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Earnings Release
FPL Energy continues strong earnings growth trend Florida Power & Light results benefit from continued customer growth FPL Group increases 2007 EPS expectations to $3.35 to $3.45

JUNO BEACH, Fla. (Oct. 30, 2006) - FPL Group, Inc. (NYSE: FPL) today reported 2006 third quarter net income on a GAAP basis of $524 million, or $1.32 per share, compared with $339 million, or $0.87 per share, in the third quarter of 2005. FPL Group’s net income for the third quarter of 2006 included a net after-tax gain of $74 million associated with the mark-to-market effect of non-qualifying hedges and $7 million of after-tax merger related costs. The results for last year’s third quarter included a net after-tax loss of $56 million associated with the mark-to-market effect of non-qualifying hedges.

Excluding the mark-to-market effect of non-qualifying hedges and merger-related costs, FPL Group’s earnings would have been $457 million, or $1.15 per share, for the third quarter of 2006, compared with $395 million, or $1.01 per share, in the third quarter of 2005.

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.

“FPL Group had very healthy third quarter results, once again driven by the strength of FPL Energy,” said Lew Hay, chairman, president and chief executive officer of FPL Group. “FPL Group’s adjusted results increased approximately 14 percent, with FPL Energy’s adjusted results increasing 40 percent over the prior year quarter. Florida Power & Light posted solid results, although weather-related sales comparisons were unfavorable quarter over quarter.

“With three-quarters of the year now behind us, FPL Group remains on track to deliver at the upper end of its 2006 adjusted earnings expectations of $2.80-$2.90, including the $0.07 impact of storm cost disallowances earlier this year.”

Florida Power & Light

Florida Power & Light Company, FPL Group's principal subsidiary, reported third quarter 2006 net income of $328 million or $0.82 per share, compared to $311 million or $0.80 per share for the prior-year quarter.

In the last 12 months, the average number of FPL accounts increased by 79,000, or 1.8 percent, which is below the average growth experienced in the last several years, and slightly below longer term historical levels. Retail sales of electricity were down 4.2 percent during the third quarter, which witnessed temperatures about normal but below the prior-year quarter. Weather-normalized usage per customer was down, largely due to the impact of higher retail prices, driven by fuel costs.

Operations and maintenance (O&M) expense were essentially flat compared to the prior-year quarter, although this trend is not expected to continue. Looking forward, the company anticipates continued increases in employee benefit costs, and distribution expenses and capital expenditures are also expected to increase as a result of the Storm SecureSM initiative, a ten-year program to harden FPL's infrastructure to be more resilient to hurricanes.

Depreciation and amortization expense decreased $49 million to $197 million for the third quarter of 2006, primarily driven by the extension of the useful lives on the generation fleet and the elimination of the nuclear decommissioning accrual, both of which were implemented as a result of last year’s base rate stipulation and settlement agreement.

During the quarter, FPL announced plans to build an advanced technology coal power plant, comprised of two 980-megawatt generating units in Glades County, Florida to meet the growing demand for electricity in the state and help diversify its existing fuel supply. FPL plans to file a site certification application with the Florida Department of Environmental Protection by the end of 2006. Licensing is expected to take approximately 12 to 18 months. Construction of the new plant is expected to take five years with Unit 1 scheduled to become operational in 2012 and Unit 2 in 2013. Once complete, the facility will generate enough power for more than 650,000 homes. FPL expects the units to have emissions profiles better than current IGCC technology.

“FPL posted good results, despite weak revenue comparisons to the year-ago quarter, which were largely a function of weather,” said Hay. “Customer growth continues to be strong, although it is slightly below the 10 to 15 year historical average. While the Florida economy appears to be cooling, it is still strong, as reflected in continued job and income growth. Housing starts have fallen significantly and we expect that the market will need to work off some excess capacity. Looking forward we see moderate customer growth and a return to positive usage growth in 2007.”

