10-Q 1 nee10q3q2013.htm 10-Q NEE.10Q.3Q.2013

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

Commission
File
Number
 
Exact name of registrants as specified in their
charters, address of principal executive offices and
registrants' telephone number
 
IRS Employer
Identification
Number
 
 
 
 
 
1-8841
 
NEXTERA ENERGY, INC.
 
59-2449419
2-27612
 
FLORIDA POWER & LIGHT COMPANY
 
59-0247775
 
 
700 Universe Boulevard
Juno Beach, Florida 33408
(561) 694-4000
 
 

State or other jurisdiction of incorporation or organization:  Florida

Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) have been subject to such filing requirements for the past 90 days.
NextEra Energy, Inc.    Yes þ    No o                                                                     Florida Power & Light Company    Yes þ    No o

Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
NextEra Energy, Inc.    Yes þ    No o                                                                     Florida Power & Light Company    Yes þ    No o

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.
NextEra Energy, Inc.
Large Accelerated Filer þ
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company ¨
Florida Power & Light Company
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer þ
Smaller Reporting Company ¨

Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).   Yes ¨   No þ

The number of shares outstanding of NextEra Energy, Inc. common stock, as of the latest practicable date:  Common Stock, $0.01 par value, outstanding as of September 30, 2013: 430,681,556 shares.

As of September 30, 2013, there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by NextEra Energy, Inc.

This combined Form 10-Q represents separate filings by NextEra Energy, Inc. and Florida Power & Light Company.  Information contained herein relating to an individual registrant is filed by that registrant on its own behalf.  Florida Power & Light Company makes no representations as to the information relating to NextEra Energy, Inc.'s other operations.

Florida Power & Light Company meets the conditions set forth in General Instruction H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.


TABLE OF CONTENTS




NextEra Energy, Inc., Florida Power & Light Company, NextEra Energy Capital Holdings, Inc. and NextEra Energy Resources, LLC each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, FPL Group Capital, FPL Energy, FPLE and similar references.  For convenience and simplicity, in this report the terms NEE, FPL, NEECH and NEER are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates.  The precise meaning depends on the context.


2

FORWARD-LOOKING STATEMENTS

This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as will, will result, are expected to, will continue, is anticipated, aim, believe, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) 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 have a significant impact on NextEra Energy, Inc.'s (NEE) and/or Florida Power & Light Company's (FPL) operations and financial results, and could cause NEE's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEE and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.

Regulatory, Legislative and Legal Risks
•
NEE's and FPL's business, financial condition, results of operations and prospects may be adversely affected by the extensive regulation of their business.
•
NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if they are unable to recover in a timely manner any significant amount of costs, a return on certain assets or an appropriate return on capital through base rates, cost recovery clauses, other regulatory mechanisms or otherwise.
•
Regulatory decisions that are important to NEE and FPL may be materially adversely affected by political, regulatory and economic factors.
•
FPL's use of derivative instruments could be subject to prudence challenges and, if found imprudent, could result in disallowances of cost recovery for such use by the Florida Public Service Commission (FPSC).
•
Any reductions to, or the elimination of, governmental incentives that support renewable energy, including, but not limited to, tax incentives, renewable portfolio standards (RPS) or feed-in tariffs, or the imposition of additional taxes or other assessments on renewable energy, could result in, among other items, the lack of a satisfactory market for the development of new renewable energy projects, NextEra Energy Resources, LLC (NEER) abandoning the development of renewable energy projects, a loss of NEER's investments in renewable energy projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.
•
NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected as a result of new or revised laws, regulations or interpretations or other regulatory initiatives.
•
NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if the rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act broaden the scope of its provisions regarding the regulation of over-the-counter (OTC) financial derivatives and make them applicable to NEE and FPL.
•
NEE and FPL are subject to numerous environmental laws, regulations and other standards that may result in capital expenditures, increased operating costs and various liabilities.
•
NEE's and FPL's business could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions.
•
Extensive federal regulation of the operations of NEE and FPL exposes NEE and FPL to significant and increasing compliance costs and may also expose them to substantial monetary penalties and other sanctions for compliance failures.
•
Changes in tax laws, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.
•
NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected due to adverse results of litigation.
Operational Risks
•
NEE's and FPL's business, financial condition, results of operations and prospects could suffer if NEE and FPL do not proceed with projects under development or are unable to complete the construction of, or capital improvements to, electric generation, transmission and distribution facilities, gas infrastructure facilities or other facilities on schedule or within budget.
•
NEE and FPL may face risks related to project siting, financing, construction, permitting, governmental approvals and the negotiation of project development agreements that may impede their development and operating activities.
•
The operation and maintenance of NEE's and FPL's electric generation, transmission and distribution facilities, gas infrastructure facilities and other facilities are subject to many operational risks, the consequences of which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.

