FPL Group, Inc. - Company Profile, Information, Business Description, History, Background Information on FPL Group, Inc.

700 Universe Boulevard
Juno Beach, Florida 33408-0420

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History of FPL Group, Inc.

FPL Group, Inc. is a holding company that provides electricity to 7.3 million people in Miami, southern Florida, and 14 other states through its subsidiaries Florida Power & Light and FPL Energy. Its oil, natural gas, and nuclear power plants provide energy for residential, industrial, and commercial customers. The company is also the largest wind power owner in the nation. Its power rates are lower than national averages, and it has been praised for protecting the environment. In addition to producing and distributing electricity, FPL Group through its subsidiary FPL FiberNet provides fiberoptic cable and services to Florida telecommunications companies. FPL Group ranks as number 226 in the 2002 Fortune 500 list of the United States' largest companies and the 13th largest company in the utilities (gas and electric) industry.

Origins and Early History

During a massive real estate boom and population increase in 1925 Florida Power & Light Company (FP&L) was formed when a number of local electric and gas companies were consolidated by American Power & Light Company, a large utility holding company. FP&L included properties formerly owned and operated by Miami Electric Light & Power Company, Miami Gas Company, Miami Beach Electric Company, Southern Utilities Company, Daytona Public Service Company, Ormond Supply Company, Lakeland Gas Company, St. Johns Electric Company, and Southern Holding Company. By 1930 company profits were $2.7 million on revenue of $11.4 million.

In 1941 the city of Miami bought the company's water operations for $5.1 million, and FP&L sold its Miami Beach bus transportation system. In 1946 FP&L sold its water distribution system in Coral Gables, Florida. In 1950 American Power & Light, carrying out the provisions of a Congressional act limiting utility holding companies, spun off FP&L as an independent company. In 1951 FP&L sold its electric properties in the Florida towns of Perry, Madison, and Monticello to Florida Power Corporation.

Post-World War II Growth

FP&L had weathered the Great Depression with the help of increasing demand for home electricity. During World War II, the U.S. economy recovered, and industrial demand for electricity increased sharply. Southern Florida's population and economy grew quickly after World War II, as soldiers who had been stationed in the area returned with their families to live there or to vacation. From 1949 to 1954 the customers in FP&L's territory increased from 295,000 to 463,000, while company revenue doubled from $38.7 million to $77.5 million. In 1952 FP&L announced a ten-year, $332 million construction program designed to triple the firm's electricity production capacity. The plan included construction of ten major power stations throughout FP&L's territory. Florida was growing so fast that in 1954 FP&L increased its ten-year plan to $410 million. By 1955 FP&L supplied electric power to 1.54 million people in 448 communities in the central and northern parts of Florida. Its gas system included 300 miles of gas mains, and gas plants in Miami, Daytona Beach, Lakeland, and Palatka, Florida. In 1958 the company sold its three gas plants and distribution systems to the Houston Corporation.

As Florida grew from the 20th most populous state in 1950 to the tenth largest state in 1960, FP&L grew along with it. By 1964 FP&L served 2.7 million people in 555 communities, its revenue reaching $235 million in 1964. In 1965 the company signed 20-year contracts to buy natural gas from Pan-American Petroleum Corporation and Florida Gas Transmission Company. FP&L also decided to develop the use of nuclear power. Its two nuclear plants, south of Miami at Turkey Point, however, did not come on line until 1973, and did so at a cost of $120 million each.

FP&L has suffered many power shortages due in part to the heat, humidity, and salt from the ocean, which make generating and delivery equipment difficult to maintain. On August 5, 1969, an explosion and fire at the firm's Cutler Ridge power plant caused a blackout along 50 miles of Florida's east coast, including Miami and Fort Lauderdale. Much of the power returned within 90 minutes for the nearly two million people affected. In April 1973 power failed twice in two days, affecting three million residents, some for as long as seven hours. The cause was defective equipment at the Turkey Point nuclear plants and at the oil-fueled plant at Port Everglades. The failures hurt the company's image, especially since they occurred the day after the company was awarded a $40 million rate increase.

