FPL Group, Inc. - Page 6




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          of costs charged to expense, while decreasing the size of                   
          retirement units would increase the amount of capitalized costs.            
               During the years in issue, petitioner utilized the FPSC                
          requirements for regulatory accounting purposes.  Florida Power             
          made more than 450 changes between 1988 and 1992 to the FPSC list           
          of retirement units and semiannually notified the FPSC of the               
          changes.  However, the retirement units used by Florida Power for           
          FPSC purposes did not exceed the limits for retirement units as             
          prescribed by the FERC.  Thus, Florida Power’s utilization of the           
          FPSC requirements in defining retirement units automatically                
          conformed with the FERC regulatory accounting requirements.3                

               3An example of the aforementioned regulatory concepts                  
          illustrates the accounting principles of the FERC and FPSC.                 
          Suppose that P owns five cars.  Each car is defined as a                    
          retirement unit in the FERC list.  The wheels, seats, and other             
          components of the car would be considered minor items of                    
          property.  Under the FERC, P could add more cars or replace                 
          existing cars, and the corresponding costs would be capitalized.            
          The costs of the replacement of the wheels, seats, etc., would              
          generally be considered as expenditures related to minor items of           
          property and generally would be expensed.  Theoretically, P could           
          subdivide the car into smaller retirement units, so that the                
          wheels, seats, etc., would be considered separate retirement                
          units.  This would increase the amount of capitalized costs                 
          because additions or replacements of the wheels, seats, etc.,               
          would be required to be capitalized under regulatory rules.                 
          However, under the FERC, P is prohibited from increasing the size           
          of the retirement units; i.e., defining a retirement unit to                
          include all five cars.  The FPSC has the discretion to allow P to           
          increase the size of the retirement units.  This action, if                 
          available to P, might theoretically allow all five cars to be               
          identified as one retirement unit; thus, the individual cars                
          might be defined as minor items of property.  This would result             
          in an increase in the size of the retirement unit (from one car             
          to five cars), and the amount of costs charged to repair expense            
                                                             (continued...)           





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