8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): October 25, 2006 (October 24, 2006)

1-12869	CONSTELLATION ENERGY GROUP, INC.	52-1964611
1-1910	BALTIMORE GAS AND ELECTRIC COMPANY	52-0280210
(Commission File Number)	(Exact name of Registrant as specified in its charter)	(IRS Employer Identification No.)

Maryland

(State or other jurisdiction of incorporation of Registrants)

750 E. Pratt Street

Baltimore, Maryland 21202

(Address of principal executive offices, including zip code, of Registrants)

410-783-2800

(Registrants’ telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.02. Termination of a Material Definitive Agreement

On October 24, 2006, Constellation Energy Group, Inc. (“Constellation”), FPL Group, Inc. (“FPL”) and CF Merger Corporation, a wholly-owned subsidiary of Constellation, entered into an agreement to terminate the Agreement and Plan of Merger dated December 18, 2005 by and among Constellation, FPL and CF Merger Corporation (the “Merger Agreement”).  A copy of the Termination and Release Agreement is attached hereto as Exhibit 2.1 and incorporated herein by reference.

Constellation and FPL also issued a joint press release, a copy of which is attached hereto as Exhibit 99.1 and incorporated herein by reference.

In connection with the termination of the Merger Agreement, Constellation has acquired certain development rights from FPL relating to a wind power project in Garrett County, Maryland.

*     *     *     *     *

Forward-Looking Statements.  We may make statements in this report and the attached press release that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other important factors that could cause actual performance or achievements to be materially different from those we project.  For a full discussion of risks, uncertainties, and other important factors that could affect Constellation’s business, prospects, financial condition and results of operations, we encourage you to read our documents on file with the Securities and Exchange Commission, including those set forth in our Forms 10-K and 10-Q under the forward-looking statements and risk factors sections.  Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Item 9.01.  Financial Statements and Exhibits

(d)           Exhibits

Exhibit No.	Description
2.1	Termination and Release Agreement, dated October 24, 2006, by and among Constellation Energy Group, Inc., FPL Group, Inc. and CF Merger Corporation.
99.1	Joint Press Release, dated October 25, 2006, announcing the termination of the Agreement and Plan of Merger by and among Constellation Energy Group, Inc., FPL Group, Inc. and CF Merger Corporation.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized.

		CONSTELLATION ENERGY GROUP, INC.
Dated:	October 25, 2006	By:	/s/ Charles A. Berardesco
			Charles A. Berardesco
			Vice President, Associate General Counsel,
			Chief Compliance Officer and Corporate Secretary
		BALTIMORE GAS AND ELECTRIC COMPANY
Dated:	October 25, 2006	By:	/s/ Charles A. Berardesco
			Charles A. Berardesco
			Corporate Secretary

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EXHIBIT INDEX

Exhibit No.	Description
2.1	Termination and Release Agreement, dated October 24, 2006, by and among Constellation Energy Group, Inc., FPL Group, Inc. and CF Merger Corporation.
99.1	Joint Press Release, dated October 25, 2006, announcing the termination of the Agreement and Plan of Merger by and among Constellation Energy Group, Inc., FPL Group, Inc. and CF Merger Corporation.

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EX-2.1

Exhibit 2.1

EXECUTION VERSION

THIS TERMINATION AND RELEASE AGREEMENT (this “Agreement”) is made and entered into this October 24, 2006, by and among FPL GROUP, INC., a Florida corporation (“FPL Group”), CONSTELLATION ENERGY GROUP, INC., a Maryland corporation (“Constellation”), and CF MERGER CORPORATION, a Florida corporation and a wholly owned subsidiary of Constellation (“Merger Sub” and together with FPL Group and Constellation, the “Parties” and each a “Party”).