3

•
NEE's and FPL's business, financial condition, results of operations and prospects may be negatively affected by a lack of growth or slower growth in the number of customers or in customer usage.
•
NEE's and FPL's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather.
•
Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt NEE's and FPL's business, or the businesses of third parties, may materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.
•
The ability of NEE and FPL to obtain insurance and the terms of any available insurance coverage could be adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers.  NEE's and FPL's insurance coverage does not provide protection against all significant losses.
•
If supply costs necessary to provide NEER's full energy and capacity requirement services are not favorable, operating costs could increase and adversely affect NEE's business, financial condition, results of operations and prospects.
•
Due to the potential for significant volatility in market prices for fuel, electricity and renewable and other energy commodities, NEER's inability or failure to hedge effectively its assets or positions against changes in commodity prices, volumes, interest rates, counterparty credit risk or other risk measures could significantly impair NEE's results of operations.
•
Sales of power on the spot market or on a short-term contractual basis may cause NEE's results of operations to be volatile.
•
Reductions in the liquidity of energy markets may restrict the ability of NEE to manage its operational risks, which, in turn, could negatively affect NEE's results of operations.
•
If price movements significantly or persistently deviate from historical behavior, NEE's and FPL's hedging and trading procedures and associated risk management tools may not protect against significant losses.
•
If power transmission or natural gas, nuclear fuel or other commodity transportation facilities are unavailable or disrupted, FPL's and NEER's ability to sell and deliver power or natural gas may be limited.
•
NEE and FPL are subject to credit and performance risk from customers, hedging counterparties and vendors.
•
NEE and FPL could recognize financial losses or a reduction in operating cash flows if a counterparty fails to perform or make payments in accordance with the terms of derivative contracts or if NEE or FPL is required to post margin cash collateral under derivative contracts.
•
NEE and FPL are highly dependent on sensitive and complex information technology systems, and any failure or breach of those systems could have a material adverse effect on their business, financial condition, results of operations and prospects.
•
NEE's and FPL's retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in an adverse impact to their reputation and/or the results of operations of the retail business.
•
NEE and FPL could recognize financial losses as a result of volatility in the market values of derivative instruments and limited liquidity in OTC markets.
•
NEE and FPL may be adversely affected by negative publicity.
•
NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected if FPL is unable to maintain, negotiate or renegotiate franchise agreements on acceptable terms with municipalities and counties in Florida.
•
Increasing costs associated with health care plans may materially adversely affect NEE's and FPL's results of operations.
•
NEE's and FPL's business, financial condition, results of operations and prospects could be negatively affected by the lack of a qualified workforce or the loss or retirement of key employees.
•
NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected by work strikes or stoppages and increasing personnel costs.
•
NEE's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the power industry.
Nuclear Generation Risks
•
The construction, operation and maintenance of NEE's and FPL's nuclear generation facilities involve environmental, health and financial risks that could result in fines or the closure of the facilities and in increased costs and capital expenditures.
•
In the event of an incident at any nuclear generation facility in the United States (U.S.) or at certain nuclear generation facilities in Europe, NEE and FPL could be assessed significant retrospective assessments and/or retrospective insurance premiums as a result of their participation in a secondary financial protection system and nuclear insurance mutual companies.

