Edgar Filing: FLORIDA POWER & LIGHT CO

form10q2q2009.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2009

Commission File Number	Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number	IRS Employer Identification Number

1-8841	FPL GROUP, INC.	59-2449419
2-27612	FLORIDA POWER & LIGHT COMPANY	59-0247775
	700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000

State or other jurisdiction of incorporation or organization: Florida

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days.

FPL Group, Inc. Yes þ No ¨ Florida Power & Light Company Yes þ No ¨

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).

FPL Group, Inc. Yes þ No ¨ Florida Power & Light Company Yes ¨ No ¨

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.

FPL Group, Inc.	Large Accelerated Filer þ	Accelerated Filer ¨	Non-Accelerated Filer ¨	Smaller Reporting Company ¨
Florida Power & Light Company	Large Accelerated Filer ¨	Accelerated Filer ¨	Non-Accelerated Filer þ	Smaller Reporting Company ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No þ

The number of shares outstanding of FPL Group, Inc. common stock, as of the latest practicable date: Common Stock, $0.01 par value, outstanding as of June 30, 2009: 411,461,266 shares.

As of June 30, 2009, there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by FPL Group, Inc.

¾¾¾¾¾¾¾¾¾¾¾¾¾¾

This combined Form 10-Q represents separate filings by FPL Group, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to FPL Group, Inc.'s other operations.

Florida Power & Light Company meets the conditions set forth under General Instruction H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.

TABLE OF CONTENTS

		Page No.

Forward-Looking Statements		2

	PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	4
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	45

	PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 4.	Submission of Matters to a Vote of Security Holders	46
Item 6.	Exhibits	47

Signatures		48

FPL Group, Inc., Florida Power & Light Company, FPL Group Capital Inc and NextEra Energy Resources, LLC each have subsidiaries and affiliates with names that include FPL, NextEra Energy Resources, NextEra Energy, FPL Energy, FPLE and similar references. For convenience and simplicity, in this report the terms FPL Group, FPL, FPL Group Capital and NextEra Energy Resources are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, future events or performance, climate change strategy or growth strategies (often, but not always, through the use of words or phrases such as will, will likely result, are expected to, will continue, is anticipated, aim, believe, could, should, would, estimated, may, plan, potential, projection, target, outlook, predict and intend or words of similar meaning) 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 have a significant impact on FPL Group, Inc.'s (FPL Group) and/or Florida Power & Light Company's (FPL) operations and financial results, and could cause FPL Group's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of FPL Group and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.

FPL Group and FPL are subject to complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions. FPL holds franchise agreements with local municipalities and counties, and must renegotiate expiring agreements. These factors may have a negative impact on the business and results of operations of FPL Group and FPL.

·	The operation and maintenance of power generation, transmission and distribution facilities involve significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.

The operation and maintenance of nuclear facilities involves inherent risks, including environmental, health, regulatory, terrorism and financial risks, that could result in fines or the closure of nuclear units owned by FPL or NextEra Energy Resources, LLC (NextEra Energy Resources), and which may present potential exposures in excess of insurance coverage.

The construction of, and capital improvements to, power generation and transmission facilities involve substantial risks. Should construction or capital improvement efforts be unsuccessful or delayed, the results of operations and financial condition of FPL Group and FPL could be adversely affected.

·	The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses or the payment of margin cash collateral that adversely impact the results of operations or cash flows of FPL Group and FPL.

FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, including, but not limited to, the efficient development and operation of generating assets, the successful and timely completion of project restructuring activities, the price and supply of fuel and equipment, transmission constraints, competition from other generators, including those using new sources of generation, excess generation capacity and demand for power, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.

·	FPL Group's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry.

·	FPL Group and FPL participate in markets that are often subject to uncertain economic conditions, which makes it difficult to estimate growth, future income and expenditures.

·	Customer growth and customer usage in FPL's service area affect FPL Group's and FPL's results of operations.

·	Weather affects FPL Group's and FPL's results of operations, as can the impact of severe weather. Weather conditions directly influence the demand for electricity and natural gas, affect the price of energy commodities, and can affect the production of electricity at power generating facilities.