 

FPL Energy

FPL Energy, the competitive energy subsidiary of FPL Group, reported third quarter 2006 net income on a GAAP basis of $215 million or $0.54 per share, compared to $44 million or $0.11 per share in the prior-year quarter. FPL Energy’s net income for the third quarter of 2006 included a net after-tax gain of $74 million associated with the mark-to-market effect of non-qualifying hedges. The results for last year’s third quarter included a net after-tax loss of $56 million associated with the mark-to-market effect of non-qualifying hedges.

Excluding the mark-to-market effect of non-qualifying hedges, third quarter 2006 adjusted earnings for FPL Energy were $141 million, or $0.35 per share, compared to $100 million, or $0.25 per share, in 2005.

FPL Energy’s growth in adjusted earnings in the third quarter is due primarily to the addition of new wind projects and its 70 percent ownership interest in the Duane Arnold Nuclear Plant, together with good results from wholesale load following contracts and continued excellent performance in the merchant fleet. These favorable conditions were partially offset by increases in overhead costs to support the future growth of the business and by increased interest expense.

During the third quarter FPL Energy continued to make good progress selling forward the output from its power plants primarily for 2008. For 2007, FPL Energy now has more than 90 percent of its expected gross margin from its wholesale generation fleet protected against fuel and power market volatility. In addition, as of Oct. 13, 2006, FPL Energy has approximately 80 percent of its 2008 expected gross margin from its wholesale generation fleet protected against fuel and power market volatility.

FPL Energy’s 2006 wind program continues to make excellent progress with approximately 760 megawatts of new wind projects – excluding acquisitions – either already completed or expected to reach commercial operation by the end of the year. In the last twelve months, FPL Energy has added 932 megawatts of new wind to its portfolio.

“FPL Energy once again had an exceptionally strong quarter which is reflected by its double digit growth in adjusted earnings,” said Hay. “Although all areas of the business are performing well, and market conditions remain favorable, we were particularly pleased with the comparative performance of the existing merchant portfolio, which had a strong third quarter last year but did even better this quarter.”

Corporate and Other

Corporate and Other negatively impacted third quarter 2006 net income by $19 million, or $0.04 per share, primarily driven by interest and merger-related expenses partially offset by the impact of certain state tax benefits.

Outlook

“The strong performance through three-quarters of the year at FPL Energy positions us well to deliver results at FPL Group at the high end of our previously announced range for 2006 adjusted earnings per share of $2.80-$2.90, including the $0.07 negative impact from the storm cost disallowance” said Hay. “For 2007, our business plans are now sufficiently far along for us to share adjusted earnings expectations in a range of $3.35 to $3.45. For 2008, our prospects are also strong and we presently see a range of $3.60 to $3.80 per share.”

As always, FPL Group earnings expectations assume normal weather and exclude the effect of adopting new accounting standards and the mark-to-market effect of non-qualifying hedges, none of which can be determined at this time.

“I remain very confident in FPL Group’s future growth prospects. FPL is one of the premier electric franchises in the country with strong customer growth. FPL Energy is one of the best performing competitive energy companies in the industry with outstanding growth prospects. In addition, FPL Group has a strong balance sheet, affording us the opportunity to continue to invest in our businesses,” Hay added.

As previously announced, FPL Group’s third quarter earnings conference call is scheduled for 
9 a.m. ET on Monday, Oct. 30, 2006. The webcast is available on FPL Group’s website by accessing the following link,http://www.FPLGroup.com/investor/contents/investor_index.shtml. The slides accompanying the presentation may be downloaded at www.FPLGroup.com beginning at 7:30 a.m. ET today. For persons unable to listen to the live webcast, a replay will be available for 90 days by accessing the same link as listed above.

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

Profile 
FPL Group, with annual revenues of more than $11 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 4.4 million customer accounts in Florida. FPL Energy, LLC, FPL Group’s competitive energy subsidiary, is a leader in producing electricity from clean and renewable fuels. Additional information is available on the Internet at www.FPLGroup.comwww.FPL.com andwww.FPLEnergy.com.

