This discussion should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations (Management's Discussion) appearing in the 2007 Form 10-K for FPL Group and FPL. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussion, all comparisons are with the corresponding items in the prior year period.

Results of Operations

FPL Group and its subsidiaries segregate unrealized mark-to-market gains and losses on derivative transactions into two categories. The first category, referred to as trading activities, represents the net unrealized effect of actively traded positions entered into to take advantage of market price movements and to optimize the value of generation assets and related contracts. The second category, referred to as non-qualifying hedges, represents the net unrealized effect of derivative transactions entered into as economic hedges (but which do not qualify for hedge accounting under FAS 133) and the ineffective portion of transactions accounted for as cash flow hedges. FPL Group uses derivative instruments to manage its commodity price and interest rate risk.

FPL Group's management uses earnings excluding certain items (adjusted earnings), which were the unrealized mark-to-market effect of non-qualifying hedges and other than temporary impairment (OTTI) losses on securities held in FPL Energy's nuclear decommissioning funds, internally for financial planning, for analysis of performance, for reporting of results to the Board of Directors and as inputs in determining whether certain performance targets are met for performance-based compensation under FPL Group's employee incentive compensation plans. FPL Group also uses adjusted earnings when communicating its earnings outlook to investors. FPL Group's management believes adjusted earnings provide a more meaningful representation of the company's fundamental earnings power. Although the excluded amounts are properly included in the determination of net income in accordance with generally accepted accounting principles, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing.

Summary - Presented below is a summary of net income (loss) by reportable segment (see Note 9):

                                Three Months Ended                 Nine Months Ended
                                  September 30,                      September 30,

                                               Increase                           Increase
                          2008       2007     (Decrease)     2008      2007      (Decrease)

                                                     (millions)

FPL                       $  314     $ 326     $      (12 ) $   638   $   663     $      (25 )
FPL Energy                   483       220            263       650       468            182
Corporate and Other          (23 )     (13 )          (10 )     (56 )     (43 )          (13 )

FPL Group Consolidated    $  774     $ 533     $      241   $ 1,232   $ 1,088     $      144

The decline in FPL's results for the three-month period was primarily due to lower retail customer usage and higher depreciation expense partly offset by lower other operations and maintenance (O&M) expenses, higher other revenues and allowance for equity funds used during construction (AFUDC † equity) and certain income tax benefits. The decrease for the nine-month period reflects lower retail customer usage and higher O&M, depreciation and interest expenses partly offset by a retail base rate increase associated with Turkey Point Unit No. 5 commencing operations in May 2007 and higher other revenues and AFUDC † equity.

The increase in FPL Energy's results for both the three- and nine-month periods is primarily the result of changes in the market price of derivative instruments classified as non-qualifying hedges, partly offset by higher OTTI losses on securities held in FPL Energy's nuclear decommissioning funds. During the three months ended September 30, 2008, FPL Energy recorded $285 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $40 million of gains from such hedges. During the nine months ended September 30, 2008, FPL Energy recorded $76 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $28 million of losses from such hedges. The change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains/losses as the underlying transactions are realized. As a general rule, a gain (loss) in the non-qualifying hedge category is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under generally accepted accounting principles. During the three months ended September 30, 2008, FPL Energy recorded $17 million of after-tax OTTI losses on securities held in FPL Energy's nuclear decommissioning funds while in the prior period FPL Energy recorded $1 million of such losses. During the nine months ended September 30, 2008, FPL Energy recorded $29 million of after-tax OTTI losses while in the prior period $3 million of such losses were recorded. FPL Energy's 2008 results also reflect the benefits of new investments and improved energy market conditions partly offset by lower wind resource and, for the nine-month period, partly offset by planned and unplanned outages at the Seabrook nuclear facility.

The increased losses at Corporate and Other for both the three- and nine-month periods are primarily due to higher interest expense, lower interest income and additional corporate operating costs.

FPL - FPL's net income for the three months ended September 30, 2008 and 2007 was $314 million and $326 million, respectively, a decrease of $12 million. FPL's net income for the nine months ended September 30, 2008 and 2007 was $638 million and $663 million, respectively, a decrease of $25 million. The decrease for the three-month period was primarily due to lower retail customer usage and higher depreciation expense partly offset by lower O&M expenses, higher other revenues and AFUDC † equity and certain income tax benefits. The decrease for the nine-month period reflects lower retail customer usage and higher O&M, depreciation and interest expenses partly offset by a retail base rate increase associated with Turkey Point Unit No. 5 commencing operations and higher other revenues and AFUDC † equity.