Adverse capital and credit market conditions may adversely affect FPL Group's and FPL's ability to meet liquidity needs, access capital and operate and grow their businesses, and increase the cost of capital. Disruptions, uncertainty or volatility in the financial markets can also adversely impact the results of operations and financial condition of FPL Group and FPL, as well as exert downward pressure on the market price of FPL Group's common stock.

·	FPL Group's, FPL Group Capital Inc's (FPL Group Capital) and FPL's inability to maintain their current credit ratings may adversely affect FPL Group's and FPL's liquidity, limit the ability of FPL Group and FPL to grow their businesses, and would likely increase interest costs.

·	FPL Group and FPL are subject to credit and performance risk from third parties under supply and service contracts.

FPL Group and FPL are subject to costs and other potentially adverse effects of legal and regulatory proceedings, as well as regulatory compliance and changes in or additions to applicable tax laws, rates or policies, rates of inflation, accounting standards, securities laws, corporate governance requirements and labor and employment laws.

·	Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt FPL Group's and FPL's business may impact the operations of FPL Group and FPL in unpredictable ways.

·	The ability of FPL Group and FPL to obtain insurance and the terms of any available insurance coverage could be adversely affected by international, national, state or local events and company-specific events.

·	FPL Group and FPL are subject to employee workforce factors that could adversely affect the businesses and financial condition of FPL Group and FPL.

These and other risk factors are included in Part I, Item 1A. Risk Factors in FPL Group's and FPL's Annual Report on Form 10-K for the year ended December 31, 2008 (2008 Form 10-K) and investors should refer to those sections of the 2008 Form 10-K. 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, including unanticipated events, after the date on which such statement is made, unless otherwise required by law. 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 or implied in any forward-looking statement.

Website Access to U.S. Securities and Exchange Commission (SEC) Filings. FPL Group and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on FPL Group's internet website, www.fplgroup.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information on FPL Group's website (or any of its subsidiaries' websites) is not incorporated by reference in this combined Form 10-Q. The SEC maintains an internet website at www.sec.gov that contains reports, proxy and other information about FPL Group and FPL filed electronically with the SEC.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions, except per share amounts)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

OPERATING REVENUES	$	3,811		$	3,585		$	7,515		$	7,020

OPERATING EXPENSES
Fuel, purchased power and interchange		1,797			1,964			3,609			3,690
Other operations and maintenance		672			651			1,291			1,293
Storm cost amortization		7			15			26			25
Depreciation and amortization		428			344			818			677
Taxes other than income taxes		302			298			583			578
Total operating expenses		3,206			3,272			6,327			6,263

OPERATING INCOME		605			313			1,188			757

OTHER INCOME (DEDUCTIONS)
Interest expense		(215	)		(195	)		(426	)		(393	)
Equity in earnings of equity method investees		13			26			20			40
Allowance for equity funds used during construction		15			8			31			13
Interest income		17			21			43			36
Other than temporary impairment losses on securities held in nuclear decommissioning funds		(1	)		(13	)		(54	)		(20	)
Other - net		7			-			22			7
Total other deductions - net		(164	)		(153	)		(364	)		(317	)

INCOME BEFORE INCOME TAXES		441			160			824			440

INCOME TAXES		71			(49	)		90			(18	)

NET INCOME	$	370		$	209		$	734		$	458

Earnings per share of common stock:
Basic	$	0.92		$	0.52		$	1.82		$	1.15
Assuming dilution	$	0.91		$	0.52		$	1.81		$	1.14

Dividends per share of common stock	$	0.4725		$	0.4450		$	0.945		$	0.890

Weighted-average number of common shares outstanding:
Basic		403.7			399.8			403.0			399.5
Assuming dilution		406.4			402.6			405.6			402.3

This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	June 30, 2009			December 31, 2008
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service and other property	$	42,183		$	41,638
Nuclear fuel		1,397			1,260
Construction work in progress		4,276			2,630
Less accumulated depreciation and amortization		(13,659	)		(13,117	)
Total property, plant and equipment - net		34,197			32,411

CURRENT ASSETS
Cash and cash equivalents		276			535
Customer receivables, net of allowances of $23 and $29, respectively		1,448			1,443
Other receivables, net of allowances of $2 and $2, respectively		249			264
Materials, supplies and fossil fuel inventory - at average cost		906			968
Regulatory assets:
Deferred clause and franchise expenses		89			248
Securitized storm-recovery costs		67			64
Derivatives		873			1,109
Pension		19			19
Other		4			4
Derivatives		592			433
Other		346			305
Total current assets		4,869			5,392