4

•
U.S. Nuclear Regulatory Commission (NRC) orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require NEE and FPL to incur substantial operating and capital expenditures at their nuclear generation facilities.
•
The inability to operate any of NEER's or FPL's nuclear generation units through the end of their respective operating licenses could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.
•
Various hazards posed to nuclear generation facilities, along with increased public attention to and awareness of such hazards, could result in increased nuclear licensing or compliance costs which are difficult or impossible to predict and could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.
•
NEE's and FPL's nuclear units are periodically removed from service to accommodate normal refueling and maintenance outages, and for other purposes.  If planned outages last longer than anticipated or if there are unplanned outages, NEE's and FPL's results of operations and financial condition could be materially adversely affected.
Liquidity, Capital Requirements and Common Stock Risks
•
Disruptions, uncertainty or volatility in the credit and capital markets may negatively affect NEE's and FPL's ability to fund their liquidity and capital needs and to meet their growth objectives, and can also adversely affect the results of operations and financial condition of NEE and FPL.
•
NEE's, NextEra Energy Capital Holdings, Inc.'s (NEECH) and FPL's inability to maintain their current credit ratings may adversely affect NEE's and FPL's liquidity and results of operations, limit the ability of NEE and FPL to grow their business, and increase interest costs.
•
NEE's and FPL's liquidity may be impaired if their creditors are unable to fund their credit commitments to the companies or to maintain their current credit ratings.
•
Poor market performance and other economic factors could affect NEE's defined benefit pension plan's funded status, which may materially adversely affect NEE's and FPL's liquidity and results of operations.
•
Poor market performance and other economic factors could adversely affect the asset values of NEE's and FPL's nuclear decommissioning funds, which may materially adversely affect NEE's and FPL's liquidity and results of operations.
•
Certain of NEE's investments are subject to changes in market value and other risks, which may adversely affect NEE's liquidity and financial results.
•
NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to NEE.
•
NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if NEE is required to perform under guarantees of obligations of its subsidiaries.
•
Disruptions, uncertainty or volatility in the credit and capital markets may exert downward pressure on the market price of NEE's common stock.

These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in NEE's and FPL's Annual Report on Form 10-K for the year ended December 31, 2012 (2012 Form 10-K), and investors should refer to that section of the 2012 Form 10-K. Any forward-looking statement speaks only as of the date on which such statement is made, and NEE and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law.  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 or implied in any forward-looking statement.

Website Access to U.S. Securities and Exchange Commission (SEC) Filings.  NEE and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEE's internet website, www.nexteraenergy.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC.  The information and materials available on NEE's website (or any of its subsidiaries' websites) are not incorporated by reference into this combined Form 10-Q.  The SEC maintains an internet website that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC at www.sec.gov.


5

PART I - FINANCIAL INFORMATION
Item 1.  Financial Statements
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
(unaudited)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
OPERATING REVENUES
$
4,394

 
$
3,843

 
$
11,506

 
$
10,881

OPERATING EXPENSES
 

 
 

 
 

 
 

Fuel, purchased power and interchange
1,438

 
1,526

 
3,766

 
3,943

Other operations and maintenance
818

 
776

 
2,338

 
2,347

Impairment charge
—

 
—

 
300

 
—

Depreciation and amortization
605

 
467

 
1,523

 
1,121

Taxes other than income taxes and other
348

 
332

 
978

 
925

Total operating expenses
3,209

 
3,101

 
8,905

 
8,336

OPERATING INCOME
1,185

 
742

 
2,601

 
2,545

OTHER INCOME (DEDUCTIONS)
 

 
 

 
 

 
 

Interest expense
(288
)
 
(259
)
 
(825
)
 
(795
)
Benefits associated with differential membership interests - net
37

 
7

 
119

 
70

Allowance for equity funds used during construction
12

 
21

 
50

 
52

Interest income
20

 
20

 
58

 
62

Gains on disposal of assets - net
20

 
53

 
40

 
120

Other - net
9

 
(15
)
 
27

 
(19
)
Total other deductions - net
(190
)
 
(173
)
 
(531
)
 
(510
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
995

 
569

 
2,070

 
2,035

INCOME TAXES
297

 
154

 
677

 
553

INCOME FROM CONTINUING OPERATIONS
698

 
415

 
1,393

 
1,482

NET GAIN FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
—

 
—

 
188

 
—

NET INCOME
$
698

 
$
415

 
$
1,581

 
$
1,482

Basic earnings per share of common stock:
 

 
 

 
 

 
 

Continuing operations
$
1.65

 
$
0.99

 
$
3.30

 
$
3.57

Discontinued operations
—

 
—

 
0.44

 
—

Net income
$
1.65

 
$
0.99

 
$
3.74

 
$
3.57

Earnings per share of common stock - assuming dilution:
 
 
 
 
 
 
 
Continuing operations
$
1.64

 
$
0.98

 
$
3.28

 
$
3.55

Discontinued operations
—

 
—

 
0.44

 
—

Net income
$
1.64

 
$
0.98

 
$
3.72

 
$
3.55

 
 
 
 
 
 
 
 
Dividends per share of common stock
$
0.66

 
$
0.60

 
$
1.98

 
$
1.80

Weighted-average number of common shares outstanding:
 

 
 

 
 

 
 

Basic
423.8

 
419.3

 
422.2

 
415.6

Assuming dilution
426.8

 
421.7

 
424.8

 
418.0








This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.