FPL's operating revenues consisted of the following:

                                                   Three Months Ended              Nine Months Ended
                                                     September 30,                   September 30,

                                                   2008           2007           2008             2007

                                                                       (millions)

Retail base                                      $   1,098       $ 1,149          $   2,908       $ 2,897
Fuel cost recovery                                   1,840         1,808              4,631         4,656
Other cost recovery clauses and
pass-through costs                                     432           439              1,139         1,118
Other, primarily pole attachment
rentals, transmission
  and wholesale sales and
customer-related fees                                   53            49                151           127

Total                                            $   3,423       $ 3,445          $   8,829       $ 8,798

For the three months ended September 30, 2008, there was no increase in the average number of customers while a 4.3% decrease in usage per retail customer, due to weather and other factors, decreased retail base revenues by approximately $51 million. For the nine months ended September 30, 2008, an increase in the average number of customers of 0.5% increased retail base revenues by approximately $11 million while a 1.0% decrease in usage per retail customer, reflecting slightly warmer weather which was more than offset by other factors, decreased retail base revenues by approximately $28 million. Partly offsetting the usage decrease for the nine-month period was an extra day of sales in 2008, as it is a leap year. In addition, a base rate increase resulting from Turkey Point Unit No. 5 commencing commercial operation on May 1, 2007 increased retail base revenues for the nine-month period by approximately $28 million. Recently FPL has experienced a decline in customer accounts and in non-weather related customer usage, reflective of the economic slowdown and housing crisis that has affected the country and the state of Florida. FPL expects that retail base revenues will increase approximately $100 million in 2009 when retail base rates are changed pursuant to the 2005 rate agreement to reflect the placement in service of two West County Energy Center units, which is expected to occur in mid-2009 and late 2009.

Revenues from fuel and other cost recovery clauses and pass-through costs, such as franchise fees, revenue taxes and storm-related surcharges, do not significantly affect net income; however, underrecovery or overrecovery of such costs can significantly affect FPL Group's and FPL's operating cash flows. Fluctuations in fuel cost recovery revenues are primarily driven by changes in fuel and energy charges which are included in fuel, purchased power and interchange expense in the condensed consolidated statements of income, as well as by changes in energy sales. Fluctuations in revenues from other cost recovery clauses and pass-through costs are primarily driven by changes in storm-related surcharges, capacity charges, franchise fee costs, the impact of changes in O&M and depreciation expenses on the underlying cost recovery clause, as well as changes in energy sales. Capacity charges and franchise fee costs are included in fuel, purchased power and interchange and taxes other than income taxes, respectively, in the condensed consolidated statements of income.

The retail fuel clause recovery factor is normally established annually in November for the following year. In July 2008, the FPSC approved a mid-course increase as a result of significant increases in the price of natural gas and oil as FPL was anticipating an approximately $746 million underrecovery of fuel costs by December 31, 2008. The FPSC permitted FPL to collect 50% of the amount requested over the period from August 2008 to December 2008, with the remaining 50% to be collected throughout 2009. The change in fuel revenues for the three-month period reflects approximately $126 million related to a higher average fuel factor partly offset by approximately $94 million attributable to lower energy sales. The change in fuel revenues for the nine-month period reflects approximately $61 million related to lower energy sales partly offset by approximately $36 million attributable to a higher average fuel factor.

The major components of FPL's fuel, purchased power and interchange expense are as follows:

                                                   Three Months Ended                 Nine Months Ended
                                                     September 30,                      September 30,

                                                  2008            2007             2008                2007

                                                                          (millions)

Fuel and energy charges during the
period                                           $   2,011        $ 1,971             $   5,089        $   4,771
Net deferral of retail fuel costs                     (166 )         (156 )                (434 )            (84 )
Other, primarily capacity charges net of
any capacity deferral                                  147            154                   392              394

Total                                            $   1,992        $ 1,969             $   5,047        $   5,081

The increase in fuel and energy charges for the three months ended September 30, 2008 reflects approximately $148 million related to higher fuel and energy prices partly offset by approximately $108 million attributable to lower energy sales. The increase in fuel and energy charges for the nine months ended September 30, 2008 reflects approximately $388 million related to higher fuel and energy prices partly offset by approximately $70 million attributable to lower energy sales. At September 30, 2008, approximately $634 million of retail fuel costs were deferred pending collection from retail customers in a subsequent period. See discussion above of increases in the retail fuel clause recovery factor. The increase from December 31, 2007 to September 30, 2008 in deferred clause and franchise expenses and the decrease in deferred clause and franchise revenues (current and noncurrent, collectively) on FPL Group's and FPL's condensed consolidated balance sheets totaled approximately $465 million and negatively affected FPL Group's and FPL's cash flows from operating activities for the nine months ended September 30, 2008.

