cash and cash equivalents		(86	)		818
Cash and cash equivalents at beginning of period		120			63
Cash and cash equivalents at end of period	$	34		$	881

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the 2008 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year. FPL Group and FPL have evaluated subsequent events through October 29, 2009.

1. Employee Retirement Benefits

FPL Group sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. FPL Group also has a supplemental executive retirement plan (SERP), which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees. The cost of this SERP component is included in the determination of net periodic benefit income for pension benefits in the following table and was not material to FPL Group's financial statements for the three and nine months ended September 30, 2009 and 2008. In addition to pension benefits, FPL Group sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements.

The components of net periodic benefit (income) cost for the plans are as follows:

	Pension Benefits						Other Benefits					Pension Benefits						Other Benefits
	Three Months Ended September 30,											Nine Months Ended September 30,
	2009			2008			2009			2008		2009			2008			2009			2008
										(millions)

Service cost	$	13		$	13		$	2		$	1	$	38		$	40		$	4		$	4
Interest cost		27			26			6			6		82			77			18			19
Expected return on plan assets		(60	)		(60	)		(1	)		-		(179	)		(180	)		(2	)		(3	)
Amortization of transition obligation		-			-			1			1		-			-			3			3
Amortization of prior service benefit		(1	)		(1	)		-			-		(3	)		(3	)		-			-
Amortization of gains		(5	)		(7	)		-			-		(17	)		(21	)		-			-
Net periodic benefit (income) cost at FPL Group	$	(26	)	$	(29	)	$	8		$	8	$	(79	)	$	(87	)	$	23		$	23
Net periodic benefit (income) cost at FPL	$	(18	)	$	(21	)	$	6		$	6	$	(55	)	$	(63	)	$	17		$	18

2. Derivative Instruments

FPL Group and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with long-term debt. In addition, FPL Group, through NextEra Energy Resources, uses derivatives to optimize the value of power generation assets. NextEra Energy Resources also provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, in certain markets and engages in energy trading activities to take advantage of expected future favorable price movements. Derivative instruments, when required to be marked to market, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in the derivatives' fair value are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause). For FPL Group's non-rate regulated operations, predominantly NextEra Energy Resources, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized on a net basis in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied. While most of NextEra Energy Resources' derivative transactions are entered into for the purpose of managing commodity price risk, and to reduce the impact of volatility in interest rates stemming from changes in variable interest rates on outstanding debt, 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 in offsetting the hedged risk. Additionally, for hedges of commodity price risk, physical delivery for forecasted commodity transactions must be probable. FPL Group believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis. Generally, the hedging instrument's effectiveness is assessed using regression analysis for commodity contracts, and nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item, for interest rate swaps. Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life.

At September 30, 2009, FPL Group had cash flow hedges with expiration dates through December 2012 for energy contract derivative instruments, interest rate cash flow hedges with expiration dates through May 2024 and a foreign currency cash flow hedge that expires in December 2011. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income (OCI) and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. See Note 6. The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period, and amounted to approximately $4 million and $11 million for the three months ended September 30, 2009 and 2008, respectively, and approximately $14 million and $(2) million for the nine months ended September 30, 2009 and 2008, respectively. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate.

FPL Group's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:

	FPL Group						FPL
	September 30, 2009			December 31, 2008			September 30, 2009			December 31, 2008
	(millions)

Current derivative assets (a)	$	435		$	433		$	13		$	4
Noncurrent other assets		331			212			42			2
Current derivative liabilities (b)		(519	)		(1,300	)		(357	)		(1,114	)
Noncurrent derivative liabilities (c)		(206	)		(218	)		(1	)(d)		(1	)(d)
Total mark-to-market derivative instrument liabilities	$	41		$	(873	)	$	(303	)	$	(1,109	)

¾¾¾¾¾¾¾¾¾¾

(a)	At September 30, 2009 and December 31, 2008, FPL Group's balances reflect the netting of $19 million and $60 million (none at FPL), respectively, in margin cash collateral received from counterparties.
(b)	At September 30, 2009 and December 31, 2008, FPL Group's balances reflect the netting of $187 million and $33 million (none at FPL), respectively, in margin cash collateral provided to counterparties.
(c)	At December 31, 2008, FPL Group's balances reflect the netting of $25 million (none at FPL), in margin cash collateral provided to counterparties.
(d)	Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

At September 30, 2009 and December 31, 2008, FPL Group had approximately $26 million and $66 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets. These amounts are included in other current liabilities in the condensed consolidated balance sheets. Additionally, at September 30, 2009 and December 31, 2008, FPL Group had approximately $87 million and $98 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities. These amounts are included in other current assets in the condensed consolidated balance sheets.

