FPL Group reports 2004 fourth quarter earnings

JUNO BEACH, Fla. - FPL Group, Inc. (NYSE: FPL) today reported 2004 fourth quarter net income on a GAAP basis of $173 million, or $0.94 per share, compared with $145 million or $ 0.81 per share, in the fourth quarter of 2003. FPL Group's net income for the fourth quarter 2004 included a net unrealized loss of $2 million after-tax associated with the mark-to-market effect of non-qualifying hedges. The results of last year's fourth quarter included a net unrealized gain of $12 million after-tax associated with the mark-to-market effect of non-qualifying hedges.

For the full year 2004, FPL Group reported net income on a GAAP basis of $887 million or $4.91 per share, compared with $890 million or $5.00 per share in 2003.

FPL Group's results for the full year 2004 included a net unrealized loss of $3 million after-tax associated with the mark-to-market effect of non-qualifying hedges. Results for the full year 2003 included an after-tax charge of $3 million or $0.02 per share due to a change in accounting principle (FIN 46 - Consolidation of Variable Interest Entities); and a net unrealized gain of $22 million after-tax or $0.13 per share associated with the mark-to-market effect of non-qualifying hedges.

Excluding the mark-to-market effect of non-qualifying hedges, FPL Group's 2004 earnings would have been $890 million, or $4.93 per share for the full year, compared with $871 million, or $4.89 per share, for the full year 2003. FPL Group's management uses adjusted earnings internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and for the company's employee incentive compensation plan. FPL Group also uses earnings expressed in this fashion when communicating its earnings outlook to analysts and investors. FPL Group management believes that adjusted earnings provide a more meaningful representation of FPL Group's fundamental earnings power.

"Although 2004 will be remembered for an unprecedented hurricane season it was also a year of significant achievement for FPL Group. We continued to profitably grow our business, improved our financial strength and flexibility and increased our dividend twice to provide more immediate value to our shareholders," said Lew Hay, chairman and chief executive officer. "Florida Power & Light continued to enjoy solid customer growth, while FPL Energy performed remarkably well during the year and continues to benefit from its industry leading wind portfolio, outstanding operational performance and successful execution of its disciplined hedging strategy.

"Our results for the fourth quarter contain a number of unusual items that are included in GAAP and adjusted earnings results. At the FPL Group level these items largely offset but they do impact the contribution for each business segment. While our reported results are complicated by these unusual items our underlying business performance was in-line with our expectations."

Florida Power & Light
Fourth quarter 2004 net income for Florida Power & Light, FPL Group's principal subsidiary, was $164 million or $0.90 per share, compared to $122 million or $0.68 per share from the prior year quarter. For the full year, net income increased to $749 million or $4.14 per share, compared to $733 million or $4.12 per share in 2003. Included in the 2004 amount is a $0.07 per share benefit from the settlement of the shareholder litigation.

Florida Power & Light continued to enjoy strong customer growth during the fourth quarter of 2004. The average number of FPL customer accounts increased by 94,000 or 2.3 percent. For the full year, the average number of FPL customer accounts increased by 107,000, an increase of 2.6 percent.

For the fourth quarter of 2004, operations and maintenance (O&M) expense was down on a comparative basis due primarily to the receipt of funds associated with the settlement of the shareholder litigation and certain reductions in O&M related to clauses. Smaller impacts also contributing to the lower O&M included the timing of plant outages, improved workers' compensation experience and certain legal expenses.

For the full year, O&M expense was down due primarily to the receipt of funds associated with the shareholder litigation. In addition, legal expenses were lower in 2004. Looking ahead, the company said it expects to see continued upward trends in nuclear maintenance, insurance and employee related costs as well as some increases in fossil generation O&M as a number of older units go through major overhauls.

Depreciation expense was down for the quarter as a result of certain items being fully depreciated quarter over quarter. In addition, construction of power delivery projects was somewhat delayed by the impact of the hurricanes and plant in service growth was lower than it otherwise would have been.

Depreciation for the full year was up compared to the full year 2003 reflecting investment in new power plants and delivery systems to help meet the continued growth in Florida.

"Although we are encouraged by the continued customer growth experienced during the fourth quarter and for the full year 2004, we remain uncertain as to the overall impact last year's hurricane season will have on Florida Power & Light's short-term revenue growth," said Hay. "As we begin 2005, we continue to believe that the medium and longer term growth prospects in our service territory are good. We remain prepared to continue making significant investments to support growth while being flexible in the short term."

