FPL Energy

A leading clean energy provider

FPL Energy, the wholesale generating subsidiary of FPL Group with a growing presence in 24 states and more than 11,500 megawatts of generation assets in operation, experienced an exceptional year in 2004. By continuing to maximize the value of existing assets and capitalizing on its U.S. market-leading wind portfolio, the company further strengthened its position as one of the nation’s leading low-cost wholesale energy providers.

Despite less than favorable conditions in the wholesale energy sector, FPL Energy has achieved average annual growth in its contribution to adjusted earnings per share of approximately 23 percent over the past five years. (See Financial and Operating Statistics for reconciliation of earnings per share to adjusted earnings per share.) During this time, the company has successfully added to its asset base and expanded its capabilities, while at the same time effectively managing risk.

In 2004, FPL Energy benefited from the integration of approximately 1,000 megawatts of wind projects placed into service in 2003. Other factors contributing to the company’s performance included improved wholesale market conditions in New England and the absence of an outage at Seabrook. Losses from restructuring activities and higher interest expense negatively impacted FPL Energy’s results.

*Per share information reflects the effect of the two-for-one stock split, efffective March 15, 2005, of FPL Group's common stock. See Financial and Operating Statistics for reconciliation of earnings per share to adjusted earnings per share.

Because of the above-listed factors, FPL Energy was able to take important strategic actions in 2004 that, while collectively having a negative impact on short-term financial results, will benefit the company and FPL Group shareholders in the longer term. As a result, the company’s reported financial results obscured to some degree what was perhaps its best year ever. In addition, FPL Energy’s performance was stronger than may be apparent because it was achieved despite a year of below-average wind resources, which negatively impacts the performance of its wind fleet.

Foremost among the items affecting FPL Energy’s reported earnings was the restructuring of a steam contract related to the Marcus Hook power facility in Pennsylvania , which resulted in a charge against earnings of $48 million after tax. The transaction is expected to improve both cash flow and net income going forward. The 744-megawatt plant, which entered service at the end of 2004, was the company’s last fossil-fueled merchant facility under construction.

FPL Energy has a proven record of accomplishment in contract restructurings and, as market conditions change, it seeks out opportunities to modify or restructure existing power sales or fuel contracts. In 2004, the restructuring of a power and gas contract allowed FPL Energy to reduce operating costs. This is expected to provide the company with significant positive financial benefits for many years to come.

Effective portfolio management and a continuous evaluation of assets also are important factors in FPL Energy’s success. This was reflected in 2004 with the sale of the company’s 50 percent interest in the 566-megawatt Bastrop Energy Center in Texas and a waste wood power facility in Virginia .

More than 90 percent of the electricity generated by FPL Energy comes from clean-burning natural gas, nuclear power free from greenhouse gas emissions, and renewable sources including wind, hydro and solar. The company further solidified its position as one of America ’s leading clean energy providers in January of 2005 with the purchase of a 45 percent ownership interest in 150 megawatts of solar power generation in California. The acquisition makes FPL Energy the largest generator of solar power in the U.S. with 310 megawatts.

Wind continues to drive success

As the nation’s leader in wind power, FPL Energy owns and operates wind facilities in 15 states with a capacity of more than 2,700 megawatts of electricity, or about 40 percent of the U.S. wind energy market. At the end of 2004, wind power accounted for nearly one-fourth of FPL Energy’s generating capacity.

FPL Energy added 39 net-megawatts to its wind portfolio in 2004 after a repowering added 12 net-megawatts in the Altamont region of California and a 27-megawatt acquisition in West Texas . The delay of the extension of the Wind Production Tax Credit (PTC) put much of the wind industry on hold in 2004. However, FPL Energy continued to build relationships with customers and seek contracts for wind energy to ensure that its pipeline of wind projects remained strong.

When the PTC was extended in October 2004, FPL Energy was well prepared to begin construction of approximately 220 megawatts of new wind facilities. These include the 114-megawatt Callahan Wind Energy Center , located outside of Abilene , Texas , and the 106.5-megawatt Weatherford Wind Energy Center in Oklahoma ’s Custer County.

The extension of the credit through the end of 2005 is expected to produce a large number of wind projects in the United States this year. Since 2000, FPL Energy has expanded its wind market share by adding an annual average of 545 megawatts, and the company is targeting between 250 and 750 megawatts of new wind generation in 2005.

In addition to FPL Energy’s wind development activities in 2004, major projects were undertaken to improve the efficiency of the company’s wind assets and to optimize their value.

In addition to repowering, the projects included using surplus turbines and repositioning turbines to allow for greater long-term output.

Due to the company’s regional diversity, it is not overly dependent on any particular geographic market segment. During 2004, 34 percent of the company’s generation came from its Central Region, 25 percent from the Northeast, 24 percent from the Mid-Atlantic and 17 percent from the West.

FPL Energy further solidified its position as one of America’s leading clean energy providers in January 2005 with the purchase of a 45 percent ownership interest in 150 megawatts of solar power generation in California. An aggressive renewable portfolio standard mandates that all utilities in California generate or receive 20 percent of their output from renewable sources by the year 2017. The acquisition makes FPL Energy the largest generator of solar power in the U.S. with 310 megawatts. Edouard MacGuffie, development director

Operating performance outstanding across the board

FPL Energy’s operating performance across its highly diversified fleet continued to be among the best in the industry. The forced outage rates for the company’s fossil and wind facilities were the best ever, and the Seabrook Nuclear Station in New Hampshire achieved an uninterrupted run of 416 days continuing through year-end.

Seabrook is a safe, reliable and cost-effective producer for FPL Energy, and its 2004 performance was especially noteworthy. The plant was available to operate 100.0 percent, up from 91.6 percent the previous year. It also earned a rating of 100 for overall plant performance from the World Association of Nuclear Operators for the third consecutive year, demonstrating sustained outstanding performance

Work also began during 2004 on a program designed to increase the capacity of the 1,024-megawatt Seabrook plant by nearly seven percent. The two-phase program is scheduled to be completed in 2006, and this should provide additional upside earnings potential.

Power marketing grows business

Adding to its outstanding operating performance, FPL Energy continued to expand its capabilities and product offerings to customers in 2004, allowing it to open up new markets and generate new sources of revenue. One of the growth areas for power marketing is “load-following” sales, in which FPL Energy is responsible for meeting the hourly variation in energy demands. After developing its load-following capability in the Northeast, FPL Energy applied its load-following expertise to the Texas market in 2004.

FPL Energy also continued to successfully hedge against commodity price fluctuations. The company’s objective is to have roughly 75 percent of capacity hedged for the next 12 months. At the end of 2004, approximately 78 percent of FPL Energy’s entire portfolio was hedged. More than 85 percent of the company’s expected gross margin from its wholesale generation fleet is now protected against fuel and power market volatility.

Although improved in 2004, conditions in the overall wholesale energy market remain challenging, and the market rules guiding FPL Energy’s actions in the regions where it operates continue to evolve. To ensure that the company’s voice is heard on important market and regulatory matters, FPL Energy added significant regulatory resources in all of its major markets in 2004. Being more proactive in the regulatory environment has allowed the company to take aggressive steps to meet regulatory requirements while realizing significant savings.

FPL Energy’s keys to success for 2005 and beyond are to continue to grow its wind business and remain a low-cost provider, while maintaining its world-class operational performance. In addition, the company remains focused on further optimizing its merchant portfolio and managing effectively, on a daily basis, the risks in its business.