As discussed above, FPL Group uses derivative instruments to, among other things, manage its commodity price risk, interest rate risk and foreign currency exchange rate risk. The table above presents FPL Group’s and FPL’s net derivative positions at September 30, 2009, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral. However, disclosure rules require that the following tables be presented on a gross basis.

The fair values of FPL Group's derivatives designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts cannot be contractually settled on a gross basis.

	September 30, 2009
	Derivative Assets		Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	75	$	1
Current derivative liabilities		36		3
Noncurrent other assets		45		4
Noncurrent derivative liabilities		9		10
Interest rate swaps:
Current derivative liabilities		-		48
Noncurrent other assets		46		-
Noncurrent derivative liabilities		-		39
Foreign currency swap:
Noncurrent other assets		9		-
Total	$	220	$	105

Gains (losses) related to FPL Group's cash flow hedges are recorded on FPL Group's condensed consolidated financial statements (none at FPL) as follows:

	Three Months Ended September 30, 2009												Nine Months Ended September 30, 2009
	Commodity Contracts			Interest Rate Swaps			Foreign Currency Swap			Total			Commodity Contracts			Interest Rate Swaps			Foreign Currency Swap			Total
	(millions)

Gains (losses) recognized in OCI	$	22		$	(37	)	$	8		$	(7	)	$	179		$	12		$	8		$	199
Gains (losses) reclassified from accumulated other comprehensive income (AOCI)	$	62	(a)	$	(17	)(b)	$	9	(c)	$	54		$	146	(a)	$	(31	)(b)	$	8	(c)	$	123
Gains (losses) recognized in income (d)	$	4	(a)	$	-		$	-		$	4		$	14	(a)	$	-		$	-		$	14

¾¾¾¾¾¾¾¾¾¾

(a)	Included in operating revenues.
(b)	Included in interest expense.
(c)	$1 million loss is included in interest expense, and the balance is included in other - net.
(d)	Represents the ineffective portion of the hedging instrument.

For the three and nine months ended September 30, 2009, FPL Group recorded a gain (loss) of $1 million and $(4) million, respectively, on a fair value hedge which is reflected in interest expense in the condensed consolidated statements of income and resulted in a corresponding increase in and reduction of the related debt.

The fair values of FPL Group's and FPL's derivatives not designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting arrangements and would not be contractually settled on a gross basis prior to expiration.

	September 30, 2009
	FPL Group				FPL
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	774	$	394	$	14	$	1
Current derivative liabilities		1,321		2,012		28		385
Noncurrent other assets		881		646		38		(4	)
Noncurrent derivative liabilities		179		343		-		1
Foreign currency swap:
Noncurrent derivative liabilities		-		2		-		-
Total	$	3,155	$	3,397	$	80	$	383

Gains (losses) related to FPL Group's derivatives not designated as hedging instruments are recorded on FPL Group's condensed consolidated statements of income (none at FPL) as follows:

	Three Months Ended September 30, 2009			Nine Months Ended September 30, 2009
	(millions)
Commodity contracts:
Operating revenues	$	24	(a)	$	156	(a)
Fuel, purchased power and interchange		(3	)		26
Foreign currency swap:
Other - net		9			-
Total	$	30		$	182

¾¾¾¾¾¾¾¾¾¾

(a)	In addition, for the three and nine months ended September 30, 2009, FPL recorded approximately $3 million and $(543) million, respectively, of gains (losses) related to commodity contracts as regulatory assets and liabilities on its condensed consolidated balance sheets.

