Florida Power & Light Company

As the electric power industry continues to change, one of the keys to success is how well utilities execute the fundamentals. When it comes to basics, no electric utility has performed better than Florida Power & Light over the past decade.

Since 1990, when the company was restructured, FPL has driven down costs while achieving continuous improvements in virtually every area of its operations. At the same time, it has taken steps to meet the sharply increasing energy demands of a service area that continues to grow at a rapid pace.

FPL's customer base grew by 2.5% in 2000 to more than 3.8 million. More new customers, 92,000, were added than in any year since 1990. In addition, energy usage per customer increased by nearly 2% over the previous year.

Continued cost reduction

In 2000, FPL reduced its operations and maintenance costs per kilowatt-hour for the tenth consecutive year. Since 1990, O&M costs have declined 40% - from 1.82 cents per kilowatt-hour to 1.09 cents. During this time the company added more than 700,000 new customer accounts and increased its generating capacity by 24%.

FPL's cost reduction efforts have resulted in a more efficient and productive organization and enabled the company to hold down the price of its electricity to below the national average.

Performance-driven operations

FPL continues to achieve major improvements in such critical success areas as plant performance, electric reliability, and customer service.

FPL's power plants remain among the nation's top performers. This is important because superior plant performance helps defer the need for additional new generation. It also enables FPL to reliably meet peak energy demands and to sell excess power produced by its plants to other utilities through the company's Energy Marketing and Trading Division, a leading wholesale marketer and trader of electricity, gas and oil. Gains from these energy sales provide savings to FPL customers.

Diverse energy mix

FPL utilizes a diverse energy mix that enables it to take advantage of energy price changes. In 2000, nuclear accounted for 26% of the power FPL provided, followed by natural gas at 25%. Oil also accounted for 25%, purchased power 17%, and coal 7%.

During 2000, utility companies nationwide experienced skyrocketing costs for oil and natural gas. The Florida Public Service Commission approved rate adjustments allowing FPL to recover its fuel costs, which the company is spreading over a two-year period to lessen the impact on customers. Continued pressures on oil and natural gas prices forced FPL to request an additional adjustment early in 2001. FPL's electric reliability, which is rated within the top 20% of the industry, improved for the third straight year. As the result of a major initiative launched in 1997, FPL has:

Reduced the average amount of time its customers are without power by 30%;
Reduced by 10% the average duration of interruptions; and
Reduced the frequency of interruptions by 21%.

While improving its reliability, FPL also has taken steps to enhance its communications with customers. A recent independent study found that among the customer call centers of 16 major utilities, FPL ranked number one overall. The company also is utilizing the latest technologies to further improve customer service.

Expanding for the future

To meet the needs of its rapidly growing service territory, FPL plans to add over the next ten years approximately 7,000 megawatts of generating capability - an increase of more than 40%. The additional generation will be fueled by clean-burning natural gas, which will strengthen FPL's standing as one of the most environmentally friendly utilities in the country.

FPL expects approximately 2,700 megawatts of new generation to be available by 2004.

Approximately 2,000 megawatts will come from "repowering" older oil-burning power plants at Fort Myers and Sanford and converting them to natural gas. The Fort Myers plant already provides the first increments of new generation in the form of "simple cycle" combustion turbines, which will ultimately be re-configured as "combined-cycle" units. When the project is completed in 2002, the plant's capacity will nearly triple, while emissions will be reduced. The Sanford plant repowering will more than double its capacity, while reducing emissions as well. Sanford is scheduled for completion by the end of 2002.
"Peaking" units will provide an additional 600 megawatts of generation. These combustion turbines provide power during short-term periods of peak demand. Two peaking units totaling 300 megawatts are scheduled to be available at the Martin plant site near Lake Okeechobee in 2001. Two similar-sized units will be added at Fort Myers in 2003.
While FPL is adding new generation, it continues to utilize energy conservation programs to help individual customers reduce their demand for energy and save on their electricity bills. Over the past 20 years, these programs have reduced energy consumption and enabled FPL to avoid building several additional power plants. Attaining FPL's 10-year energy conservation goals, which the Florida Public Service Commission approved in 2000, will eliminate the need for two additional power plants that would otherwise have been part of its expansion program.

