Derivative Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments

2.  Derivative Instruments

NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with outstanding and forecasted debt issuances, and to optimize the value of NEER's power generation assets.

With respect to commodities related to NEE's competitive energy business, NEER employs risk management procedures to conduct its activities related to optimizing the value of its power generation assets, providing full energy and capacity requirements services primarily to distribution utilities, and engaging in power and gas marketing and trading activities to take advantage of expected future favorable price movements and changes in the expected volatility of prices in the energy markets.  These risk management activities involve the use of derivative instruments executed within prescribed limits to manage the risk associated with fluctuating commodity prices.  Transactions in derivative instruments are executed on recognized exchanges or via the OTC markets, depending on the most favorable credit terms and market execution factors.  For NEER's power generation assets, derivative instruments are used to hedge the commodity price risk associated with the fuel requirements of the assets, where applicable, as well as to hedge all or a portion of the expected energy output of these assets.  These hedges protect NEER against adverse changes in the wholesale forward commodity markets associated with its generation assets.  With regard to full energy and capacity requirements services, NEER is required to vary the quantity of energy and related services based on the load demands of the customer served by the distribution utility.  For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and protect against unfavorable changes in the forward energy markets.  Additionally, NEER takes positions in the energy markets based on differences between actual forward market levels and management's view of fundamental market conditions.  NEER uses derivative instruments to realize value from these market dislocations, subject to strict risk management limits around market, operational and credit exposure.

Derivative instruments, when required to be marked to market, are recorded on NEE's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value.  At FPL, substantially all changes in the derivatives' fair value are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause).  For NEE's non-rate regulated operations, predominantly NEER, unless hedge accounting is applied, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized on a net basis in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income.  Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate.  For commodity derivatives, NEE believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes.  Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income.  Settlements related to derivative instruments are primarily recognized in net cash provided by operating activities in NEE's and FPL's condensed consolidated statements of cash flows.

While most of NEE's derivatives are entered into for the purpose of managing commodity price risk, reducing the impact of volatility in interest rates on outstanding and forecasted debt issuances and managing foreign currency risk, hedge accounting is only applied where specific criteria are met and it is practicable to do so.  In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk.  Additionally, for hedges of forecasted transactions, the forecasted transactions must be probable.  For interest rate swaps and foreign currency derivative instruments, generally NEE assesses a hedging instrument's effectiveness by using nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item.  Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life.  The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income (OCI) and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings or when it becomes probable that a forecasted transaction being hedged would not occur.  The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period. At September 30, 2012, NEE's accumulated other comprehensive income (AOCI) included amounts related to discontinued commodity cash flow hedges with expiration dates through December 2012; interest rate cash flow hedges with expiration dates through December 2030; and foreign currency cash flow hedges with expiration dates through September 2030. Approximately $39 million of net losses included in AOCI at September 30, 2012 is expected to be reclassified into earnings within the next 12 months as either the principal and/or interest payments are made or electricity is sold. Such amounts assume no change in power prices, interest rates, currency exchange rates or scheduled principal payments.

In the third quarter of 2011, a subsidiary of NEER entered into an agreement to sell its ownership interest in four natural gas-fired generating plants. See Note 3 - Nonrecurring Fair Value Measurements. Certain of the plants had hedged their exposure to interest rate and commodity price fluctuations by entering into derivative contracts. Because the plants were being sold to a third party, it became no longer probable that the future hedged transactions would occur. Therefore, NEE was required to reclassify any gains or losses in AOCI related to those hedges to earnings. During the three and nine months ended September 30, 2011, NEE reclassified approximately $21 million of net losses to earnings, $30 million of losses were recorded in loss on natural gas-fired generating assets held for sale and $9 million of gains were recorded in other - net.

The net fair values of NEE's and FPL's mark-to-market derivative instrument assets (liabilities) are included on the condensed consolidated balance sheets as follows:

	NEE						FPL
	September 30, 2012			December 31, 2011			September 30, 2012				December 31, 2011
	(millions)
Current derivative assets(a)	$	482		$	611		$	8		(b)	$	10		(b)
Noncurrent derivative assets(c)	944			973			32			(d)	2			(d)
Current derivative liabilities(e)	(486		)	(1,090		)	(67		)		(512		)
Noncurrent derivative liabilities(f)	(530		)	(541		)	—				(1		)	(g)
Total mark-to-market derivative instrument assets (liabilities)	$	410		$	(47	)	$	(27	)		$	(501	)

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(a) At September 30, 2012 and December 31, 2011, NEE's balances reflect the netting of approximately $40 million and $106 million (none at FPL), respectively, in margin cash collateral received from counterparties.

