Fitch Affirms Ratings of FPL Group and Subsidiaries; Outlook Stable

FPL's Issuer Default Rating (IDR) of 'A' is based upon the combined sources of cash flow available to the group from FP&L, a large and robust electric utility, and from a profitable business as a developer and owner/operator of generation assets through indirect subsidiary NextEra. Group Capital is an intermediate holding company that owns NextEra and also a financing vehicle that issues debt to fund activities of NextEra and other subsidiaries. Group Capital's ratings reflect the unconditional and irrevocable guarantee by FPL of the debt obligations of Group Capital, and thus they carry the same ratings as FPL. FP&L (IDR affirmed at 'A') has been the core or anchor of the consolidated group, but growth of NextEra accelerated over the past five years. NextEra's share of FPL net income is estimated at approximately half of consolidated 2008 and 2009 net income, up from roughly 20% in 2004.

The rating affirmations and Stable Outlook of FPL and Group Capital are based on Fitch's assumption that FPL will continue to fund its utility and non-utility capital expenditures with a balanced capital mix and will maintain its investment focus on relatively low-risk assets with long-term power purchase arrangements. Longer term, NextEra's nuclear and renewable assets are favorably positioned to benefit if the U.S. implements limits on carbon emissions and renewable portfolio standards, developments that would benefit FPL more than it would competing generation companies. The Stable Outlook also assumes that the outcome of FP&L's pending electric base rate case (filed early in 2009; a final order is expected on Jan. 29, 2010) will be balanced. Due to the debt leverage borne at FPL Group, the group's consolidated credit measures are vulnerable to erosion if the FP&L base rate order were more adverse than our current expectation.

The affirmation of FP&L's IDR of 'A' reflects the integrated electric utility's low debt leverage and strong financial profile and large service territory. It also reflects Florida Public Service Commission (FPSC) policies and procedures that permit timely recovery of volatile cost components such as fuel and purchased power and storm-related expenses via tracker clauses which tend to stabilize cash flow. Over the past two years, FP&L's sales and customer counts declined, reflecting a severe real estate downturn and recession in South Florida. However, the short-term cash flow impact of that trend has largely been offset by the sharp reduction in natural gas costs and expense recovery under tracker clauses.

Fitch's Rating Outlook for FP&L is Stable despite heavy capital expenditure commitments and the pending base rate case, reflecting the utility's sound financial foundation and strong credit ratios. Fitch's Outlook assumes that FP&L's contentious and politicized pending base rate proceedings will have a balanced outcome despite the recent turbulent regulatory environment in Florida. The Stable Outlook also assumes that the FPSC will maintain existing tracker mechanisms that provide periodic reset for recovery of many expense categories.

Growing investment in NextEra has been funded with a mix of equity, non-recourse project finance debt, and corporate debt and hybrid securities of Group Capital in order to provide financial flexibility. Risks associated with increasing investment in wind and solar generation are mitigated by NextEra's experience in site and equipment selection, its ability to secure contracts with strong counterparties, the size and scale of a portfolio of assets in diverse locations, non-recourse financing, and available tax incentives. Over 56% of NextEra's independent power production is from nuclear, hydroelectric, wind or solar, all of which are favorably positioned in the event of future greenhouse gas regulations, and nearly 95% is from the above fuels plus natural gas. NextEra's generation business produces significant cash flow and derives a high percentage of its revenues under term contracts with creditworthy counterparties.

FPL's cash flow and profitability are enhanced as a result of the consolidated tax position of NextEra and FP&L. Other sources of financial strength for the group include a low dividend payout ratio that permits retention of equity; strong access to the equity and debt capital markets; ample liquidity back-up under revolving credits that extend until April 2013; and a fully funded pension plan. The favorable environmental characteristics of the power production facilities of NextEra and FP&L enhance the group's long-term asset values.

If any of the following were to occur, it could have negative credit implications for FPL and Group Capital:

--Aggressive development of power projects without assured off-take arrangements;

--High capital investment without balanced capital funding;

--Continuing increase in the proportion of corporate cash flow derived from NextEra;

--Adverse changes in tax laws or regulations;

--Unfavorable regulatory outcome affecting FP&L that reduces cash flows available to support consolidated credit measures.

Credit concerns for FP&L include recent political and regulatory turmoil affecting the pending base rate case combined with very high capital expenditures.

Fitch affirms the following ratings with a Stable Outlook:

FPL Group, Inc.

--IDR at 'A'.

FPL Group Capital, Inc.

--IDR at 'A';

--Short-term IDR at 'F1';

--Commercial paper (CP) at 'F1';

--Senior unsecured debentures at 'A';

--Equity units at 'A';

--Jr. subordinate hybrids at 'A-'.

FPL Group Capital Trust I

--Trust preferred stock at 'A-'.

Florida Power & Light Company

--IDR at 'A';

--Short-term IDR at 'F1'

--CP at 'F1';

--First mortgage bonds at 'AA-'.

Additional information is available at www.fitchratings.com.

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SOURCE: Fitch Ratings

Fitch Ratings, New York 
Ellen Lapson, CFA, +1-212-908-0504 
Sharon Bonelli, +1-212-908-0581 
Cindy Stoller, +1-212-908-0526 
cindy.stoller@fitchratings.com