FPL's O&M expenses for the three months ended September 30, 2008 decreased $22 million reflecting lower fossil generation, transmission, distribution and corporate support costs of approximately $3 million, $1 million, $11 million and $6 million, respectively. These decreases were partly offset by higher nuclear generation ($5 million) and customer service ($10 million) costs. FPL's O&M expenses for the nine months ended September 30, 2008 increased $40 million reflecting higher nuclear generation, fossil generation, transmission and customer service costs of approximately $23 million, $14 million, $4 million and $13 million, respectively. These increases were partly offset by lower employee benefit, corporate support and distribution costs of approximately $9 million, $4 million and $3 million, respectively. The increase in nuclear costs reflects plant improvement initiatives to ensure long-term reliable operations. The fossil generation increase reflects costs associated with placing Turkey Point Unit No. 5 in service as well as costs associated with plant maintenance, while the transmission increase reflects additional reliability efforts. The customer service cost increase is primarily due to higher uncollectible accounts. The decline in corporate support costs reflects steps taken to reduce O&M spending as well as a higher allocation of costs to affiliates. Other changes in O&M expenses were primarily driven by pass-through costs which did not significantly affect net income.

Depreciation and amortization expense for the three and nine months ended September 30, 2008 increased $6 million and $20 million, respectively, reflecting higher depreciation on transmission and distribution facilities (collectively, approximately $5 million and $15 million, respectively) to support customer growth and demand and, for the nine-month period, depreciation on Turkey Point Unit No. 5 of approximately $9 million. In addition, depreciation on nuclear assets was higher for the three- and nine-month periods by approximately $1 million and $3 million, respectively, primarily due to the steam generator and reactor head replacements at St. Lucie Unit No. 2, which were substantially completed by late 2007. The remaining change in depreciation and amortization expense for the nine-month period is primarily due to the absence of depreciation on software and other property that has been fully depreciated.

Taxes other than income taxes for the three and nine months ended September 30, 2008 increased by $12 million and $31 million, respectively, primarily due to changes in franchise fees and revenue taxes, which are pass-through costs, and higher property taxes ($2 million and $10 million for the three- and nine-month periods, respectively), reflecting growth in plant in service balances. The increase in franchise fees was primarily driven by higher average franchise rates. Franchise fees and revenue taxes generally vary as a result of fluctuations in retail base and fuel and other cost recovery clause revenues.

Interest expense for the three and nine months ended September 30, 2008 reflects higher average debt balances partly offset by a decline in average interest rates of approximately 35 basis points and 22 basis points, respectively. For the three-month period, higher allowance for borrowed funds used during construction (see AFUDC † equity explanation below) offset the increase in interest expense. Interest expense on storm-recovery bonds, as well as certain other interest expenses (collectively, clause interest), are essentially pass-through amounts and do not significantly affect net income, as the clause interest is recovered either under cost recovery clause mechanisms or through the storm-recovery bond surcharge. Clause interest for the three months ended September 30, 2008 and 2007 amounted to approximately $10 million and $12 million, respectively, and approximately $33 million and $21 million for the nine months ended September 30, 2008 and 2007, respectively.

In 2007, the FPSC denied FPL's need petition for two ultra super critical pulverized coal generating units in Glades County, Florida. FPL subsequently filed a petition with the FPSC requesting authorization to defer, until the next retail base rate proceeding, approximately $35 million of preconstruction costs associated with the coal units, with amortization over a five-year period beginning when new base rates are implemented. These costs are currently reflected in other assets on FPL Group's and FPL's condensed consolidated balance sheets. Any portion of these costs not approved for recovery would be expensed. The FPSC is scheduled to rule on this matter in December 2008.

FPL is currently constructing two natural gas-fired combined-cycle units of approximately 1,220 mw each at its West County Energy Center, which units are expected to be in service by mid-2009 and late 2009. In September 2008, the FPSC approved building at the same site a third natural gas-fired combined-cycle unit of approximately 1,220 mw that is expected to be in service in 2011. Final project approval is expected by early 2009. The FPSC also approved in September 2008 FPL's plan to modernize its Cape Canaveral and Riviera power plants to high-efficiency natural gas-fired units. Each modernized plant is expected to provide approximately 1,200 mw of capacity and be in service by 2013 and 2014, respectively. Siting Board approval is pending and is expected in early 2010. In addition, FPL is in the process of adding approximately 400 mw of baseload capacity at its existing nuclear units at St. Lucie and Turkey Point, which capacity is projected to be in service by the end of 2012.