6



NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(millions)
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
NET INCOME
$
698

 
$
415

 
$
1,581

 
$
1,482

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 
 
 
 
Net unrealized gains (losses) on cash flow hedges:
 

 
 

 
 

 
 

Effective portion of net unrealized gains (losses) (net of $7 and $15 tax benefit, $45 tax expense and $41 tax benefit, respectively)
(18
)
 
(30
)
 
83

 
(79
)
Reclassification from accumulated other comprehensive income to net income (net of $5, $7, $27 and $18 tax expense, respectively)
9

 
3

 
48

 
24

Net unrealized gains (losses) on available for sale securities:
 

 
 

 
 

 
 

Net unrealized gains on securities still held (net of $22, $18, $49 and $44 tax expense, respectively)
30

 
26

 
72

 
64

Reclassification from accumulated other comprehensive income to net income (net of $4, $18, $11 and $43 tax benefit, respectively)
(7
)
 
(27
)
 
(17
)
 
(64
)
Defined benefit pension and other benefits plans (net of less than a million, less than a million, $5 tax expense and $3 tax benefit, respectively)
—

 
—

 
7

 
(6
)
Net unrealized gains (losses) on foreign currency translation (net of $2 and $2 tax expense, $13 tax benefit and $3 tax expense, respectively)
6

 
3

 
(26
)
 
6

Other comprehensive income (loss) related to equity method investee (net of less than a million, $3 tax benefit, $4 tax expense and $7 tax benefit, respectively)
—

 
(4
)
 
6

 
(10
)
Total other comprehensive income (loss), net of tax
20

 
(29
)
 
173

 
(65
)
 
 
 
 
 
 
 
 
COMPREHENSIVE INCOME
$
718

 
$
386

 
$
1,754

 
$
1,417






















This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.


7

NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except par value)
(unaudited)

 
September 30,
2013
 
December 31,
2012
PROPERTY, PLANT AND EQUIPMENT
 
 
 
Electric plant in service and other property
$
61,355

 
$
57,054

Nuclear fuel
1,938

 
1,895

Construction work in progress
4,562

 
5,968

Less accumulated depreciation and amortization
(16,456
)
 
(15,504
)
Total property, plant and equipment - net ($4,646 and $4,487 related to VIEs, respectively)
51,399

 
49,413

CURRENT ASSETS
 

 
 

Cash and cash equivalents
558

 
329

Customer receivables, net of allowances of $15 and $10, respectively
1,888

 
1,487

Other receivables
353

 
569

Materials, supplies and fossil fuel inventory
1,142

 
1,073

Regulatory assets:
 
 
 
Deferred clause and franchise expenses
124

 
75

Other
170

 
113

Derivatives
441

 
517

Deferred income taxes
8

 
397

Assets held for sale
—

 
335

Other
788

 
342

Total current assets
5,472

 
5,237

OTHER ASSETS
 

 
 

Special use funds
4,574

 
4,190

Other investments
1,085

 
976

Prepaid benefit costs
1,058

 
1,031

Regulatory assets:
 

 
 

Securitized storm-recovery costs ($238 and $274 related to a VIE, respectively)
388

 
461

Other
677

 
582

Derivatives
1,011

 
920

Other
1,502

 
1,629

Total other assets
10,295

 
9,789

TOTAL ASSETS
$
67,166

 
$
64,439

CAPITALIZATION
 

 
 

Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 431 and 424, respectively)
$
4

 
$
4

Additional paid-in capital
5,959

 
5,536

Retained earnings
11,528

 
10,783

Accumulated other comprehensive loss
(82
)
 
(255
)
Total common shareholders' equity
17,409

 
16,068

Long-term debt ($1,134 and $1,369 related to VIEs, respectively)
23,862

 
23,177

Total capitalization
41,271

 
39,245

CURRENT LIABILITIES
 

 
 