(b) Included in current other assets on FPL's condensed consolidated balance sheets.

(c) At September 30, 2012 and December 31, 2011, NEE's balances reflect the netting of approximately $154 million and $109 million (none at FPL), respectively, in margin cash collateral received from counterparties.

(d) Included in noncurrent other assets on FPL's condensed consolidated balance sheets.

(e) At September 30, 2012 and December 31, 2011, NEE's balances reflect the netting of approximately $74 million and $112 million (none at FPL), respectively, in margin cash collateral provided to counterparties.

(f) At December 31, 2011, NEE's balance reflects the netting of approximately $79 million (none at FPL) in margin cash collateral provided to counterparties.

(g) Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

At September 30, 2012 and December 31, 2011, NEE had approximately $44 million and $22 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets.  These amounts are included in current other liabilities on NEE's condensed consolidated balance sheets.  Additionally, at September 30, 2012 and December 31, 2011, NEE had approximately $54 million and $50 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities.  These amounts are included in current other assets on NEE's condensed consolidated balance sheets.

As discussed above, NEE uses derivative instruments to, among other things, manage its commodity price risk, interest rate risk and foreign currency exchange rate risk.  The table above presents NEE's and FPL's net derivative positions at September 30, 2012 and December 31, 2011, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral.  However, disclosure rules require that the following tables be presented on a gross basis.

The fair values of NEE's derivatives designated as hedging instruments for accounting purposes (none at FPL) are presented below as gross asset and liability values, as required by disclosure rules.

	September 30, 2012				December 31, 2011
	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
	(millions)
Interest rate swaps:
Current derivative assets	$	26	$	—	$	22	$	—
Current derivative liabilities	—		97		—		60
Noncurrent derivative assets	54		—		15		—
Noncurrent derivative liabilities	—		294		—		260
Foreign currency swap:
Current derivative liabilities	—		3		—		3
Noncurrent derivative liabilities	—		5		—		3
Total	$	80	$	399	$	37	$	326

Gains (losses) related to NEE's cash flow hedges are recorded in NEE's condensed consolidated financial statements (none at FPL) as follows:

	Three Months Ended September 30,
	2012												2011
	Commodity Contracts		Interest Rate Swaps			Foreign Currency Swap				Total			Commodity Contracts		Interest Rate Swaps			Foreign Currency Swaps				Total
	(millions)
Gains (losses) recognized in OCI	$	—	$	(39	)	$	(6	)		$	(45	)	$	—	$	(236	)	$	(14	)		$	(250	)
Gains (losses) reclassified from AOCI to net income(a)	$	2	$	(14	)	$	2		(b)	$	(10	)	$	11	$	(21	)	$	5		(b)	$	(5	)

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(a) Included in operating revenues for commodity contracts and interest expense for interest rate swaps. In 2011, excludes approximately $21 million of net losses related to discontinuance of certain cash flow hedges. See further discussion above.

(b) Loss of approximately $1 million is included in interest expense and the balance is included in other - net.

	Nine Months Ended September 30,
	2012												2011
	Commodity Contracts		Interest Rate Swaps			Foreign Currency Swap				Total			Commodity Contracts		Interest Rate Swaps			Foreign Currency Swaps				Total
	(millions)
Gains (losses) recognized in OCI	$	—	$	(104	)	$	(16	)		$	(120	)	$	—	$	(353	)	$	(20	)		$	(373	)
Gains (losses) reclassified from AOCI to net income(a)	$	6	$	(44	)	$	(4	)	(b)	$	(42	)	$	30	$	(64	)	$	1		(c)	$	(33	)

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(a) Included in operating revenues for commodity contracts and interest expense for interest rate swaps. In 2011, excludes approximately $21 million of net losses related to discontinuance of certain cash flow hedges. See further discussion above.

(b) Loss of approximately $2 million is included in interest expense and the balance is included in other - net.

(c) Loss of approximately $4 million is included in interest expense and the balance is included in other - net.

For the three and nine months ended September 30, 2012, NEE recorded a gain of approximately $6 million and $41 million, respectively, on six fair value hedges which resulted in a corresponding increase in the related debt.  For the three and nine months ended September 30, 2011, NEE recorded a gain of approximately $16 million and $19 million, respectively, on six fair value hedges which resulted in a corresponding increase in the related debt.

The fair values of NEE's and FPL's derivatives not designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules.  However, the majority of the underlying contracts are subject to master netting arrangements and would not be contractually settled on a gross basis.