Nuclear license extension

Nuclear power has played an important role in FPL's energy mix for nearly three decades - ever since the two nuclear units at Turkey Point south of Miami began operation in 1972 and 1973. The Turkey Point nuclear units generate approximately 1,400 megawatts of electricity - enough to provide power for more than 300,000 customers - and are among the lowest-cost generators in the FPL system. In addition, the nuclear units produce no greenhouse emissions. To ensure that customers continue to receive the economic and environmental benefits provided by Turkey Point, FPL in 2000 submitted an application to the Nuclear Regulatory Commission to extend the plant's operating license an additional 20 years until 2033.

The commission is expected to review the application over the next two to three years before deciding whether to renew the license. The NRC already has extended the licenses for several other nuclear plants.

FPL plans to file a similar application in 2002 to extend the license of the St. Lucie nuclear units on Hutchinson Island.

Proposed changes in Florida

An Energy Study Commission established last year by Florida's governor is studying possible changes in the state's electric system. The commission is expected to make a final report to the governor and legislature in late 2001.

Although acknowledging that the current electric system has worked well in providing abundant, affordable and reliable power, the commission early in 2001 proposed to create a fully competitive wholesale power market in Florida. Under the commission's proposal there would be a six-year transition period to ensure an orderly move to a competitive market and all generators would compete under the same rules. At the national level, the Federal Energy Regulatory Commission (FERC) last year strongly recommended to the country's investor-owned utilities that they find ways to create regional transmission organizations. As a result, FPL - together with Florida Power Corporation and Tampa Electric Company - proposed creating a separate and independent for-profit transmission company to operate the electrical transmission system statewide. This so-called "Transco," if approved by the FERC, could be in operation before the end of this year (see related story on page 14 for additional information).

#1 in environmental performance

FPL is an environmental leader within the electric industry and considers making the right choices to maintain and preserve Florida's environment an important part of its operations. Last year - in an affirmation of its commitment to the environment - the investment research firm Innovest named FPL number one among 30 leading electric utilities in environmental performance. FPL's overall emissions are among the lowest in the country, based on the amount of electricity it produces.

More than half of its generation is derived from clean energy sources. In addition, FPL will reduce emissions at two of its older oil-fired plants when they are converted to natural gas. The Fort Myers and Sanford plants will utilize advanced technology that will significantly lower emissions, even though the plants will generate more electricity than before. FPL also has taken initiatives to protect the native environments surrounding its power plants. As shown by the photos within this report, FPL's efforts have enabled a large number of endangered and threatened species to thrive in their natural habitat.

FPL's commitment to the environment gained wide attention in January 2001 when it made the unusual donation of an island to the U.S. Fish and Wildlife Service. Manatee Island is an 18-acre refuge for migratory and native birds that also serves as a winter landmark for West Indian Manatees seeking the warm waters near the Fort Myers plant. The island is the first addition to the Caloosahatchee National Wildlife Refuge, which was established in 1920 by President Woodrow Wilson as a preserve and breeding ground for native birds.

Proposing a Florida Transco

In recent years the Federal Energy Regulatory Commission has pushed strongly and in some cases mandated a regional approach to the transmission of electricity. The FERC believes this will ensure more open access to the interconnected system of electric lines that are located throughout the country. As a result, a number of investor-owned electric utilities have divested their individual transmission systems in favor of regional transmission organizations.

In 2000, the FERC ordered the country's investor-owned utilities to propose ways to create regional transmission organizations. FPL - together with Florida Power Corporation and Tampa Electric Company - have proposed transferring control of their transmission assets to form what is known within the industry as a Transco. This would be a separate, for-profit transmission company responsible for operating the electrical transmission lines that run from the power plants to substations throughout peninsular Florida. The electrical distribution lines that carry power directly to homes and businesses would remain with the individual utilities.

The Transco would be a fully independent company, incentive-driven, and organized and governed much like any corporation. FPL would no longer own or operate its transmission system. However, in exchange for title to FPL's transmission assets, it would retain a passive ownership interest in the new company. This interest would enable FPL Group to share in the earnings of the Transco.

If approved, the Transco could be in operation before the end of this year.