The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in FPL Group's and FPL's condensed consolidated financial statements. The table includes significant volumes of transactions that have minimal exposure to commodity price changes because they are variable priced agreements. The table does not present a complete picture of FPL Group's and FPL's overall net economic exposure because FPL Group and FPL do not use derivative instruments to hedge all of their commodity exposures. At September 30, 2009, FPL Group and FPL had derivative commodity contracts for the following net notional volumes:

Commodity Type	FPL Group			FPL
	(millions)

Power	(24	)	mwh(a)	-
Natural gas	906		mmbtu(b)	905	mmbtu(b)
Oil	-		barrels	1	barrels

¾¾¾¾¾¾¾¾¾¾

(a)	Megawatt hours
(b)	One million British thermal units

See Note 4 for additional information on interest rate and foreign currency swaps.

Certain of FPL Group's and FPL's derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating from specified credit rating agencies and certain financial ratios, as well as credit-related cross default and material adverse change triggers. At September 30, 2009, the aggregate fair value of FPL Group's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $1.6 billion ($0.4 billion for FPL).

If the credit-risk-related contingent features underlying these agreements and other wholesale commodity contracts were triggered, FPL Group or FPL could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions. Certain contracts contain multiple types of credit-related triggers. To the extent these contracts contain a credit ratings downgrade trigger, the maximum exposure is included in the following credit ratings collateral posting requirements. If FPL Group Capital’s or FPL’s credit ratings were downgraded to BBB+/Baa1 (a two level downgrade for FPL and a one level downgrade for FPL Group Capital), FPL Group would be required to post collateral of approximately $100 million, a majority of which relates to FPL. If FPL Group Capital’s and FPL’s credit ratings were downgraded to below investment grade, FPL Group would be required to post additional collateral such that the total posted collateral would be approximately $1.7 billion ($0.9 billion at FPL). Some contracts at FPL Group, including some FPL contracts, do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or have credit-related cross-default triggers. In the event these provisions were triggered, FPL Group could be required to post additional collateral of up to approximately $500 million ($100 million at FPL).

Collateral may be posted in the form of cash or credit support. At September 30, 2009, FPL Group had posted approximately $100 million ($20 million at FPL) in the form of letters of credit in the normal course of business which could be applied toward the collateral requirements described above. FPL and FPL Group Capital have bank revolving lines of credit in excess of the collateral requirements described above that would be available to support, among other things, derivative activities. Under the terms of the bank revolving lines of credit, maintenance of a specific credit rating is not a condition to drawing on these credit facilities, although there are other conditions to drawing on these credit facilities.

Additionally, some contracts contain certain adequate assurance provisions where a counterparty may demand additional collateral based on subjective events and/or conditions. Due to the subjective nature of these provisions, FPL Group and FPL are unable to determine an exact value for these items and they are not included in any of the quantitative disclosures above.

3. Fair Value Measurements

FPL Group and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured on a recurring basis. Certain derivatives and financial instruments are valued using option pricing models and take into consideration multiple inputs including commodity prices, volatility factors and discount rates, as well as counterparty credit ratings and credit enhancements. Additionally, when observable market data is not sufficient, valuation models are developed that incorporate FPL Group's and FPL's proprietary views of market factors and conditions. FPL Group's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

FPL Group's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:

	As of September 30, 2009
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)			Netting (a)			Total
	(millions)
Assets:
Cash equivalents:
FPL Group - equity securities		$	9		$	27			$	-	$	-	$		36
FPL - equity securities		$	1		$	-			$	-	$	-	$		1
Special use funds:
FPL Group:
Equity securities		$	543		$	943	(b)		$	-	$	-	$		1,486
U.S. Government and municipal bonds		$	178		$	759			$	-	$	-	$		937
Corporate debt securities		$	-		$	346			$	-	$	-	$		346
Mortgage-backed securities		$	-		$	505			$	-	$	-	$		505
Other debt securities		$	-		$	48			$	-	$	-	$		48
FPL:
Equity securities		$	-		$	836	(b)		$	-	$	-	$		836
U.S. Government and municipal bonds		$	124		$	738			$	-	$	-	$		862
Corporate debt securities		$	-		$	249			$	-	$	-	$		249
Mortgage-backed securities		$	-		$	393			$	-	$	-	$		393
Other debt securities		$	-		$	35			$	-	$	-	$		35
Other investments:
FPL Group:
Equity securities		$	3		$	4			$	-	$	-	$		7
U.S. Government and municipal bonds		$	-		$	38			$	-	$	-	$		38
Corporate debt securities		$	-		$	30			$	-	$	-	$		30
Mortgage-backed securities		$	-		$	59			$	-	$	-	$