 

Cautionary Statements And Risk Factors That May Affect Future Results
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 providing 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, on their respective websites, 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, including unanticipated events, after the date on which such statement is made. 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 complex laws and regulations and to changes in laws and regulations as well as changing governmental policies and regulatory actions, including initiatives regarding deregulation and restructuring of the energy industry. 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.

  • FPL Group and FPL are subject to complex laws and regulations, and to changes in laws or regulations, including the Public Utility Regulatory Policies Act of 1978, as amended, the Public Utility Holding Company Act of 2005, the Federal Power Act, the Atomic Energy Act of 1954, as amended, the Energy Policy Act of 2005 (2005 Energy Act) and certain sections of the Florida statutes relating to public utilities, changing governmental policies and regulatory actions, including those of the Federal Energy Regulatory Commission (FERC), the Florida Public Service Commission (FPSC) and the legislatures and utility commissions of other states in which FPL Group has operations, and the 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 any and all 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 as well as the effect of changes in or additions to applicable 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 require additional pollution control equipment and otherwise 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 or restructuring 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, including nuclear facilities, involves significant risks that could adversely affect the results of operations and financial condition of FPL Group and FPL.

  • 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, including the supply and transportation of fuel, 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, including the requirement to purchase power in the market at potentially higher prices to meet its contractual obligations. 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, the potential payment of significant retrospective insurance premiums, 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 operating facility of FPL Energy, LLC (FPL Energy) 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.

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

  • 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 within established budgets 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.

The use of derivative contracts by FPL Group and FPL in the normal course of business could result in financial losses that negatively impact the results of operations of FPL Group and FPL.

  • FPL Group and FPL use derivative instruments, such as swaps, options 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.

FPL Group's competitive energy business is subject to risks, many of which are beyond the control of FPL Group, that may reduce the revenues and adversely impact the results of operations and financial condition of FPL Group.

  • There are other risks associated with FPL Group's competitive energy business. 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 (including transportation), 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's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including the effect of increased competition for acquisitions resulting from the consolidation of the power industry.

  • 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 general, as well as the passage of the 2005 Energy Act. In addition, FPL Group may be unable to identify attractive acquisition opportunities at favorable prices and to successfully and timely complete and integrate them.

Because FPL Group and FPL rely on access to capital markets, the inability to maintain current credit ratings and access capital markets on favorable terms may limit the ability of FPL Group and FPL to grow their businesses and would likely increase interest costs.

  • 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, FPL Group Capital Inc 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 their interest costs.

Customer growth in FPL's service area affects FPL Group's results of operations.

  • FPL Group's results of operations are affected by the growth in customer accounts in FPL's service area. Customer growth can be affected by population growth as well as economic factors in Florida, including job and income growth, housing starts and new home prices. Customer growth directly influences the demand for electricity and the need for additional power generation and power delivery facilities at FPL.

Weather affects FPL Group's and FPL's results of operations.

  • FPL Group's and FPL's results of operations are 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. FPL Group's and FPL's results of operations can be affected by the impact of severe weather which can be destructive, causing outages and/or property damage, may affect fuel supply, and could require additional costs to be incurred. At FPL, recovery of these costs is subject to FPSC approval.

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

  • 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 and corporate governance requirements.

Threats of terrorism and catastrophic events that could result from terrorism may impact the operations of FPL Group and FPL in unpredictable ways.

  • 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 U.S., and the increased cost and adequacy of security and insurance.

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

  • 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, state or local events as well as company-specific events.

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

  • 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 and work stoppage that could affect the businesses and financial condition of FPL Group and FPL.

The risks described herein are not the only risks facing FPL Group and FPL. Additional risks and uncertainties not currently known to FPL Group or FPL, or that are currently deemed to be immaterial, also may materially adversely affect FPL Group's or FPL's business, financial condition and/or future operating results.

 

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