W I T N E S S E T H:

WHEREAS, FPL Group, Constellation and Merger Sub entered into that certain Agreement and Plan of Merger, dated as of December 18, 2005 (the “Merger Agreement”, terms not otherwise defined herein shall have the respective meanings ascribed to them in the Merger Agreement to the extent defined therein);

WHEREAS, in connection with the negotiations surrounding the Merger Agreement, FPL Group and Constellation entered into a Confidentiality Agreement, dated as of September 6, 2005 (the “Confidentiality Agreement”);

WHEREAS, Constellation requested that FPL Group agree to terminate the Merger Agreement pursuant to Section 7.01(a) of the Merger Agreement, which provides that the Merger Agreement may be terminated at any time prior to the Effective Time by mutual written consent of FPL Group, Constellation and Merger Sub;

WHEREAS, FPL Group, on and subject to the terms and conditions of this Agreement, has agreed to such request by Constellation; and

WHEREAS, the boards of directors of each of FPL Group, Constellation and Merger Sub have determined to terminate the Merger Agreement and release each other from all duties, rights, claims, obligations and liabilities arising from, in connection with, or relating to, the Merger Agreement, in each case on the terms and subject to the conditions set forth herein.

NOW, THEREFORE, in consideration of the covenants and  agreements herein set forth and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as  follows:

1.             Termination of Merger Agreement.  Effective immediately, FPL Group, Constellation and Merger Sub hereby abandon the Merger and all other transactions contemplated by the Merger Agreement and mutually terminate the Merger Agreement pursuant to Section 7.01(a) thereof, including, notwithstanding the provisions of Section 7.02 thereof, Section 5.10 and Article VIII of the Merger Agreement, none of which provisions shall survive termination of the Merger Agreement hereunder.  Notwithstanding anything to the contrary contained in the Merger Agreement, no Released Person (as defined herein) shall have any liability or obligation under the Merger Agreement, including without limitation, as a result of any action or failure to act in connection with the Merger Agreement.

2.             Publicity; Confidentiality Agreement.  (a)  FPL Group and Constellation shall issue a joint press release in the form, and containing the contents, of Exhibit A to this

Agreement announcing the transactions contemplated by this Agreement at 8:00 a.m. (New York time) on the first Business Day immediately following the execution and delivery hereof.

(b)           The Confidentiality Agreement shall remain in full force and effect in accordance with its terms, except for Section 3 thereof, which shall be deemed terminated as of the date hereof, and except as expressly amended by the third sentence of this Section 2(b).  In addition, all information exchanged pursuant to Section 5.04(a) of the Merger Agreement shall continue to be subject to the Confidentiality Agreement.  Section 8 of the Confidentiality Agreement is hereby amended so that (i) the period of two years referenced in the third sentence of such Section 8 shall be the period of two years from the date of this Agreement and (ii) the term “Key Employee” shall mean any employee whose total annual compensation is in excess of $200,000.

3.             Fees and Expenses.  (a)  No Party shall pay a termination fee to the other Party under the Merger Agreement.  Each Party shall bear its own costs and expenses heretofore or hereafter incurred by each Party in connection with or relating to this Agreement and the Merger Agreement and the transactions contemplated hereby and thereby; provided, however, that each of FPL Group and Constellation shall bear and pay one-half of the costs and expenses incurred in connection with (y) the financial printer and SEC filing fees in connection with the Form S-4 and the Joint Proxy Statement (it being understood that if thereafter a Party is able to and does apply any such shared SEC filing fees to the fees payable in connection with a subsequent SEC filing, that Party will promptly upon the application of such fees to the subsequent filing reimburse the other Party for the amount of the SEC filing fees in connection with the Form S-4 and the Joint Proxy Statement borne by such other Party pursuant to this Section 3(a)(y)) and (z) the filing fees and economic consultant fees in connection with the premerger notification and report forms under the HSR Act and economic consultant fees in connection with the FERC application.

