An Extraordinary Year

To Our Shareholders:

This past year will be long remembered as an extraordinary year for Florida and FPL Group. It was a year in which three ferocious hurricanes in less than two months pummeled the 27,000-square-mile service territory of Florida Power & Light Company, our regulated electric company subsidiary, causing unprecedented damage and destruction at homes and businesses and nearly 5.4 million power outages.

In my view, it was both the worst of times and the best of times, to paraphrase an old saying. For despite the widespread damage caused by the storms and the disruption it caused in the lives of our customers and employees, the response of the FPL Group workforce showcased what is best about this great company.

We were well prepared with proven restoration plans. Further, these plans were executed with remarkable determination and grit after each hurricane by a dedicated, tireless and committed workforce. Overall, the restoration performance of our team was outstanding.

In appreciation of our efforts at not only restoring power but also restoring lives, we were gratified to receive numerous commendations from customers, community leaders, students and others. Among the expressions of recognition was the Emergency Response Award presented to FPL by the Edison Electric Institute (EEI), noteworthy in that EEI is the leading trade association in the electric power industry and is comprised of our peer companies.

At the same time, we at FPL Group believe strongly in continuous improvement. Even though we did better in 2004 than we did after Hurricane Andrew in 1992, we want to do still better the next time we have to face a comparable challenge. Thus, as we do after all extraordinary events, we have been seeking out and applying lessons learned from our hurricane experience of 2004 to further refine our plans and processes. We are committed to doing the very best we can in everything we do.

FPL Group continues to perform well

Today’s dynamic electric industry is one of ongoing challenge and opportunity. Changes in customer preferences, regulation, industry structure and technology — to name just a few areas where transformation is occurring — call for innovative strategies, teamwork and sound execution.

Amidst this dynamic market environment, FPL Group recorded another year of outstanding performance.

• FPL Group generated an impressive 18.7 percent total shareholder return in 2004. In addition, we have outperformed our peers and industry over the last three-year and five-year periods.
• Net income, using generally accepted accounting principles, was $887 million or $2.45* per share in 2004, compared with $890 million or $2.50* per share in 2003. Notably, we estimate that the hurricanes had a negative 7 cents* per share impact on earnings.
• FPL Group’s adjusted net income, which excludes the net unrealized mark-to-market effect associated with non-qualifying hedges and, in 2003, the cumulative effect of a change in accounting principle at FPL Energy (FIN 46), was $890 million or $2.46* per share in 2004, compared with $871 million or $2.45* per share in 2003. (See Financial Highlights for a reconciliation of net income to adjusted earnings and earnings per share to adjusted earnings per share).
• As anticipated, 2004 saw our free cash flow profile shift to positive. I believe this is a great achievement, especially considering the negative impact of the storms. Moreover, this trend was an important factor in the Board’s decision to make a mid-year adjustment to our dividend. Combined with the February 2004 increase, the July 2004 increase provided a 13 percent increase in the quarterly dividend. Our dividend payout ratio and yield are now more in line with some of our peers while still providing us financial flexibility to invest in profitable growth opportunities.

Importantly, FPL Group continues to be cited as among the very best in our business by important third-party judges.

• In addition to the EEI award noted earlier, FPL Group this year, for the third consecutive time, received the number one ranking in environmental performance among 26 electric utilities in the United States from Innovest, an internationally recognized independent investment research firm specializing in environmental finance and investment opportunities.
• We also scored the highest ranking in the U.S. and second globally in a World Wildlife Fund report that analyzed 72 of the world’s leading power companies on current use of available technologies to reduce carbon dioxide emissions, as well as clear commitments made for future improvements.
• And in a recent corporate reputation survey conducted by The Wall Street Journal with its readers, FPL Group ranked number one of 37 electric companies in quality of management, number two in investment potential and number three in reputation of company.

Business review and 2004 performance

Both of our businesses have unique strengths and had outstanding years in 2004.

• Florida Power & Light Company is one of America’s largest and best performing electric companies. With more than 4.2 million customers, FPL continued during 2004 to benefit from rates of growth in our customer base that are among the highest of any large electric company. Beyond restoring electric service and rebuilding portions of our electric system in the wake of Hurricanes Charley, Frances and Jeanne, FPL in 2004 continued the historical outstanding operational and cost performance that places us among the best in our industry.
• FPL Energy is a disciplined wholesale generator and a leading clean energy provider. During 2004, we continued to build on our strength as a low-cost provider, maintained operational excellence, optimized our asset portfolio, leveraged our position as the U.S. market leader by a large margin in wind power generation and continued carefully managing all forms of risk. We continued our pattern of strong earnings (despite a major contract restructuring described in more detail in the FPL Energy section), and over the last five years we have achieved average annual growth in adjusted earnings per share at FPL Energy of approximately 23 percent (see Financial and Operating Statistics for reconciliation of earnings per share to adjusted earnings per share).