OTHER ASSETS
Special use funds		3,042			2,947
Prepaid benefit costs		955			914
Other investments		946			923
Regulatory assets:
Securitized storm-recovery costs		672			697
Deferred clause expenses		-			79
Pension		110			100
Unamortized loss on reacquired debt		31			32
Other		156			138
Other		1,426			1,188
Total other assets		7,338			7,018

TOTAL ASSETS	$	46,404		$	44,821

CAPITALIZATION
Common stock	$	4		$	4
Additional paid-in capital		4,884			4,805
Retained earnings		7,242			6,885
Accumulated other comprehensive income (loss)		114			(13	)
Total common shareholders' equity		12,244			11,681
Long-term debt		15,664			13,833
Total capitalization		27,908			25,514

CURRENT LIABILITIES
Commercial paper		1,122			1,835
Notes payable		-			30
Current maturities of long-term debt		660			1,388
Accounts payable		1,255			1,062
Customer deposits		592			575
Accrued interest and taxes		534			374
Regulatory liabilities - deferred clause and franchise revenues		40			11
Derivatives		1,096			1,300
Other		1,351			1,114
Total current liabilities		6,650			7,689

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		2,347			2,283
Accumulated deferred income taxes		4,322			4,231
Regulatory liabilities:
Accrued asset removal costs		2,194			2,142
Asset retirement obligation regulatory expense difference		518			520
Other		210			218
Derivatives		192			218
Other		2,063			2,006
Total other liabilities and deferred credits		11,846			11,618

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	46,404		$	44,821

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	734		$	458
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		818			677
Nuclear fuel amortization		119			91
Recoverable storm-related costs of FPL		(10	)		72
Storm cost amortization		26			25
Unrealized (gains) losses on marked to market energy contracts		27			334
Deferred income taxes		73			86
Cost recovery clauses and franchise fees		268			(302	)
Change in prepaid option premiums and derivative settlements		62			(3	)
Equity in earnings of equity method investees		(20	)		(40	)
Distributions of earnings from equity method investees		30			34
Changes in operating assets and liabilities:
Customer receivables		(5	)		(183	)
Other receivables		17			(13	)
Materials, supplies and fossil fuel inventory		62			(233	)
Other current assets		(63	)		(81	)
Other assets		(30	)		(105	)
Accounts payable		59			660
Customer deposits		17			20
Margin cash collateral		(192	)		527
Income taxes		13			(115	)
Interest and other taxes		160			129
Other current liabilities		(28	)		(31	)
Other liabilities		31			(21	)
Other - net		(24	)		82
Net cash provided by operating activities		2,144			2,068

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures of FPL		(1,088	)		(1,161	)
Independent power investments		(1,084	)		(1,222	)
Nuclear fuel purchases		(167	)		(78	)
Other capital expenditures		(20	)		(13	)
Sale of independent power investments		5			-
Proceeds from sale of securities in special use funds		1,711			1,147
Purchases of securities in special use funds		(1,750	)		(1,201	)
Proceeds from sale of other securities		286			57
Purchases of other securities		(320	)		(98	)
Other - net		6			39
Net cash used in investing activities		(2,421	)		(2,530	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		2,372			1,747
Retirements of long-term debt		(1,314	)		(1,240	)
Net change in short-term debt		(743	)		409
Issuances of common stock		83			23
Dividends on common stock		(382	)		(356	)
Change in funds held for storm-recovery bond payments		4			12
Other - net		(2	)		1
Net cash provided by financing activities		18			596

Net increase (decrease) in cash and cash equivalents		(259	)		134
Cash and cash equivalents at beginning of period		535			290
Cash and cash equivalents at end of period	$	276		$	424

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(millions)

(unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2009			2008			2009			2008

OPERATING REVENUES	$	2,864		$	2,871		$	5,437		$	5,406

OPERATING EXPENSES
Fuel, purchased power and interchange		1,554			1,598			3,024			3,055
Other operations and maintenance		376			379			715			757
Storm cost amortization		7			15			26			25
Depreciation and amortization		265			199			497			395
Taxes other than income taxes		266			264			517			514
Total operating expenses		2,468			2,455			4,779			4,746