(b)           In the event that, on or prior to September 30, 2007, Constellation (i) consummates a Constellation Transaction (as defined below) or (ii) publicly announces its entry into a letter of intent, agreement in principle, acquisition agreement, joint venture agreement, partnership agreement or other agreement (other than a confidentiality or standstill agreement) with respect to a Constellation Transaction, then, upon the first of such events to occur, Constellation shall immediately pay FPL Group the Constellation Fee (as defined below), which shall be payable by wire transfer of immediately available funds to an account specified in writing by FPL Group for such payment.  For purposes of this Agreement, “Constellation Fee” means four hundred twenty-five million dollars ($425,000,000) if the event giving rise to Constellation’s obligation to make the payment to FPL Group occurs on or before June 30, 2007, and two hundred ten million dollars ($210,000,000) if such event occurs on or after July 1, 2007 but no later than September 30, 2007.  For purposes of this Agreement, “Constellation Transaction” means (i) any merger (including any triangular merger), consolidation, share exchange, recapitalization, liquidation, dissolution, business combination or similar transaction involving Constellation or any subsidiary of Constellation owning, operating or controlling a Constellation Material Business (as defined below) which, at consummation, results in any third party owning 35% or more of the voting securities of Constellation (or, if Constellation shall not survive as the ultimate parent company, then of the ultimate parent company resulting from such transaction) or any third party owning, directly or indirectly, 35% or more of any class of voting securities of any such subsidiary, (ii) any direct or indirect acquisition or purchase by a third party of a business or businesses (a “Constellation Material Business”) that constitutes 35% or

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more of the net revenues, net income or the assets (including equity securities) of Constellation and its subsidiaries, taken as a whole, (iii) any direct or indirect acquisition or purchase by a third party of 35% or more of any class of voting securities of Constellation or any subsidiary of Constellation owning, operating or controlling a Constellation Material Business, or (iv) any tender offer or exchange offer by a third party that if consummated would result in any person beneficially owning 35% or more of any class of voting securities of Constellation or any subsidiary of Constellation owning, operating or controlling a Constellation Material Business; provided, however, that in each case the term “Constellation Transaction” shall not include (x) any separation (in and of itself) of the regulated and non-regulated businesses of Constellation by means of a spin-off, split-off or other similar transaction whereby the stockholders of Constellation receive shares of either BGE or an existing or newly organized entity that owns all or substantially all of the non-regulated businesses of Constellation (in addition to their existing shares of Constellation or as part of a share exchange transaction, such that they end up with shares in two separate businesses), (y) a public offering or private sale of capital stock of BGE, or (z) the sale or other disposition of the natural gas-fired generation assets that Constellation agreed, on October 10, 2006, to sell to Tenaska Power Fund, L.P. (“Tenaska”), whether such transaction involves Tenaska or any other third party.  If a transaction falling within the scope of clause (x) of the proviso in the preceding sentence occurs, and if Constellation will cease to own all or substantially all of the non-regulated businesses as a result of such transaction, then Constellation shall cause this Section 3(b) to be expressly assumed by, and to become an obligation of, the entity that will own all or substantially all of the non-regulated businesses, and a “Constellation Transaction” shall thereafter be read to apply to such entity, as if it were Constellation.  In no event shall more than one fee be payable under this Section 3(b).

4.             Mutual Release.  Effective immediately, each of FPL Group, on the one hand, and Constellation, on the other hand, on behalf of itself and each of its respective predecessors, successors, subsidiaries and assigns (as well as all of the present and former officers, directors employees, agents and representatives of each of the foregoing, and the heirs of any of the foregoing who is a natural person) (each, a “Releasing Party”), hereby irrevocably, unconditionally and forever covenants not to sue, releases and discharges (a) the other such Party and (b) any and all of such other Party’s present and former directors, officers, representatives, advisors (including but not limited to financial advisors), attorneys, accountants, employees, agents, parents, subsidiaries, shareholders, partners, members, affiliated persons and entities, predecessors, successors and assigns and heirs, executors and administrators and all persons acting in concert with any such party (each, a “Released Party”) from any and all manner of claims, obligations, actions, demands, judgments, damages, rights, liabilities, causes of action or suits, at law or in equity, known or unknown, liquidated or unliquidated, fixed or contingent, matured or unmatured, foreseen or unforeseen, which each now has or hereafter can, shall or may have by reason of any matter, cause or thing whatsoever relating to or arising out of the Merger Agreement or the agreements or instruments ancillary thereto or the transactions contemplated thereby, or any action or failure to act under the Merger Agreement or in connection therewith, or in connection with the events leading to the abandonment of the Merger and any other transactions contemplated by the Merger Agreement and the mutual termination of the Merger Agreement, excepting only any claim, action, cause of action or suit arising (i) out of an undertaking or promise contained in this Agreement, (ii) after the date of this Agreement, by virtue of obligations under the Confidentiality Agreement, (iii) with respect to any statements made or actions taken after the date of this Agreement, or (iv) by virtue of transactions or

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dealings undertaken in the ordinary course of business, including without limitation leases or outstanding energy trading and transportation transactions, and not arising out of, or in connection with, the Merger Agreement and the transactions contemplated thereby.  Nothing in this Agreement or the Merger Agreement shall in any way constitute an agreement by any Party hereto to indemnify any other Party against any third-party claim.