During the year, the company continued work to add generation capacity to meet the needs of its customers. New gas-fired combined cycle generation units at its power plant sites in Martin and Manatee counties will add 1,900 megawatts of capacity in mid-2005. In addition, the Florida Public Service Commission approved the proposed 1,100-megawatt gas-fired power plant at FPL's Turkey Point site as the best most cost-effective project to meet customer needs for electricity beginning in 2007. Additional reviews and approvals are needed from several state and federal agencies, and a final decision on the project is expected from the governor and Cabinet early this year.

FPL Energy, the wholesale generation subsidiary of FPL Group, reported a fourth quarter 2004 net loss on a GAAP basis of $11 million or negative $0.06 per share, compared to income of $38 million or $0.21 per share in the prior-year quarter.

FPL Energy's net income for the fourth quarter 2004 included a net unrealized loss of $2 million after-tax associated with the mark-to-market effect of non-qualifying hedges. The results of last year's fourth quarter included a net unrealized gain of $12 million after-tax associated with the mark-to-market effect of non-qualifying hedges.

Excluding the mark-to-market effect of non-qualifying hedges, earnings would have been a loss of $9 million or a negative $0.05 per share for 2004, compared to income of $26 million or $0.14 per share in 2003.

For the full year 2004, FPL Energy reported net income on a GAAP basis of $172 million or $0.95 per share, compared to $194 million or $1.09 per share in 2003.

FPL Energy's results for the full year 2004 included a net unrealized loss of $3 million after-tax associated with the mark-to-market effect of non-qualifying hedges. Results in the full year 2003 included an after-tax charge of $3 million or $0.02 per share due to a change in accounting principle (FIN 46 - Consolidation of Variable Interest Entities); and a net unrealized gain of $22 million after-tax or $0.13 per share associated with the mark-to-market effect of non-managed hedges.

Excluding the mark-to-market effect of non-qualifying hedges, FPL Energy's earnings would have been $175 million or $0. 97 per share for the full year 2004, compared with $175 million or $0.98 per share for the full year 2003.

During the quarter, FPL Energy began commercial operation of its 744-megawatt natural gas-fired Marcus Hook power plant in Pennsylvania and restructured the steam sales agreement associated with the plant which resulted in an after-tax loss of approximately $48 million on this restructuring. The transaction is expected to improve both cash flow and net income going forward.

New wind projects, the absence of an outage at the Seabrook Station and improvements among older assets associated with prior contract restructurings all had a positive impact on the fourth quarter of 2004.

Increased interest expense associated with the expansion of FPL Energy's asset base was somewhat offset by the partial recovery of a legal judgment related to the Karaha Bodas project.

For the full year 2004, FPL Energy's adjusted earnings were down slightly due primarily to the Marcus Hook contract restructuring. Full year 2004 results were positively impacted by new wind projects added in 2003, a strong operating performance across the portfolio, improved market conditions in NEPOOL and the commencement of a contract on the remaining 50 percent of capacity at FPL Energy's peaking facility in Alabama.

"FPL Energy had an outstanding year in 2004 with significant contributions from both its existing portfolio and new investments," Hay said. "Looking ahead, we expect to benefit from new wind projects, (of which we already have approximately 220 megawatts under construction), an uprate of capacity at the Seabrook Station and continued outstanding operational performance across the fleet. With more than 85 percent of our expected gross margin from our generation fleet already hedged, we feel very good about 2005 at FPL Energy."

The company also reaffirmed its earnings guidance for 2005 of $5.00 to $5.20 per share excluding the cumulative effect of adopting new accounting standards, as well as the mark-to-market effect of non-qualifying hedges, neither of which can be determined at this time. The company said its forecast for 2005 reflects continued customer growth at Florida Power & Light and normal weather at both the utility and FPL Energy. The company said it expects earnings contributions from Florida Power & Light in the range of $3.95 to $4.10, from FPL Energy of $1.30 to $1.45, and a negative impact from Corporate & Other of $0.30 to $0.35 per share.

FPL Group's fourth quarter earnings conference call is scheduled for 9 a.m. ET on Friday, January 21, 2005. The webcast is available on FPL Group's website by accessing the following link, http://www.FPLGroup.com/investor/contents/investor_index.shtml

This press release should be read in conjunction with the attached unaudited financial information.