Despite problems at Turkey Point, FP&L's fuel diversification proved important when the energy crisis hit in 1973 and oil prices skyrocketed. Natural gas and nuclear energy supplied about half of the firm's fuel needs, but the remainder of FP&L's fuel needs were filled by oil. Therefore, FP&L was granted a rate increase to offset the large increase in oil prices. The rate increases angered consumers.

In 1973 the company formed Fuel Supply Service, Inc. to secure fuel supplies. In 1974 Florida's attorney general ruled that utilities could not automatically pass along rises in fuel costs to customers. The ruling came just as FP&L was preparing a large stock and bond offering, which had to be canceled. The incident caused a lowering of the company's bond rating that management estimated would cost $300 million in higher interest rates. FP&L also was hurt in a recession that caught Florida with rows of unsold condominiums, and the state's growth slowed for the first time since World War II. Within a few years, however, Florida again was growing rapidly, and FP&L launched a massive building program to keep up, building seven new generating plants.

Another blackout left three million customers without electricity for several hours in 1977. It was FP&L's seventh major blackout in eight years, giving the company the worst power-failure record of U.S. electric utilities. The company was particularly vulnerable to power failures because it was isolated from the rest of the U.S. power grid. FP&L could draw some power from other Florida utilities when failures hit, but not enough to meet demand. The other utilities often did not have enough surplus power to offer, and FP&L's connections with them were inadequate. In 1979 FP&L began a $335 million transmission expansion project, building two high-capacity power lines from Miami to the Georgia border to increase its access to other utilities. In 1981 FP&L won a major rate increase of $256 million, followed by increases of $101 million in 1982 and $238 million in 1983.

By 1977, the company's two Turkey Point nuclear power plants, damaged by corrosion, needed to be rebuilt, at a cost of about $500 million each. The Nuclear Regulatory Commission fined the company on several occasions for safety violations at the plants. FP&L also had to make extensive repairs to its nuclear plant at St. Lucie, north of Palm Beach. Nonetheless, FP&L pushed ahead with a second nuclear power plant at St. Lucie. FP&L finished the plant nearly on time in 1983, a rarity in nuclear power plant construction.

In part because of the problems with power failures and its nuclear power plants, FP&L moved to a Japanese-inspired style of management during the early 1980s. FP&L began stressing quality control, creating special quality-control teams, and keeping detailed records of the causes of power failures and other problems. The new management style initially faced opposition from middle managers. By 1989 the company had 1,900 quality-control teams, with most of its workforce participating. Each team worked to solve specific problems that prevented the company from achieving its goals. Results were impressive. Service outages dropped from 100 minutes per customer per year to 43 minutes per year, far below the U.S. average of 90 minutes per year. Employee injuries decreased, as did customer complaints. The company was adding 130,000 customers a year, but requested no rate increases to pay for additional equipment. Government officials and managers from other U.S. companies attended FP&L seminars on adapting these management techniques, and FP&L was widely praised as one of the best-managed U.S. corporations.

In 1984 FPL Group, Inc. was formed as a holding company with FP&L as the primary subsidiary. Through a stock offering, the company raised $75 million for diversification. In 1985 John J. Hudiburg became chairman and CEO of FPL Group's Florida Power & Light subsidiary. He and FPL Group Chairman Marshall McDonald pushed quality control even harder. FPL Group made its first major move to diversify in 1985 when it bought the Philadelphia, Pennsylvania-based Colonial Penn Life Insurance Company for $565 million. The same year FPL Group also set up ESI Energy Inc. to participate in nonutility energy projects, such as converting waste to energy and finding other alternative energy sources. Additional FPL Group ventures included cable television, commercial and industrial real estate, and the maintenance of citrus groves.

