FPL Energy

FPL Energy experienced a record year of growth in 2003, strengthening its position as one of the nation’s top wholesale generating companies and a leading low-cost provider of energy. The company significantly expanded its portfolio, continued to unlock the value of its assets and successfully focused on quality and improving performance.

Expanding portfolio

During 2003, the company added nearly 1,000 megawatts to its world-leading wind portfolio and completed the construction of four natural gas-fired power plants totaling more than 2,900 megawatts. With a growing presence in 24 states, FPL Energy has more than 11,000 net operating megawatts in generating capability.

While other wholesale generators were retrenching and refocusing in 2003, FPL Energy continued to capitalize on its strengths to grow the business. Among the keys to its success were fuel and geographic diversity, its ability to optimize existing assets, unprecedented growth in wind assets and the first full year impact of owning Seabrook Station nuclear power plant.

Ability to... optimize diversified markets

Seabrook Station nuclear power plant’s scenic 900-acre location on the seacoast of southern New Hampshire is surrounded by the salt marshes of the Hampton-Seabrook Estuary. The abundance of food and shelter in these natural grasslands provide important habitats to a variety of species. The marshes also manage storm water runoff and protect against flood damage and land erosion. Because of the plant’s proximity to this sensitive 4,000-year-old ecosystem, considerable steps have been taken to ensure its continued preservation and protection.

FPL Energy’s generation is fueled by a diverse mix of natural gas, wind, nuclear and hydro that makes it one of America’s cleanest energy providers. The company also is regionally diversified, with 38 percent of its operations in the Central region, 26 percent in the Northeast, 18 percent in the Mid-Atlantic and 18 percent in the West.

FPL Energy’s growth in wind power during 2003 was the greatest of any single company in the history of the industry. The company increased its share of the U.S. wind market to 43 percent and now has 42 wind facilities in 15 states totaling 2,719 megawatts.

‘Company of the Year’ in renewable energy

FPL Energy’s achievements in wind energy earned it the 2003 Platts Global Energy Award as the “Renewables Company of the Year.” The company was recognized for providing “solid commercial solutions that make the dream of a world powered by renewable energy a practical reality.”

FPL Energy completed new wind energy centers totaling more than 800 megawatts in New Mexico, California, Oklahoma, North Dakota, South Dakota, Pennsylvania and Wyoming. In addition, the company completed four wind acquisitions totaling 164 megawatts in California, Pennsylvania and Minnesota. Diversified Portfolio Provides Balance: 11,041 net megawatts in operation as of 12/31/03

Wind power is the fastest-growing segment of the global energy industry and provides a number of advantages to FPL Energy, allowing it to realize attractive financial returns on fully contracted projects.

Unlike other types of power plants, wind facilities are quick to market and frequently can be constructed in just three to six months;
The cost of wind power is significantly reduced from around 30 cents per kilowatt-hour in the 1980s to less than four cents per kilowatt-hour, making it more competitive with other forms of power generation;
Wind power offers tremendous environmental benefits, because it is renewable, produces no emissions or solid by-products, and does not deplete natural resources such as coal, oil and gas;
Energy businesses adding wind to their portfolios help diversify the nation’s energy supply while meeting customers’ electricity needs; and
Wind power is promoted by regulatory initiatives with at least a dozen states having initiatives in place to encourage clean energy production.

The federal wind production tax credit (PTC), which in the past has provided a credit of approximately 1.8 cents per kilowatt-hour for the first ten years of a facility’s operation, expired at the end of 2003. While all facilities in service by the end of 2003 will receive their full 10 years of production tax credits, the extension of the program is important for the further development of new wind facilities.

The PTCs have achieved what Congress designed them to do when first included as part of the Energy Policy Act in 1992, which is to support the development of technology and a new industry to provide viable renewable energy sources at reasonable costs. As wind technology has improved and the capacity of wind turbines has increased, production costs have been dramatically reduced.