FPL Group, with annual revenues of more than $10 billion, is nationally known as a high-quality, efficient, and customer-driven organization focused on energy-related products and services. With a growing presence in 26 states, it is widely recognized as one of the country's premier power companies. Its principal subsidiary, Florida Power & Light Company, serves more than 4.2 million customer accounts in Florida. FPL Energy, LLC, an FPL Group energy-generating subsidiary, is a leader in producing electricity from clean and renewable fuels. Additional information is available on the Internet at www.FPLGroup.com, www.FPL.com and www.FPLEnergy.com.

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (Reform Act), FPL Group, Inc. (FPL Group) and Florida Power & Light Company (FPL) are hereby filing cautionary statements identifying important factors that could cause FPL Group's or FPL's actual results to differ materially from those projected in forward-looking statements (as such term is defined in the Reform Act) made by or on behalf of FPL Group and FPL in this press release, in response to questions or otherwise.  Any statements that express, or involve discussions as to expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, through the use of words or phrases such as will likely result, are expected to, will continue, is anticipated, believe, could, estimated, may, plan, potential, projection, target, outlook) 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 cause FPL Group's or FPL's actual results to differ materially from those contained in forward-looking statements made by or on behalf of FPL Group and FPL.

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 after the date on which such statement is made or to reflect the occurrence of unanticipated events.  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 in any forward-looking statement.

The following are some important factors that could have a significant impact on FPL Group's and FPL's operations and financial results, and could cause FPL Group's and FPL's actual results or outcomes to differ materially from those discussed in the forward-looking statements:

• FPL Group and FPL are subject to changes in laws or regulations, including the Public Utility Regulatory Policies Act of 1978, as amended (PURPA), and the Public Utility Holding Company Act of 1935, as amended (Holding Company Act), changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the utility commissions of other states in which FPL Group has operations, and the U.S. Nuclear Regulatory Commission (NRC), with respect to, among other things, allowed rates of return, industry and rate structure, operation of nuclear power facilities, operation and construction of plant facilities, operation and construction of transmission facilities, acquisition, disposal, depreciation and amortization of assets and facilities, recovery of fuel and purchased power costs, decommissioning costs, return on common equity and equity ratio limits, and present or prospective wholesale and retail competition (including but not limited to retail wheeling and transmission costs).  The FPSC has the authority to disallow recovery by FPL of costs that it considers excessive or imprudently incurred.

• The regulatory process generally restricts FPL's ability to grow earnings and does not provide any assurance as to achievement of earnings levels.

• FPL Group and FPL are subject to extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality, waste management, wildlife mortality, natural resources and health and safety that could, among other things, restrict or limit the output of certain facilities or the use of certain fuels required for the production of electricity and/or increase costs.  There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future.

• FPL Group and FPL operate in a changing market environment influenced by various legislative and regulatory initiatives regarding deregulation, regulation or restructuring of the energy industry, including deregulation of the production and sale of electricity.  FPL Group and its subsidiaries will need to adapt to these changes and may face increasing competitive pressure.

• FPL Group's and FPL's results of operations could be affected by FPL's ability to renegotiate franchise agreements with municipalities and counties in Florida.

• The operation of power generation facilities involves many risks, including start up risks, breakdown or failure of equipment, transmission lines or pipelines, use of new technology, the dependence on a specific fuel source or the impact of unusual or adverse weather conditions (including natural disasters such as hurricanes), as well as the risk of performance below expected or contracted levels of output or efficiency.  This could result in lost revenues and/or increased expenses. Insurance, warranties or performance guarantees may not cover any or all of the lost revenues or increased expenses, including the cost of replacement power. In addition to these risks, FPL Group's and FPL's nuclear units face certain risks that are unique to the nuclear industry including the ability to store and/or dispose of spent nuclear fuel, as well as additional regulatory actions up to and including shutdown of the units stemming from public safety concerns, whether at FPL Group's and FPL's plants, or at the plants of other nuclear operators.  Breakdown or failure of an FPL Energy, LLC (FPL Energy) operating facility may prevent the facility from performing under applicable power sales agreements which, in certain situations, could result in termination of the agreement or incurring a liability for liquidated damages.