2005: A year of both challenge and opportunity

This year will present many challenges for our company, yet I expect we will not only meet them successfully as we’ve met others in the past but that we will seize new opportunities and continue to demonstrate outstanding performance.

At Florida Power & Light Company in 2005, beyond the ongoing need to satisfy our customers and maintain excellent operating performance on a daily basis, we will address three major challenges:

First is to recover the costs expended to restore service after the hurricanes of 2004 and to rebuild our storm reserve. An important first step in this process occurred in January 2005 when the Florida Public Service Commission (PSC) approved our request to begin in February 2005 to recover those storm-related costs, subject to refund, pending a final PSC decision later this year.

Second, December 2005 marks the end of our current rate agreement. The ongoing need to invest billions of dollars in new power plants and power delivery systems to meet continued growth in Florida, coupled with increased costs of doing business, is driving FPL to ask for an increase in 2006 base rates — the first base rate increase FPL has requested in more than 20 years. Though we are hopeful we will achieve a negotiated settlement, we are prepared to undergo a full rate review proceeding during 2005 and expect that by the end of the year we will have a new rate structure approved by the PSC.

Third, we must meet continued growth in demand for electric service in Florida. Though some uncertainty remains as to how the 2004 storm season may affect FPL revenues in the near term, longer term we expect to continue to benefit from strong customer and electric usage growth in our service territory. That being the case, FPL will continue to make significant investments in new generation capacity and related infrastructure. Siting these facilities can be quite challenging at times, but we are committed to listening to the concerns of residents and community leaders in the affected areas and taking their views into consideration as we develop our plans.

*Estimates include share dilution of 3-4 percent. Excludes the cumulative effect of adopting new accounting standards as well as the mark-to-market effect of non-qualifying hedges, neighter of which can be determined at this time.

At FPL Energy, we will pursue four major areas of focus in 2005. First, we intend to expand our U.S. market-leading wind energy portfolio. Next, we will continue efforts to extract maximum value from our existing wholesale power generation portfolio. Third, we will be managing a capacity uprate at our Seabrook Station nuclear power plant in New Hampshire that should provide us a major source of additional revenue and earnings. Fourth, we will continue to upgrade our portfolio of assets. This may include divesting power plants that don’t fit our strategy and/or acquiring others that do, providing they are financeable and add to shareholder value.

Key corporate attributes and 2005 outlook

A number of key attributes continue to form the cornerstones of our success and give me reason for continued confidence in our prospects for 2005 and beyond.

• We continue to maintain financial strength, flexibility and discipline — hallmarks of this company for many years. Our credit ratings are among the best in our industry when compared to other large electric power companies.
• We have long been committed to integrity and accountability in all aspects of our business. Most recently, for example, in compliance with the Sarbanes- Oxley Act we have undergone a comprehensive assessment and testing of our internal controls to ensure their effectiveness. Taken together, in fact, our corporate governance practices continue to be rated among the best in industry by third-party observers.
• We have a demonstrated track record of strong performance. Our earnings growth has been steady, and our operating performance on a variety of metrics is among the best in our industry.
• We are a clean energy company and are committed to continued success in managing our operations with sensitivity to the environment. This could be a major competitive advantage for us in the future, especially if new environmental laws are enacted that recognize the investments FPL Group has already made in clean and renewable energy relative to many of our peers.
• Going forward, we have attractive growth prospects. We expect continued growth in customers and usage at FPL, in our U.S. market-leading wind generation business at FPL Energy and in other areas served by FPL Energy as certain wholesale power markets continue to recover.
• All this adds up to projected earnings per share in 2005, after the effect of the two-for-one stock split, of $2.50 to $2.60 (see also 2005 Projected Earnings per Share Contribution).

On February 18, 2005, the board of directors again increased the quarterly common stock dividend, this time by 4.4 percent. In addition, directors that same day approved a two-for-one stock split of the company’s common stock. The stock split demonstrates the board’s continued confidence in the growth of FPL Group and is intended to increase the liquidity of the stock and create an expanded universe of potential shareholders. The split was set to be effective and shares distributed on March 15.

I would like to thank retired director Alex Dreyfoos for his service on our board and the fine counsel and support he provided me.

As always, I want to thank our extraordinary employees for their ongoing commitment to our customers, for striving always to do the right things, for their outstanding performance and for continually looking for ways to improve. And I appreciate the continued confidence of you, our shareholders.

Lewis Hay, III
Chairman, President and
Chief Executive Officer

February 28, 2005 

*Note: Per share information reflects the effect of the two-for-one stock split, effective March 15, 2005, of FPL Group's common stock.