OPERATING INCOME		396			416			658			660

OTHER INCOME (DEDUCTIONS)
Interest expense		(79	)		(83	)		(156	)		(169	)
Allowance for equity funds used during construction		15			8			31			13
Interest income		-			4			1			8
Other - net		(1	)		(3	)		(5	)		(6	)
Total other deductions - net		(65	)		(74	)		(129	)		(154	)

INCOME BEFORE INCOME TAXES		331			342			529			506

INCOME TAXES		118			125			189			181

NET INCOME	$	213		$	217		$	340		$	325

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

(millions)

(unaudited)

	June 30, 2009			December 31, 2008
ELECTRIC UTILITY PLANT
Plant in service	$	26,828		$	26,497
Nuclear fuel		674			613
Construction work in progress		2,374			1,862
Less accumulated depreciation and amortization		(10,378	)		(10,189	)
Electric utility plant - net		19,498			18,783

CURRENT ASSETS
Cash and cash equivalents		99			120
Customer receivables, net of allowances of $14 and $19, respectively		859			796
Other receivables, net of allowances of $1 and $1, respectively		205			143
Materials, supplies and fossil fuel inventory - at average cost		572			563
Regulatory assets:
Deferred clause and franchise expenses		89			248
Securitized storm-recovery costs		67			64
Derivatives		873			1,109
Derivatives		8			4
Other		177			125
Total current assets		2,949			3,172

OTHER ASSETS
Special use funds		2,201			2,158
Prepaid benefit costs		1,006			968
Regulatory assets:
Securitized storm-recovery costs		672			697
Deferred clause expenses		-			79
Unamortized loss on reacquired debt		31			32
Other		153			133
Other		232			153
Total other assets		4,295			4,220

TOTAL ASSETS	$	26,742		$	26,175

CAPITALIZATION
Common stock	$	1,373		$	1,373
Additional paid-in capital		4,393			4,393
Retained earnings		2,338			2,323
Total common shareholder's equity		8,104			8,089
Long-term debt		5,789			5,311
Total capitalization		13,893			13,400

CURRENT LIABILITIES
Commercial paper		748			773
Current maturities of long-term debt		40			263
Accounts payable		770			645
Customer deposits		587			570
Accrued interest and taxes		360			449
Regulatory liabilities - deferred clause and franchise revenues		40			11
Derivatives		881			1,114
Other		662			598
Total current liabilities		4,088			4,423

OTHER LIABILITIES AND DEFERRED CREDITS
Asset retirement obligations		1,789			1,743
Accumulated deferred income taxes		3,407			3,105
Regulatory liabilities:
Accrued asset removal costs		2,194			2,142
Asset retirement obligation regulatory expense difference		518			520
Other		210			218
Other		643			624
Total other liabilities and deferred credits		8,761			8,352

COMMITMENTS AND CONTINGENCIES

TOTAL CAPITALIZATION AND LIABILITIES	$	26,742		$	26,175

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FLORIDA POWER & LIGHT COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(millions)

(unaudited)

	Six Months Ended June 30,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	340		$	325
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		497			395
Nuclear fuel amortization		59			50
Recoverable storm-related costs		(10	)		72
Storm cost amortization		26			25
Deferred income taxes		308			339
Cost recovery clauses and franchise fees		268			(302	)
Change in prepaid option premiums and derivative settlements		(1	)		6
Changes in operating assets and liabilities:
Customer receivables		(63	)		(74	)
Other receivables		56			(6	)
Materials, supplies and fossil fuel inventory		(9	)		(112	)
Other current assets		(58	)		(77	)
Other assets		(39	)		(48	)
Accounts payable		107			545
Customer deposits		17			21
Margin cash collateral		1			442
Income taxes		(357	)		(101	)
Interest and other taxes		123			127
Other current liabilities		11			16
Other liabilities		20			(8	)
Other - net		(20	)		45
Net cash provided by operating activities		1,276			1,680