Commercial paper
915

 
1,211

Short-term debt
—

 
200

Current maturities of long-term debt
3,933

 
2,771

Accounts payable
1,244

 
1,281

Customer deposits
502

 
508

Accrued interest and taxes
783

 
414

Derivatives
615

 
430

Accrued construction-related expenditures
450

 
427

Liabilities associated with assets held for sale
—

 
733

Other
771

 
904

Total current liabilities
9,213

 
8,879

OTHER LIABILITIES AND DEFERRED CREDITS
 

 
 

Asset retirement obligations
1,808

 
1,715

Deferred income taxes
7,207

 
6,703

Regulatory liabilities:
 

 
 

Accrued asset removal costs
1,784

 
1,950

Asset retirement obligation regulatory expense difference
1,987

 
1,813

Other
391

 
309

Derivatives
354

 
587

Deferral related to differential membership interests - VIEs
1,828

 
1,784

Other
1,323

 
1,454

Total other liabilities and deferred credits
16,682

 
16,315

COMMITMENTS AND CONTINGENCIES


 


TOTAL CAPITALIZATION AND LIABILITIES
$
67,166

 
$
64,439


This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.

8



NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)

 
Nine Months Ended September 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
1,581

 
$
1,482

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
1,523

 
1,121

Nuclear fuel and other amortization
262

 
204

Impairment charge
300

 
—

Unrealized gains on marked to market energy contracts
(84
)
 
(89
)
Deferred income taxes
823

 
517

Cost recovery clauses and franchise fees
(126
)
 
115

Benefits associated with differential membership interests - net
(119
)
 
(70
)
Allowance for equity funds used during construction
(50
)
 
(52
)
Gains on disposal of assets - net
(40
)
 
(120
)
Net gain from discontinued operations, net of income taxes
(188
)
 
—

Other - net
131

 
240

Changes in operating assets and liabilities:
 

 
 

Customer and other receivables
(384
)
 
(347
)
Materials, supplies and fossil fuel inventory
(69
)
 
21

Other current assets
(4
)
 
(51
)
Other assets
(23
)
 
(50
)
Accounts payable
128

 
1

Margin cash collateral
(448
)
 
110

Income taxes
(120
)
 
(6
)
Interest and other taxes
350

 
270

Other current liabilities
(17
)
 
(27
)
Other liabilities
(36
)
 
(112
)
Net cash provided by operating activities
3,390

 
3,157

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures of FPL
(2,093
)
 
(3,061
)
Independent power and other investments of NEER
(2,244
)
 
(3,025
)
Cash grants under the American Recovery and Reinvestment Act of 2009
170

 
105

Nuclear fuel purchases
(200
)
 
(202
)
Other capital expenditures
(122
)
 
(401
)
Change in loan proceeds restricted for construction
245

 
212

Proceeds from sale or maturity of securities in special use funds
2,604

 
3,890

Purchases of securities in special use funds
(2,678
)
 
(3,994
)
Proceeds from sale or maturity of other securities
179

 
219

Purchases of other securities
(176
)
 
(259
)
Other - net
49

 
15

Net cash used in investing activities
(4,266
)
 
(6,501
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Issuances of long-term debt
3,653

 
4,226

Retirements of long-term debt
(1,669
)
 
(1,321
)
Proceeds from sale of differential membership interests
201

 
414

Payments to differential membership investors
(47
)
 
(53
)
Net change in short-term debt
(495
)
 
396

Issuances of common stock - net
415

 
386

Repurchases of common stock
—

 
(19
)
Dividends on common stock
(836
)
 
(752
)
Other - net
(117
)
 
(64
)
Net cash provided by financing activities
1,105

 
3,213

Net increase (decrease) in cash and cash equivalents
229

 
(131
)
Cash and cash equivalents at beginning of period
329

 
377

Cash and cash equivalents at end of period
$
558

 
$
246

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 

 
 

Accrued property additions
$
792

 
$
943

Sale of hydropower generation plants through assumption of debt by buyer
$
700

 
$
—


This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.