	September 30, 2012										December 31, 2011
	NEE				FPL						NEE				FPL
	Derivative Assets		Derivative Liabilities		Derivative Assets			Derivative Liabilities			Derivative Assets		Derivative Liabilities		Derivative Assets			Derivative Liabilities
	(millions)
Commodity contracts:
Current derivative assets	$	922	$	426	$	12	(a)	$	4	(a)	$	1,127	$	432	$	11	(a)	$	1	(a)
Current derivative liabilities	1,775		2,233		43			110			3,358		4,494		1			513
Noncurrent derivative assets	1,913		884		32		(b)	—			1,290		250		2		(b)	—
Noncurrent derivative liabilities	233		464		—			—			1,222		1,579		—			1		(c)
Foreign currency swap:
Current derivative liabilities	—		2		—			—			—		3		—			—
Noncurrent derivative assets	15		—		—			—			27		—		—			—
Total	$	4,858	$	4,009	$	87		$	114		$	7,024	$	6,758	$	14		$	515

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(a) Included in current other assets on FPL's condensed consolidated balance sheets.

(b) Included in noncurrent other assets on FPL's condensed consolidated balance sheets.

(c) Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.

Gains (losses) related to NEE's derivatives not designated as hedging instruments are recorded in NEE's condensed consolidated statements of income (none at FPL) as follows:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(millions)
Commodity contracts(a):
Operating revenues	$	(218	)	$	(50	)	$	102		$	(48	)
Fuel, purchased power and interchange	(4		)	10			36			8
Foreign currency swap - other - net	9			23			(13		)	20
Interest rate contracts - other - net	—			(16		)	—			(11		)
Total	$	(213	)	$	(33	)	$	125		$	(31	)

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(a) For the three months ended September 30, 2012 and 2011, FPL recorded approximately $90 million of gains and $232 million of losses, respectively, related to commodity contracts as regulatory liabilities and regulatory assets, respectively, on its condensed consolidated balance sheets.  For the nine months ended September 30, 2012 and 2011, FPL recorded approximately $86 million and $300 million of losses, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.

The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in NEE's and FPL's condensed consolidated financial statements.  The table includes significant volumes of transactions that have minimal exposure to commodity price changes because they are variably priced agreements.  The table does not present a complete picture of NEE's and FPL's overall net economic exposure because NEE and FPL do not use derivative instruments to hedge all of their commodity exposures.  At September 30, 2012, NEE and FPL had derivative commodity contracts for the following net notional volumes:

Commodity Type	NEE			FPL
	(millions)
Power	(46	)	mwh(a)	—
Natural gas	1,221		mmbtu(b)	837	mmbtu(b)
Oil	(7	)	barrels	—

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(a) Megawatt-hours

(b) One million British thermal units

At September 30, 2012, NEE had interest rate contracts with a notional amount totaling approximately $6.9 billion and foreign currency swaps with a notional amount totaling approximately $544 million.

Certain of NEE's and FPL's derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating from specified credit rating agencies and certain financial ratios, as well as credit-related cross-default and material adverse change triggers.  At September 30, 2012, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $2.2 billion ($115 million for FPL).

If the credit-risk-related contingent features underlying these agreements and other commodity-related contracts were triggered, NEE or FPL could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions.  Certain contracts contain multiple types of credit-related triggers.  To the extent these contracts contain a credit ratings downgrade trigger, the maximum exposure is included in the following credit ratings collateral posting requirements.  If FPL's and NEECH's credit ratings were downgraded to BBB/Baa2 (a two level downgrade for FPL and a one level downgrade for NEECH from the current lowest applicable rating), NEE would be required to post collateral such that the total posted collateral would be approximately $350 million ($10 million at FPL).If FPL's and NEECH's credit ratings were downgraded to below investment grade, NEE would be required to post additional collateral such that the total posted collateral would be approximately $2.2 billion ($500 million at FPL).  Some contracts at NEE, including some FPL contracts, do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or have credit-related cross-default triggers.  In the event these provisions were triggered, NEE could be required to post additional collateral of up to approximately $600 million ($100 million at FPL).

Collateral may be posted in the form of cash or credit support.  At September 30, 2012, NEE had posted approximately $210 million (none at FPL) in the form of letters of credit, related to derivatives, in the normal course of business which could be applied toward the collateral requirements described above.  FPL and NEECH have credit facilities in excess of the collateral requirements described above that would be available to support, among other things, derivative activities.  Under the terms of the credit facilities, maintenance of a specific credit rating is not a condition to drawing on these credit facilities, although there are other conditions to drawing on these credit facilities.

Additionally, some contracts contain certain adequate assurance provisions where a counterparty may demand additional collateral based on subjective events and/or conditions.  Due to the subjective nature of these provisions, NEE and FPL are unable to determine an exact value for these items and they are not included in any of the quantitative disclosures above.