5.             Representations and Warranties.

(a)           Representations and Warranties of FPL Group.  FPL Group represents and warrants to Constellation that:  (i)  FPL Group has all requisite corporate power and authority to enter into this Agreement and to take the actions contemplated hereby; (ii) the execution and delivery of this Agreement and the actions contemplated hereby have been duly authorized by all necessary corporate action on the part of FPL Group, including approval of the board of directors of FPL Group; and (iii) this Agreement has been duly and validly executed and delivered by FPL Group and constitutes a legal, valid and binding obligation of FPL Group enforceable against FPL Group in accordance with its terms.

(b)           Representations and Warranties of Constellation and Merger Sub.  Constellation and Merger Sub each represents and warrants to FPL Group that:   (i)  Constellation and Merger Sub each has all requisite corporate power and authority to enter into this Agreement and to take the actions contemplated hereby; (ii) the execution and delivery of this Agreement and the actions contemplated hereby have been duly authorized by all necessary corporate action on the part of each of Constellation and Merger Sub, including approval of the board of directors of each of Constellation and Merger Sub; and (iii) this Agreement has been duly and validly executed and delivered by Constellation and Merger Sub and constitutes a legal, valid and binding obligation of Constellation and Merger Sub enforceable against Constellation and Merger Sub in accordance with its terms.

6.             Entire Agreement; Third Party Beneficiaries.  This Agreement and the Confidentiality Agreement (a) constitute the entire agreement between the Parties with respect to the subject matter hereof and supersede all prior agreements and understandings, both written and oral, between the Parties, or any of them, with respect to the subject matter hereof and (b) except for the provisions of Section 4 hereof, are not intended to confer on any person other than the Parties any rights or remedies.

7.             Cooperation.  The Parties shall cooperate with each other and promptly prepare and file all necessary documentation to withdraw all applications, notices, petitions and filings made with, and shall use their reasonable best efforts to terminate the proceedings before, any Governmental Authority in connection with the Merger Agreement.  Without limiting the generality of the foregoing, FPL Group shall cause to be dismissed with prejudice (as moot) the complaint filed by FPL Group in the Circuit Court of Baltimore City concerning certain provisions of the June 2006 Maryland energy legislation addressing the process for approval of the Merger by the Maryland Public Service Commission.

8.             Non-Disparagement.  Constellation and FPL Group shall use their reasonable best efforts to prevent their respective directors and officers from directly or indirectly, whether in writing or orally, making any statements related to the Merger Agreement or the transactions

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contemplated thereby or this Agreement that criticize, denigrate or disparage FPL Group or Constellation, as applicable, or any of its affiliates, predecessors or successors or any current or former directors, officers, employees, shareholders, partners, members, agents or representatives of any of the foregoing; provided, however, that (a) this Section 8 shall have no force or effect in any legal proceeding that arises from or relates to this Agreement and its performance, (b) nothing in this Section 8 shall or shall be deemed to prevent or impair any current or former director, officer, employee, shareholder, partner, member, agent or representative of Constellation or FPL Group from testifying truthfully in any legal or administrative proceeding in which such person’s testimony is compelled or requested or otherwise complying with any legal requirements or responding to inquiries or requests for information by any regulator or auditor, and (c) this Section 8 shall not restrain the Parties or their director and senior officers from engaging in legitimate competition with each other.

9.             Amendment and Modification.  This Agreement may be amended, modified, and supplemented only by a written instrument signed on behalf of each of the Parties.

10.           Representation by Counsel; Mutual Drafting.  The Parties hereto agree that they have been represented by counsel during the negotiation and execution of this Agreement and have participated jointly in the negotiation and drafting of this Agreement and hereby waive the application of any law, regulation, holding or rule of construction providing that ambiguities in an agreement or other document will be construed against the party drafting such agreement or document.  In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.