• FPL Group's and FPL's ability to successfully and timely complete their power generation facilities currently under construction, those projects yet to begin construction or capital improvements to existing facilities is contingent upon many variables and subject to substantial risks.  Should any such efforts be unsuccessful, FPL Group and FPL could be subject to additional costs, termination payments under committed contracts, and/or the write-off of their investment in the project or improvement.

• FPL Group and FPL use derivative instruments, such as swaps, options, futures and forwards to manage their commodity and financial market risks, and to a lesser extent, engage in limited trading activities.  FPL Group could recognize financial losses as a result of volatility in the market values of these contracts, or if a counterparty fails to perform.  In the absence of actively quoted market prices and pricing information from external sources, the valuation of these derivative instruments involves management's judgment or use of estimates.  As a result, changes in the underlying assumptions or use of alternative valuation methods could affect the reported fair value of these contracts.  In addition, FPL's use of such instruments could be subject to prudency challenges and if found imprudent, cost recovery could be disallowed by the FPSC.

• There are other risks associated with FPL Group's non-rate regulated businesses, particularly FPL Energy.  In addition to risks discussed elsewhere, risk factors specifically affecting FPL Energy's success in competitive wholesale markets include the ability to efficiently develop and operate generating assets, the successful and timely completion of project restructuring activities, maintenance of the qualifying facility status of certain projects, the price and supply of fuel, transmission constraints, competition from new sources of generation, excess generation capacity and demand for power.  There can be significant volatility in market prices for fuel and electricity, and there are other financial, counterparty and market risks that are beyond the control of FPL Energy.  FPL Energy's inability or failure to effectively hedge its assets or positions against changes in commodity prices, interest rates, counterparty credit risk or other risk measures could significantly impair FPL Group's future financial results.  In keeping with industry trends, a portion of FPL Energy's power generation facilities operate wholly or partially without long-term power purchase agreements.  As a result, power from these facilities is sold on the spot market or on a short-term contractual basis, which may affect the volatility of FPL Group's financial results.  In addition, FPL Energy's business depends upon transmission facilities owned and operated by others; if transmission is disrupted or capacity is inadequate or unavailable, FPL Energy's ability to sell and deliver its wholesale power may be limited.

• FPL Group is likely to encounter significant competition for acquisition opportunities that may become available as a result of the consolidation of the power industry.  In addition, FPL Group may be unable to identify attractive acquisition opportunities at favorable prices and to successfully and timely complete and integrate them.

• FPL Group and FPL rely on access to capital markets as a significant source of liquidity for capital requirements not satisfied by operating cash flows.  The inability of FPL Group and FPL to maintain their current credit ratings could affect their ability to raise capital on favorable terms, particularly during times of uncertainty in the capital markets, which, in turn, could impact FPL Group's and FPL's ability to grow their businesses and would likely increase interest costs.

• FPL Group's and FPL's results of operations can be affected by changes in the weather.  Weather conditions directly influence the demand for electricity and natural gas and affect the price of energy commodities, and can affect the production of electricity at wind and hydro-powered facilities.  In addition, severe weather can be destructive, causing outages and/or property damage, which could require additional costs to be incurred.

• FPL Group and FPL are subject to costs and other effects of legal and administrative proceedings, settlements, investigations and claims, as well as the effect of new, or changes in, tax laws, rates or policies, rates of inflation, accounting standards, securities laws or corporate governance requirements.

• FPL Group and FPL are subject to direct and indirect effects of terrorist threats and activities.  Generation and transmission facilities, in general, have been identified as potential targets.  The effects of terrorist threats and activities include, among other things, terrorist actions or responses to such actions or threats, the inability to generate, purchase or transmit power, the risk of a significant slowdown in growth or a decline in the U.S. economy, delay in economic recovery in the United States, and the increased cost and adequacy of security and insurance.

• FPL Group's and FPL's ability to obtain insurance, and the cost of and coverage provided by such insurance, could be affected by national events as well as company-specific events.

• FPL Group and FPL are subject to employee workforce factors, including loss or retirement of key executives, availability of qualified personnel, collective bargaining agreements with union employees or work stoppage.

The issues and associated risks and uncertainties described above are not the only ones FPL Group and FPL may face.  Additional issues may arise or become material as the energy industry evolves.  The risks and uncertainties associated with these additional issues could impair FPL Group's and FPL's businesses in the future.