In March 2008, the FPSC approved FPL's need petition for two additional nuclear units at its Turkey Point site with projected in-service dates between 2018 and 2020, which are expected to total between 2,200 mw and 3,040 mw of baseload capacity. Additional approvals from other regulatory agencies will be required later in the process. The FPSC's nuclear cost recovery rule provides for the recovery of prudently incurred pre-construction costs and carrying charges (equal to the pretax AFUDC rate) on construction costs for new nuclear capacity through levelized charges under the capacity clause. The same rule provides for the recovery of construction costs, once the new capacity goes into service, through a base rate increase. In October 2008, the FPSC approved FPL's first annual request under the nuclear cost recovery rule for recovery of pre-construction costs associated with FPL's planned nuclear units and carrying charges on construction costs associated with the addition of approximately 400 mw of baseload capacity to FPL's existing nuclear units; substantially all of these costs are still subject to prudency review by the FPSC.

In July 2008, the FPSC approved eligibility for recovery of prudently incurred costs for FPL's proposed solar generation facilities through the environmental cost recovery clause. The proposed solar generation facilities are expected to have a capacity totaling 110 mw and to be placed into service by the end of 2010.

FPL Energy - FPL Energy's net income for the three months ended September 30, 2008 and 2007 was $483 million and $220 million, respectively, an increase of $263 million. FPL Energy's net income for the nine months ended September 30, 2008 and 2007 was $650 million and $468 million, respectively, an increase of $182 million. The primary drivers, on an after-tax basis, of these increases were as follows:

                                                                   Increase (Decrease)

                                                     Three Months Ended           Nine Months Ended
                                                     September 30, 2008           September 30, 2008

                                                                       (millions)

New investments (a)                                        $    56                    $       132
Existing assets (a)                                            (15 )                           (3 )
Full energy and capacity requirements services and
trading                                                         12                              9
Restructuring activities and asset sales                         -                             (1 )
Interest expense, differential membership costs
and other                                                      (19 )                          (33 )
Change in unrealized mark-to-market non-qualifying
hedge activity (b)                                             245                            104
Change in OTTI losses on securities held in
nuclear decommissioning funds                                  (16 )                          (26 )

Net income increase                                        $   263                    $       182

____________________

(a) Includes PTCs on wind projects but does not include allocation of interest expense or corporate general and administrative expenses. See Note 4. Results from new projects are included in new investments during the first twelve months of operation. A project's results are included in existing assets beginning with the thirteenth month of operation.
(b) See Note 2 and discussion above related to derivative instruments.

FPL Energy's financial results for the three and nine months ended September 30, 2008 reflect increased gains from its full energy and capacity requirements services and trading activities. Full energy and capacity requirements services include load-following services, which require the supplier of energy to vary the quantity delivered based on the load demand needs of the customer, as well as various ancillary services.

During the three months ended September 30, 2008, FPL Energy recorded $285 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $40 million of gains from such hedges. During the nine months ended September 30, 2008, FPL Energy recorded $76 million of net unrealized mark-to-market after-tax gains from non-qualifying hedges while in the prior period FPL Energy recorded $28 million of losses from such hedges. The change in unrealized mark-to-market activity is primarily attributable to changes in forward power and natural gas prices, as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized. During the three months ended September 30, 2008, FPL Energy recorded $17 million of after-tax OTTI losses on securities held in FPL Energy's nuclear decommissioning funds while in the prior period FPL Energy recorded $1 million of such losses. During the nine months ended September 30, 2008, FPL Energy recorded $29 million of after-tax OTTI losses while in the prior period $3 million of such losses were recorded. OTTI losses on securities held in FPL Energy's nuclear decommissioning funds and any write-downs of such securities considered to be permanently impaired are reported in other † net in the condensed consolidated statements of income. OTTI losses are reported net of any subsequent gains that were realized on securities sold up to the amount of previously recorded OTTI losses.

FPL Energy's operating revenues for the three months ended September 30, 2008 increased $826 million. The majority of this increase reflects unrealized mark-to-market gains on non-qualifying hedge activity of approximately $632 million for the three months ended September 30, 2008 compared to $42 million of gains on such activity in the 2007 period. The remaining increase in operating revenues for the three months ended September 30, 2008 is primarily due to project additions and favorable market conditions in the NEPOOL and ERCOT regions. FPL Energy's operating revenues for the nine months ended September 30, 2008 increased $774 million. The majority of this increase reflects project additions and favorable market conditions in the NEPOOL, ERCOT and PJM regions. The remaining increase in operating revenues for the nine months ended September 30, 2008 is due to unrealized mark-to-market gains on non-qualifying hedge activity of approximately $92 million for the nine months ended September 30, 2008 compared to $206 million of such losses in the 2007 period.

FPL Energy's operating expenses for the three months ended September 30, 2008 . . .