By 1985 FP&L was the fourth largest electric utility in the United States, and one of the fastest growing. It supplied service to 700 communities in 35 counties of Florida, including most of the territory along the east and lower west coasts of the state. With the addition of the second nuclear plant at St. Lucie, only 13 percent of the company's power was oil-generated. FP&L was working on ways to increase off-peak sales and reduce peak demand. In 1987 the utility raised the price of electricity during peak hours and lowered it during off-peak hours.

In 1989 James Broadhead replaced McDonald as chairman of FPL Group. Also that year, FPL Group became the first non-Japanese company to receive the Deming Prize, the prestigious Japanese quality-control award named for W. Edwards Deming, the American business consultant who helped Japanese companies modernize after World War II. Hudiburg, however, who, with McDonald, led the company's drive to win the award, had resigned several months earlier in the wake of Broadhead's appointment. Broadhead had made clear his intention of discontinuing FPL Group's new direction in management. In 1990 Broadhead moved the company back toward decentralized U.S. management. The Japanese-based system had become unpopular among large segments of the company's workforce because of the long hours and paperwork involved. A subsidiary, Qualtec, Inc., continued to advise outside clients on certain aspects of quality improvement. Broadhead also was displeased with continuing maintenance problems at Turkey Point. Broadhead felt that Hudiburg had not adequately addressed operating deficiencies at Turkey Point.

Meanwhile, FPL Group's diversification efforts had proven disastrous. Colonial Penn Life Insurance was losing money, as was FPL's Telesat cable television service. FPL Group took a $72 million write-off in 1986 when it discontinued several unprofitable insurance lines. In 1989, with the U.S. insurance industry in recession, FPL Group took a $689 million write-off for Colonial Penn's losses and a $62 million write-off related to its cable television and real estate businesses. Because of the write-offs, income for 1990 came to only $6 million on sales of $6.3 billion.

The 1990s and Beyond

FPL Group decided to sell its troubled insurer, as well as its real estate and cable television businesses, and to focus its attention on energy-related businesses. It sold Colonial Penn in August 1991, but the real estate and cable television businesses remained on the market. In addition, predictions that Florida's population growth would slow in the 1980s proved wrong. A cold spell in late 1989 led to rotating blackouts. When two plants failed in July 1990, FP&L asked customers to use less air conditioning to prevent brownouts. In 1990 the company announced a plan to spend $6.6 billion by 1999 to increase its capacity by 5,400 megawatts, or about 36 percent. FPL Group raised $677 million for the project in 1990 through two stock offerings. To ease its power squeeze, the utility bought its first out-of-state property, purchasing 76 percent of Georgia Power Company's 846-megawatt, modern, coal-fired plant near Atlanta for $614 million. The company also planned to build a 100-mile transmission line, further connecting its electrical grid with that of Florida Power Corporation.

In 1990 nuclear power made up 24 percent of FP&L's energy mix, oil 23 percent, natural gas 17 percent, coal 3 percent, and purchased power 33 percent. In late 1990 the company had to shut down its Turkey Point nuclear plant for 11 months to refuel it and install a backup generator, cutting FP&L's generating capacity by 10 percent. The Turkey Point plant had run at only 49 percent capacity since 1987, suffering from poor maintenance and equipment failures that led to $700 million in repair bills between 1983 and 1990.

FPL Group faced a difficult rebuilding program in the 1990s, following its mostly failed diversification program. It faced a profitable future, however, supplying electricity to one of the fastest growing regions of the United States. It had to keep up with that growth but also become more efficient in order to compete in an era of energy deregulation.

New plants were built in the 1990s to meet energy demands. In 1994 the company put into service its Martin Power Plant Units 3 and 4. According to the company's web site, these units became operational ahead of schedule and "more than $100 million below budget." The company's Lauderdale Plant was redone to triple its energy generating capability.