9



FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions)
(unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
OPERATING REVENUES
$
3,020

 
$
2,975

 
$
7,905

 
$
7,778

OPERATING EXPENSES
 

 
 

 
 

 
 

Fuel, purchased power and interchange
1,141

 
1,280

 
2,979

 
3,301

Other operations and maintenance
443

 
427

 
1,254

 
1,305

Depreciation and amortization
351

 
254

 
780

 
496

Taxes other than income taxes and other
307

 
295

 
847

 
814

Total operating expenses
2,242

 
2,256

 
5,860

 
5,916

OPERATING INCOME
778

 
719

 
2,045

 
1,862

OTHER INCOME (DEDUCTIONS)
 

 
 

 
 

 
 

Interest expense
(105
)
 
(104
)
 
(310
)
 
(314
)
Allowance for equity funds used during construction
12

 
14

 
42

 
36

Other - net
—

 
—

 
1

 
—

Total other deductions - net
(93
)
 
(90
)
 
(267
)
 
(278
)
INCOME BEFORE INCOME TAXES
685

 
629

 
1,778

 
1,584

INCOME TAXES
263

 
237

 
677

 
600

NET INCOME(a)
$
422

 
$
392

 
$
1,101

 
$
984

__________________________________
(a)
FPL's comprehensive income is the same as reported net income.
































This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.

10



FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amount)
(unaudited)

 
September 30,
2013
 
December 31,
2012
ELECTRIC UTILITY PLANT
 
 
 
Plant in service and other property
$
36,472

 
$
34,474

Nuclear fuel
1,195

 
1,190

Construction work in progress
1,718

 
2,585

Less accumulated depreciation and amortization
(10,885
)
 
(10,698
)
Total electric utility plant - net
28,500

 
27,551

CURRENT ASSETS
 

 
 

Cash and cash equivalents
54

 
40

Customer receivables, net of allowances of $8 and $7, respectively
992

 
760

Other receivables
152

 
447

Materials, supplies and fossil fuel inventory
757

 
727

Regulatory assets:
 

 
 

Deferred clause and franchise expenses
124

 
75

Other
158

 
106

Other
151

 
131

Total current assets
2,388

 
2,286

OTHER ASSETS
 

 
 

Special use funds
3,155

 
2,918

Prepaid benefit costs
1,147

 
1,135

Regulatory assets:
 

 
 

Securitized storm-recovery costs ($238 and $274 related to a VIE, respectively)
388

 
461

Other
436

 
351

Other
154

 
151

Total other assets
5,280

 
5,016

TOTAL ASSETS
$
36,168

 
$
34,853

CAPITALIZATION
 

 
 

Common stock (no par value, 1,000 shares authorized, issued and outstanding)
$
1,373

 
$
1,373

Additional paid-in capital
5,902

 
5,903

Retained earnings
5,285

 
5,254

Total common shareholder's equity
12,560

 
12,530

Long-term debt ($331 and $386 related to a VIE, respectively)
8,474

 
8,329

Total capitalization
21,034

 
20,859

CURRENT LIABILITIES
 

 
 

Commercial paper
580

 
105

Current maturities of long-term debt
355

 
453

Accounts payable
631

 
612

Customer deposits
498

 
503

Accrued interest and taxes
560

 
223

Accrued construction-related expenditures
144

 
235

Other
367

 
495

Total current liabilities
3,135

 
2,626

OTHER LIABILITIES AND DEFERRED CREDITS
 

 
 

Asset retirement obligations
1,254

 
1,206

Deferred income taxes
6,133

 
5,584

Regulatory liabilities:
 

 
 

Accrued asset removal costs
1,784

 
1,950

Asset retirement obligation regulatory expense difference
1,987

 
1,813

Other
391

 
309

Other
450

 
506

Total other liabilities and deferred credits
11,999

 
11,368

COMMITMENTS AND CONTINGENCIES


 


TOTAL CAPITALIZATION AND LIABILITIES
$
36,168

 
$
34,853



This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.

11

FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)

 
Nine Months Ended September 30,
 
2013
 
2012
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
1,101

 
$
984

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 

 
 

Depreciation and amortization
780

 
496

Nuclear fuel and other amortization
137

 
85

Deferred income taxes
465

 
656

Cost recovery clauses and franchise fees
(126
)
 
115

Allowance for equity funds used during construction
(42
)
 
(36
)
Other - net
101

 
8

Changes in operating assets and liabilities:
 

 
 

Customer and other receivables
(265
)
 
(289
)
Materials, supplies and fossil fuel inventory
(30
)
 
24

Other current assets
(5
)
 
(35
)
Other assets
(19
)
 
(41
)
Accounts payable
93

 
60

Income taxes
371

 
74

Interest and other taxes
314

 
264

Other current liabilities
(65
)
 