11.           Incorporation by Reference.  The provisions of Article VIII of the Merger Agreement (other than Sections 8.01 and 8.06 thereof) are hereby incorporated by reference herein, with the same force and effect as if set forth in full herein, it being understood that references in such Article VIII to “this Agreement” shall be deemed only to refer to this Agreement as incorporated by reference herein.  The Parties agree that delivery of executed signature pages by facsimile shall be sufficient to render this Agreement effective.

{Remainder of page intentionally left blank.}

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IN WITNESS WHEREOF, FPL Group, Constellation and Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

FPL GROUP, INC.
By:	/s/ Edward F. Tancer
Name:	Edward F. Tancer
Title:	Vice President and General Counsel
CONSTELLATION ENERGY GROUP, INC.
By:	/s/ Thomas F. Brady
Name:	Thomas F. Brady
Title:	Executive Vice President
CF MERGER CORPORATION
By:	/s/ Charles A. Berardesco
Name:	Charles A. Berardesco
Title:	Senior Vice President

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Exhibit A

Joint Press Release

[Attached as Exhibit 99.1]

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EX-99.1

	Exhibit 99.1
Contacts:
FPL Group, Inc.	Constellation Energy
Media: Mary Lou Kromer, 305-552-3888	Media: Robert Gould, 410-470-7433
Investors: Jim von Riesemann, 561-694-4697	Investors: Kevin Hadlock, 410-783-3647

FPL Group and Constellation Energy
Terminate Plans to Merge

JUNO BEACH, FL and BALTIMORE, MD, Oct. 25, 2006 — FPL Group, Inc. (NYSE: FPL) and Constellation Energy (NYSE: CEG) today announced they have reached a joint and amicable agreement to terminate their plans to merge.

Constellation Energy initiated a request to end the planned merger, citing continued uncertainty over regulatory and judicial matters in Maryland and the potential for a protracted and open-ended merger review process.

Mayo A. Shattuck III, chairman, president and chief executive officer of Constellation Energy, said, “As we considered the situation in Maryland, we determined the risks and uncertainties were too significant to overcome.  We have tremendous respect for our peers at FPL and believe each company’s future prospects are bright.  Constellation Energy has an exceptionally strong stand-alone strategy, and we look forward to executing our business plan and continuing to deliver robust returns to our shareholders.”

“While we at FPL Group certainly are disappointed that we will not complete the merger with Constellation Energy, we continue to have the utmost respect for the company and its leadership team.  We remain convinced that both FPL Group and Constellation Energy are two great companies, each with excellent growth prospects,” said Lew Hay, chairman and chief executive officer of FPL Group.   “FPL Group remains committed to building upon our proven track record of increasing shareholder value while at the same time meeting the needs of our customers.”

The two companies said that they will formally withdraw merger approval applications pending before the Maryland Public Service Commission, the

Federal Energy Regulatory Commission and other relevant agencies, as well as legal requests filed with the state of Maryland.

Corporate Profiles

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.com, www.FPL.com and www.FPLEnergy.com.

Constellation Energy, www.constellation.com, a FORTUNE 200 company with 2005 revenues of $17.1 billion, is the nation’s largest competitive supplier of electricity to large commercial and industrial customers and the nation’s largest wholesale power seller. Constellation Energy also manages fuels and energy services on behalf of energy intensive industries and utilities. It owns a diversified fleet of more than 100 generating units located throughout the United States, totaling approximately 12,000 megawatts of generating capacity. The company delivers electricity and natural gas through the Baltimore Gas and Electric Company (BGE), its regulated utility in Central Maryland.

Constellation Energy:  Forward-Looking Statements

We make statements in this news release that are considered forward-looking statements within the meaning of the Securities Exchange Act of 1934. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other important factors that could cause our actual performance or achievements to be materially different from those we project. For a full discussion of these risks, uncertainties and factors, we encourage you to read our documents on file with the Securities and Exchange Commission, including those set forth in our periodic reports under the forward-looking statements and risk factors sections. Except as required by law, we do not intend to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

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FPL Group:  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 Federal Power Act, as amended, 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.

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·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

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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.

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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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