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures		(1,088	)		(1,161	)
Nuclear fuel purchases		(90	)		(56	)
Proceeds from sale of securities in special use funds		1,198			760
Purchases of securities in special use funds		(1,219	)		(806	)
Other - net		1			-
Net cash used in investing activities		(1,198	)		(1,263	)

CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of long-term debt		493			589
Retirements of long-term debt		(245	)		(224	)
Net change in short-term debt		(25	)		(519	)
Dividends		(325	)		(50	)
Change in funds held for storm-recovery bond payments		4			12
Other - net		(1	)		(1	)
Net cash used in financing activities		(99	)		(193	)

Net increase (decrease) in cash and cash equivalents		(21	)		224
Cash and cash equivalents at beginning of period		120			63
Cash and cash equivalents at end of period	$	99		$	287

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2008 Form 10-K for FPL Group and FPL.

FPL GROUP, INC. AND FLORIDA POWER & LIGHT COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the 2008 Form 10-K for FPL Group and FPL. In the opinion of FPL Group and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year. FPL Group and FPL have evaluated subsequent events through July 30, 2009.

1. Employee Retirement Benefits

FPL Group sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of FPL Group and its subsidiaries. FPL Group also has a supplemental executive retirement plan (SERP), which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees. The cost of this SERP component is included in the determination of net periodic benefit income for pension benefits in the following table and was not material to FPL Group's financial statements for the three and six months ended June 30, 2009 and 2008. In addition to pension benefits, FPL Group sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of FPL Group and its subsidiaries meeting certain eligibility requirements.

The components of net periodic benefit (income) cost for the plans are as follows:

	Pension Benefits						Other Benefits						Pension Benefits						Other Benefits
	Three Months Ended June 30,												Six Months Ended June 30,
	2009			2008			2009			2008			2009			2008			2009			2008
										(millions)

Service cost	$	13		$	14		$	2		$	2		$	26		$	27		$	2		$	3
Interest cost		27			25			6			6			55			51			12			12
Expected return on plan assets		(60	)		(60	)		(1	)		(1	)		(119	)		(120	)		(1	)		(2	)
Amortization of transition obligation		-			-			1			1			-			-			2			2
Amortization of prior service benefit		(1	)		(1	)		-			-			(2	)		(2	)		-			-
Amortization of gains		(5	)		(7	)		-			-			(12	)		(14	)		-			-
Net periodic benefit (income) cost at FPL Group	$	(26	)	$	(29	)	$	8		$	8		$	(52	)	$	(58	)	$	15		$	15
Net periodic benefit (income) cost at FPL	$	(18	)	$	(21	)	$	6		$	6		$	(37	)	$	(42	)	$	11		$	12

2. Derivative Instruments

FPL Group and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with long-term debt. In addition, FPL Group, through NextEra Energy Resources, uses derivatives to optimize the value of power generation assets. NextEra Energy Resources also provides full energy and capacity requirements services primarily to distribution utilities, which include load-following services and various ancillary services, in certain markets and engages in energy trading activities to take advantage of expected future favorable price movements. Derivative instruments, when required to be marked to market, are recorded on FPL Group's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in the derivatives' fair value are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause). For FPL Group's non-rate regulated operations, predominantly NextEra Energy Resources, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized on a net basis in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in FPL Group's condensed consolidated statements of income unless hedge accounting is applied. While most of NextEra Energy Resources' derivative transactions are entered into for the purpose of managing commodity price risk, and to reduce the impact of volatility in interest rates stemming from changes in variable interest rates on outstanding debt, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk. Additionally, for hedges of commodity price risk, physical delivery for forecasted commodity transactions must be probable. FPL Group believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis. Generally, the hedging instrument's effectiveness is assessed using regression analysis for commodity contracts, and nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item, for interest rate swaps. Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life.

At June 30, 2009, FPL Group had cash flow hedges with expiration dates through December 2012 for energy contract derivative instruments, and interest rate cash flow hedges with expiration dates through May 2024. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income (OCI) and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings. See Note 6. The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period, and amounted to approximately $(1) million and $(5) million for the three months ended June 30, 2009 and 2008, respectively, and approximately $9 million and $(13) million for the six months ended June 30, 2009 and 2008, respectively. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate.