(55
)
Other liabilities
(18
)
 
(8
)
Net cash provided by operating activities
2,792

 
2,302

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures
(2,093
)
 
(3,061
)
Nuclear fuel purchases
(116
)
 
(137
)
Proceeds from sale or maturity of securities in special use funds
1,967

 
2,949

Purchases of securities in special use funds
(2,020
)
 
(3,031
)
Other - net
28

 
27

Net cash used in investing activities
(2,234
)
 
(3,253
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Issuances of long-term debt
498

 
594

Retirements of long-term debt
(453
)
 
(50
)
Net change in short-term debt
475

 
142

Capital contribution from NEE
—

 
240

Dividends to NEE
(1,070
)
 
—

Other - net
6

 
9

Net cash provided by (used in) financing activities
(544
)
 
935

Net increase (decrease) in cash and cash equivalents
14

 
(16
)
Cash and cash equivalents at beginning of period
40

 
36

Cash and cash equivalents at end of period
$
54

 
$
20

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 

 
 

Accrued property additions
$
296

 
$
445









This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2012 Form 10-K.


12

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

The accompanying condensed consolidated financial statements should be read in conjunction with the 2012 Form 10-K.  In the opinion of NEE and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made.  Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. Also, benefits associated with differential membership interests - net have been restated from operating expenses to other income (deductions) to be comparable with the presentation of other financing-related costs.  The results of operations for an interim period generally will not give a true indication of results for the year.

1.  Employee Retirement Benefits

NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries and has a supplemental executive retirement plan, which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees (collectively, pension benefits).  In addition to pension benefits, NEE sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of NEE and its subsidiaries meeting certain eligibility requirements.

The components of net periodic benefit (income) cost for the plans are as follows:

 
 
Pension Benefits
 
Other Benefits
 
Pension Benefits
 
Other Benefits
 
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
2013
 
2012
 
 
(millions)
Service cost
 
$
19

 
$
16

 
$
1

 
$
1

 
$
55

 
$
49

 
$
3

 
$
4

Interest cost
 
23

 
25

 
3

 
4

 
71

 
74

 
11

 
13

Expected return on plan assets
 
(59
)
 
(60
)
 
(1
)
 
—

 
(178
)
 
(179
)
 
(1
)
 
(1
)
Amortization of transition obligation
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
1

Amortization of prior service cost (benefit)
 
2

 
1

 
—

 
(1
)
 
6

 
3

 
(2
)
 
—

Amortization of losses
 
—

 
—

 
1

 
—

 
1

 
—

 
2

 
—

Special termination benefits
 
15

 
—

 
—

 
—

 
27

 
—

 
—

 
—

Net periodic benefit (income) cost at NEE
 
$
—

 
$
(18
)
 
$
4

 
$
4

 
$
(18
)
 
$
(53
)
 
$
13

 
$
17

Net periodic benefit (income) cost at FPL
 
$
2

 
$
(11
)
 
$
3

 
$
3

 
$
(10
)
 
$
(34
)
 
$
9

 
$
13


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 and gas infrastructure 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 and gas infrastructure 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 and gas infrastructure 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 output of these assets.  These hedges are designed to reduce the effect of adverse changes in the wholesale forward commodity markets associated with NEER's power generation and gas infrastructure assets.  With regard to full energy and capacity requirements services, NEER is required to vary the quantity of energy and related services it supplies based on the load demands of the customers served.  For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and reduce the effect of 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.

13

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)



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, essentially all changes in the derivatives' fair value for power purchases and sales, fuel sales and trading activities are recognized on a net basis in operating revenues; fuel purchases used in the production of electricity are recognized in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in other - net 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.  Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income.  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.  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, optimizing the value of NEER's power generation and gas infrastructure assets, 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 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.  In April 2013, NEE discontinued hedge accounting for cash flow hedges related to interest rate swaps associated with the solar projects in Spain (see Note 10 - Spain Solar Projects).  At September 30, 2013, NEE's accumulated other comprehensive income (AOCI) included amounts related to interest rate cash flow hedges with expiration dates through June 2031 and foreign currency cash flow hedges with expiration dates through September 2030.  Approximately $58 million of net losses included in AOCI at September 30, 2013 is expected to be reclassified into earnings within the next 12 months as the principal and/or interest payments are made.  Such amounts assume no change in interest rates, currency exchange rates or scheduled principal payments.