In 2000 FPL produced 26 percent of its electricity in nuclear power plants, 25 percent in oil plants, and 25 percent in natural gas plants. The company purchased 17 percent of its power and got just 7 percent from coal plants. Most of its power went to residential customers (50.4 percent of kilowatt hours) and commercial customers (40.2 percent), with the remainder used by industrial customers, public power agencies, railways, and energy wholesalers.

FPL Group reported increased operating revenues and net income for the year ending on December 31, 2001. Its operating revenues reached $8.47 billion, compared with $7.08 billion in 2000. That boosted the company's ranking on the Fortune 500 list from number 264 in 2001 to number 226 in the April 15, 2002 issue of Fortune. Its net income increased from $745 million or $4.38 per share in 2000 to $792 million or $4.69 per share in 2001. "Despite a rather tumultuous year for the electric industry," said FPL Group Chairman and CEO Lew Hay in a press release, "FPL Group produced solid results largely driven by an increasing number of customers at Florida Power & Light and a growing power plant portfolio at FPL Energy."

Florida Power & Light, the main subsidiary, in 2001 added almost 87,000 new customers and accounted for $695 million of the parent FPL Group's net 2001 income of $792 million. Subsidiary FPL Energy in 2001 increased its net income to $105 million from $83 million the year before.

The net income of FPL FiberNet, LLC, the smallest subsidiary, was exceeded by corporate expenses. It expanded its fiberoptic networks, however, in the Miami, Orlando, Tampa, St. Petersburg, Jacksonville, Fort Lauderdale, Boca Raton, and West Palm Beach areas. At the end of 2001 FPL FiberNet had about 2,500 miles of fiber.

In 2002 FPL looked forward to completely converting its Sanford Plant from oil to natural gas. By January 2003 the repowered plant was expected to double its generating capacity. Likewise, the company anticipated tripling the power of its Fort Myers Plant by using less polluting natural gas. It also planned to complete two new natural gas units at Fort Myers to provide reserve power for peak demand times.

The company planned to increase its energy production using wind turbines, a still small but rapidly growing part of the energy industry. In 2001 subsidiary FPL Energy doubled its previous wind capacity by adding 844 megawatts of new wind energy capability in Kansas, Texas, Wisconsin, Washington, and Oregon. This relatively new source of electricity produced no pollution but was erratic due to wind fluctuations. Many farmers and other land owners liked this new option, for they were paid an annual lease without having any operating responsibilities.

Meanwhile, FPL Group enjoyed some very positive developments in the commercial nuclear power industry. In 1999 nuclear power was the cheapest form of energy in the nation, averaging 1.83 cents per kilowatt-hour, compared with 2.07, 3.24, and 3.52 cents for coal, oil, and natural gas production. Nuclear plants also operated 90 percent of the time, compared with 69, 40, and 30 percent operating times for coal, hydroelectric, and oil/natural gas plants, respectively. Problems with nuclear plant wastes remained, but the industry had come a long way from the dismal past of poor management and nuclear accidents like Three Mile Island.

After more than 75 years in business, FPL Group seemed proud of its past accomplishments and confident in its future. In 2002 it pointed out on its web site that the average residential power rates were 23 percent higher than its own and that, adjusted for inflation, FPL's rates were the lowest in the 75-year history of the company.

Lewis Hay III, FPL Group's chairman, president, and CEO, reported in a March 22, 2002 letter to his firm's shareholders that the company's earnings per share had grown consistently from $3.33 in 1996 to $4.69 in 2001. The following month the company announced that it had agreed to buy 88.2 percent of the Seabrook Nuclear Generating Station in New Hampshire for a total of $836.6 million. Such acquisitions of new power plants, along with increased output from its existing plants and sound financial performance, prepared FPL Group for future challenges.

Principal Subsidiaries: Florida Power & Light Company; Qualtec, Inc.; FPL Energy LLC; FPL FiberNet, LLC; FPL Group Capital Inc.

Principal Competitors: MidAmerican Energy Holdings Company; Progress Energy, Inc.; TECO Energy, Inc.


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