FPL Group's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:

	FPL Group						FPL
	June 30, 2009			December 31, 2008			June 30, 2009			December 31, 2008
	(millions)

Current derivative assets (a)	$	592		$	433		$	8		$	4
Noncurrent other assets		312			212			20			2
Current derivative liabilities (b)		(1,096	)		(1,300	)		(881	)		(1,114	)
Noncurrent derivative liabilities (c)		(192	)		(218	)		(3	)(d)		(1	)(d)
Total mark-to-market derivative instrument liabilities	$	(384	)	$	(873	)	$	(856	)	$	(1,109	)

¾¾¾¾¾¾¾¾¾¾

(a)	At June 30, 2009 and December 31, 2008, FPL Group's balances reflect the netting of $49 million and $60 million (none at FPL), respectively, in margin cash collateral received from counterparties.
(b)	At June 30, 2009 and December 31, 2008, FPL Group's balances reflect the netting of $205 million and $33 million (none at FPL), respectively, in margin cash collateral provided to counterparties.
(c)	At June 30, 2009 and December 31, 2008, FPL Group's balances reflect the netting of $7 million and $25 million (none at FPL), respectively, in margin cash collateral provided to counterparties.
(d)	Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

At June 30, 2009 and December 31, 2008, FPL Group had approximately $24 million and $66 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets. These amounts are included in other current liabilities in the condensed consolidated balance sheets. Additionally, at June 30, 2009 and December 31, 2008, FPL Group had approximately $83 million and $98 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities. These amounts are included in other current assets in the condensed consolidated balance sheets.

As discussed above, FPL Group uses derivative instruments to, among other things, manage its commodity price risk, interest rate risk and foreign currency exchange rate risk. The table above presents FPL Group’s and FPL’s net derivative liability positions at June 30, 2009, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral. However, disclosure rules require that the following tables be presented on a gross basis.

The fair values of FPL Group's derivatives designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts cannot be contractually settled on a gross basis.

	June 30, 2009
	Derivative Assets		Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	80	$	1
Current derivative liabilities		58		4
Noncurrent other assets		24		1
Noncurrent derivative liabilities		44		13
Interest rate swaps:
Current derivative liabilities		-		46
Noncurrent other assets		57		-
Noncurrent derivative liabilities		-		32
Total	$	263	$	97

Gains (losses) related to FPL Group's cash flow hedges are recorded on FPL Group's condensed consolidated financial statements (none at FPL) as follows:

	Three Months Ended June 30, 2009									Six Months Ended June 30, 2009
	Commodity Contracts			Interest Rate Swaps			Total			Commodity Contracts			Interest Rate Swaps			Total
	(millions)

Gains (losses) recognized in OCI	$	5		$	53		$	58		$	157		$	48		$	205
Gains (losses) reclassified from accumulated other comprehensive income (AOCI)	$	60	(a)	$	(5	)(b)	$	55		$	83	(a)	$	(14	)(b)	$	69
Gains (losses) recognized in income (c)	$	(1	)(a)	$	-		$	(1	)	$	9	(a)	$	-		$	9

¾¾¾¾¾¾¾¾¾¾

(a)	Included in operating revenues.
(b)	Included in interest expense.
(c)	Represents the ineffective portion of the hedging instrument.

For the three and six months ended June 30, 2009, FPL Group recorded a loss of $6 million and $5 million, respectively, on a fair value hedge which is reflected in interest expense in the condensed consolidated statements of income and resulted in a reduction of the related debt.

The fair values of FPL Group's and FPL's derivatives not designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts cannot be contractually settled on a gross basis.

	June 30, 2009
	FPL Group				FPL
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	938	$	375	$	8	$	-
Current derivative liabilities		1,768		3,078		3		884
Noncurrent other assets		370		138		22		2
Noncurrent derivative liabilities		568		755		3		6
Foreign currency swap:
Noncurrent derivative liabilities		-		11		-		-
Total	$	3,644	$	4,357	$	36	$	892

Gains (losses) related to FPL Group's derivatives not designated as hedging instruments are recorded on FPL Group's condensed consolidated statements of income (none at FPL) as follows:

	Three Months Ended June 30, 2009			Six Months Ended June 30, 2009
	(millions)

Commodity contracts:
Operating revenues	$	20	(a)	$	132	(a)
Fuel, purchased power and interchange		1			28
Foreign currency swap:
Other - net		4			(9	)
Total	$	25		$	151

¾¾¾¾¾¾¾¾¾¾

(a)	In addition, for the three and six months ended June 30, 2009, FPL recorded approximately $21 million and $546 million, respectively, of losses related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.