FPL Energy is optimistic that Congress will extend the PTCs and further enhance the competitiveness of this industry segment.

Fossil fleet poised for opportunity

Along with its wind activities during 2003, FPL Energy placed more than 2,900 net-

Ability to... grow profitably

Poised atop the Taiban Mesa in an arid desert landscape, FPL Energy’s New Mexico wind project overlooks a sweeping vista of flat, expansive basins. Desert plants and animals have evolved fascinating and diverse strategies to live with the everlasting wind and searing sun. The area is characterized by shrubs such as the aromatic creosote bush — one of the oldest plants known — thorny mesquites and acacias, agave rosettes bearing spiny leaves, and yuccas with tall flower stalks. Several FPL Energy wind projects sited in deserts also are home to endangered animals. Photo provided by Public Service Company of New Mexico.

megawatts of new high efficiency gas-fired generation into operation at plants in Alabama, Texas, New York and California. This substantially completes a merchant plant expansion effort the company began several years ago.

During the first half of 2003, the 668-megawatt Calhoun plant in northeastern Alabama and the first of two 850 net-megawatt units at the Forney plant near Dallas entered operation. In the second half of the year, the 54-megawatt Jamaica Bay plant on Long Island in New York, the second Forney unit and the 507-megawatt Blythe I plant in California began operation.

In 2004, the company expects to finish construction and bring on line the 744-megawatt Marcus Hook facility near Philadelphia, adding to its current portfolio of fossil-fueled facilities that are regionally diverse, low cost and well positioned for upside potential. The Marcus Hook project is our last fossil-fueled merchant plant under construction. As part of its 2002 restructuring, FPL Energy noted that, with only a few exceptions, it would be exiting the fossil-fueled merchant power plant development business for the foreseeable future.

Unlocking value of assets

In 2003, the company’s power marketing organization capitalized on its market knowledge to better leverage the company’s assets. This asset optimization group continued its contract restructuring activities to unlock hidden value in contracts that were negotiated many years ago in much different market conditions. The organization also completed highly successful load-following transactions, which require meeting utilities’ fluctuating demands for electricity. It also implemented new tools allowing the company to dispatch more economically its generation resources in specific areas.

In addition, the company took advantage of opportunities to market and sell its uncontracted plant output. At year-end 2003, approximately 74 percent of available capacity was contracted for 2004. Additionally, more than 90 percent of expected gross margins for 2004 are currently hedged. FPL Energy’s hedging is
a low-risk strategy, allowing it to maximize returns.

Creating value at Seabrook nuclear station

The performance of the Seabrook Station nuclear power plant in New Hampshire — strategically located just north of Boston — exceeded FPL Energy’s expectations in 2003. The successful integration of the station in its first full year as an FPL Group nuclear merchant plant was made possible by the outstanding efforts of the Seabrook team.

The facility operated more reliably than anticipated and benefited from stronger than anticipated power markets, thus creating significant value for the company. FPL Energy acquired 88.2 percent of the plant in 2002, representing 1,024 megawatts of the 1,161-megawatt facility. Seabrook completed a record run of 490 days of continuous operation and its shortest-ever refueling outage of just over 25 days. The station also achieved its highest performance rating ever based upon the World Association of Nuclear Operators performance index.

Approximately 97 percent of Seabrook’s 2004 expected generating output is under contract to be sold. Additional value from Seabrook is expected with the potential of a 100-megawatt plant uprating and renewal of the plant’s operating license for an additional 20 years.

2004 and beyond

In 2004 and beyond, the company will continue to focus on growing its business, particularly in wind and new customer origination, while remaining a low-cost provider.

In addition, FPL Energy expects to maintain its outstanding operational performance and optimize its merchant portfolio. Also key to the company’s performance is its ability to manage consistently the risks inherent in the wholesale generating business.

While the industry environment continues to be challenging, FPL Energy is optimistic about its future prospects and confident that it will continue to perform well in a tough market.