At June 30, 2009, FPL Group and FPL had derivative commodity contracts for the following net notional volumes:

Commodity Type	FPL Group(a)			FPL(a)
	(millions)

Power	(38	)	mwh(b)	-
Natural gas	839		mmbtu(c)	883	mmbtu(c)
Oil	1		barrels	2	barrels

¾¾¾¾¾¾¾¾¾¾

(a)	Volume amounts include fixed and index priced derivatives applicable to commodity and basis exposures. Amounts presented are for derivative contracts only and do not include other commodity contracts for which the normal purchases and normal sales election has been made, or which do not meet the definition of a derivative.
(b)	Megawatt hours
(c)	One million British thermal units

See Note 4 for additional information on interest rate and foreign currency swaps.

Certain of FPL Group's and FPL's derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating from specified credit rating agencies and certain financial ratios, as well as credit-related cross default and material adverse change triggers. At June 30, 2009, the aggregate fair value of FPL Group's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $2.4 billion ($0.9 billion for FPL).

If the credit-risk-related contingent features underlying these agreements and other wholesale commodity contracts were triggered, FPL Group or FPL could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions. Certain contracts contain multiple types of credit-related triggers. To the extent these contracts contain a credit ratings downgrade trigger, the maximum exposure is included in the following credit ratings collateral posting requirements. If FPL Group Capital’s or FPL’s credit ratings were downgraded to BBB+/Baa1 (a two level downgrade for FPL and a one level downgrade for FPL Group Capital), FPL Group would be required to post collateral of approximately $0.5 billion, substantially all of which relates to FPL. If FPL Group Capital’s and FPL’s credit ratings were downgraded to below investment grade, FPL Group would be required to post additional collateral such that the total posted collateral would be approximately $2.2 billion ($1.4 billion at FPL). Some contracts at FPL Group do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or credit-related cross default triggers. In the event these provisions were triggered, FPL Group could be required to post additional collateral of up to approximately $0.6 billion.

Collateral may be posted in the form of cash or credit support. At June 30, 2009, FPL Group had posted approximately $0.3 billion ($0.3 billion at FPL) in the form of letters of credit in the normal course of business which could be applied toward the collateral requirements above. FPL and FPL Group Capital have bank revolving lines of credit in excess of the collateral requirements described above that would be available to support, among other things, derivative activities. Under the terms of the bank revolving lines of credit, maintenance of a specific credit rating is not a condition to drawing upon these credit facilities, although there are other conditions to drawing on these credit facilities.

Additionally, some contracts also contain certain adequate assurance provisions where a counterparty may demand additional collateral based on subjective events and/or conditions. Due to the subjective nature of these clauses, FPL Group and FPL are unable to determine a value for these items and they are not included in any of the quantitative disclosures above.

3. Fair Value Measurements

FPL Group and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured on a recurring basis. Certain derivatives and financial instruments are valued using option pricing models and take into consideration multiple inputs including commodity prices, volatility factors and discount rates, as well as counterparty credit ratings and credit enhancements. Additionally, when observable market data is not sufficient, valuation models are developed that incorporate FPL Group's and FPL's proprietary views of market factors and conditions. FPL Group's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

FPL Group's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:

	As of June 30, 2009
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)				Significant Other Observable Inputs (Level 2)				Significant Unobservable Inputs (Level 3)			Netting (a)			Total
	(millions)
Assets:
Cash equivalents:
FPL Group - equity securities		$	55			$	30			$	-	$	-	$		85
FPL - equity securities		$	54			$	-			$	-	$	-	$		54
Special use funds:
FPL Group:
Equity securities		$	475			$	824	(b)		$	-	$	-	$		1,299
U.S. Government and municipal bonds		$	216			$	679			$	-	$	-	$		895
Corporate debt securities		$	-			$	326			$	-	$	-	$		326
Mortgage-backed securities		$	-			$	469			$	-	$	-	$		469
Other debt securities		$	-			$	53			$	-	$	-	$		53
FPL:
Equity securities		$	-			$	722	(b)		$	-	$	-	$		722
U.S. Government and municipal bonds		$	176			$	645			$	-	$	-	$		821
Corporate debt securities		$	-			$	239			$	-	$	-	$		239
Mortgage-backed securities		$	-			$	373			$	-	$	-	$		373
Other debt securities		$	-			$	46			$	-	$	-	$		46
Other investments:
FPL Group:
Equity securities		$	2			$	5			$	-	$	-	$		7
U.S. Government and municipal bonds		$	-			$	42			$	-	$	-	$		42
Corporate debt securities		$	-			$	30			$	-	$	-	$		30	(c)
Mortgage-backed securities		$	-			$	53			$	-	$	-	$		53	(c)
Other		$	4			$	-			$	-	$	-	$		4
FPL		$	-			$	2			$	-	$	-	$		2
Net derivative assets (liabilities):
FPL Group		$	(172	)		$	(800	)		$	485	$	103	$		(384	)(d)
FPL		$	-			$	(864	)		$	8	$	-	$		(856	)(d)

¾¾¾¾¾¾¾¾¾¾

(a)	Includes amounts for margin cash collateral and net option premium payments and receipts.
(b)	At FPL Group, approximately $740 million ($677 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by FPL Group or FPL.
(c)	Current maturities of approximately $1 million of corporate debt securities and approximately $6 million of mortgage-backed securities are included in other current assets on FPL Group's condensed consolidated balance sheets.
(d)	See Note 2 for a reconciliation of net derivatives to FPL Group's and FPL's condensed consolidated balance sheets.

	As of December 31, 2008
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)			Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)			Netting (a)		Total
	(millions)
Assets:
Cash equivalents:
FPL Group	$	109		$	-		$	-		$	-	$	109
FPL	$	27		$	-		$	-		$	-	$	27
Other current assets:
FPL Group	$	-		$	17		$	-		$	-	$	17
Special use funds:
FPL Group	$	536		$	2,411	(b)	$	-		$	-	$	2,947
FPL	$	149		$	2,009	(b)	$	-		$	-	$	2,158
Other investments:
FPL Group	$	6		$	101		$	-		$	-	$	107
Net derivative assets (liabilities):
FPL Group	$	(55	)	$	(1,227	)	$	404		$	5	$	(873	)(c)
FPL	$	-		$	(1,108	)	$	(1	)	$	-	$	(1,109	)(c)

¾¾¾¾¾¾¾¾¾¾

(a)	Includes amounts for margin cash collateral and net option premium payments and receipts.
(b)	At FPL Group, approximately $712 million ($650 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by FPL Group or FPL. The remaining investments are primarily comprised of fixed income securities including municipal, mortgage-backed, corporate and governmental bonds.
(c)	See Note 2 for a reconciliation of net derivatives to FPL Group's and FPL's condensed consolidated balance sheets.

The reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs is as follows:

	Three Months Ended June 30,
	2009					2008
	FPL Group			FPL		FPL Group			FPL
	(millions)

Fair value of derivatives based on significant unobservable inputs at March 31	$	539		$	5	$	(217	)	$	(10	)
Realized and unrealized gains (losses):
Included in earnings (a)		47			-		(401	)		-
Included in regulatory assets and liabilities		-			-		3			3
Settlements		(116	)		3		32			-
Net transfers in/out		15			-		12			-
Fair value of derivatives based on significant unobservable inputs at June 30	$	485		$	8	$	(571	)	$	(7	)
The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to derivatives still held at the reporting date (a)	$	49		$	-	$	(561	)	$	-

¾¾¾¾¾¾¾¾¾¾

(a)	Realized and unrealized gains (losses) are reflected in operating revenues in the condensed consolidated statements of income.

	Six Months Ended June 30,
	2009					2008
	FPL Group		FPL			FPL Group			FPL
	(millions)

Fair value of derivatives based on significant unobservable inputs at December 31 of prior year	$	404	$	(1	)	$	(127	)	$	(10	)
Realized and unrealized gains (losses):
Included in earnings (a)		385		-			(623	)		-
Included in regulatory assets and liabilities		5		5