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, 2013
 
December 31, 2012
 
September 30, 2013
 
December 31, 2012
 
 
 
(millions)
 
Current derivative assets(a)
 
$
441

 
$
517

 
$
2

(b) 
$
4

(b) 
Noncurrent derivative assets(c)
 
1,011

 
920

 
—

 
1

(d) 
Current derivative liabilities(e)
 
(615
)
 
(430
)
 
(55
)
(f) 
(20
)
(f) 
Noncurrent derivative liabilities
 
(354
)
 
(587
)
 
(8
)
(g) 
—

 
Total mark-to-market derivative instrument assets (liabilities)
 
$
483

 
$
420

 
$
(61
)
 
$
(15
)
 
————————————
(a)
At September 30, 2013 and December 31, 2012, NEE's balances reflect the netting of approximately $75 million and $43 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, 2013 and December 31, 2012, NEE's balances reflect the netting of approximately $118 million and $159 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, 2013 and December 31, 2012, NEE's balances reflect the netting of approximately $15 million and $79 million (none at FPL), respectively, in margin cash collateral provided to counterparties.
(f)
Included in current other liabilities on FPL's condensed consolidated balance sheets.
(g)
Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets.


14

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)


At September 30, 2013 and December 31, 2012, NEE had approximately $16 million and $30 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets in the above presentation.  These amounts are included in current other liabilities on NEE's condensed consolidated balance sheets.  Additionally, at September 30, 2013 and December 31, 2012, NEE had approximately $537 million and $49 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities in the above presentation.  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 and optimize the value of NEER's power generation and gas infrastructure assets.  The table above presents NEE's and FPL's net derivative positions at September 30, 2013 and December 31, 2012, 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 (see Note 3 - Recurring Fair Value Measurements for netting information).  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, 2013
 
December 31, 2012
 
 
Derivative
Assets
 
Derivative
Liabilities
 
Derivative
Assets
 
Derivative
Liabilities
 
 
(millions)
Interest rate contracts:
 
 
 
 
 
 
 
 
Current derivative assets
 
$
29

 
$
—

 
$
30

 
$
—

Current derivative liabilities
 
—

 
62

 
—

 
104

Noncurrent derivative assets
 
48

 
—

 
46

 
—

Noncurrent derivative liabilities
 
—

 
68

 
—

 
283

Foreign currency swaps:
 
 

 
 

 
 

 
 

Current derivative liabilities
 
—

 
21

 
—

 
5

Noncurrent derivative liabilities
 
—

 
16

 
—

 
28

Total
 
$
77

 
$
167

 
$
76

 
$
420


Gains (losses) related to NEE's cash flow hedges are recorded in NEE's condensed consolidated financial statements as follows:

 
Three Months Ended September 30,
 
2013
 
2012
 
Interest
Rate
Contracts
 
Foreign
Currency
Swaps
 
Total
 
Commodity
Contracts
 
Interest
Rate
Contracts
 
Foreign
Currency
Swap
 
Total
 
(millions)
Gains (losses) recognized in OCI
$
(29
)
 
$
4

 
$
(25
)
 
$
—

 
$
(39
)
 
$
(6
)
 
$
(45
)
Gains (losses) reclassified from AOCI to net income(a)
$
(15
)
 
$
1

(b) 
$
(14
)
 
$
2

 
$
(14
)
 
$
2

(b) 
$
(10
)
————————————
(a)
Included in operating revenues for commodity contracts and interest expense for interest rate contracts.
(b)
Loss of approximately $1 million is included in interest expense and the balance is included in other - net.

 
Nine Months Ended September 30,
 
2013
 
2012
 
Interest
Rate
Contracts
 
Foreign
Currency
Swaps
 
Total
 
Commodity
Contracts
 
Interest
Rate
Contracts
 
Foreign
Currency
Swap
 
Total
 
(millions)
Gains (losses) recognized in OCI
$
136

 
$
(8
)
 
$
128

 
$
—

 
$
(104
)
 
$
(16
)
 
$
(120
)
Gains (losses) reclassified from AOCI to net income(a)
$
(45
)
 
$
(30
)
(b) 
$
(75
)
 
$
6

 
$
(44
)
 
$
(4
)
(c) 
$
(42
)
————————————
(a)
Included in operating revenues for commodity contracts and interest expense for interest rate contracts.
(b)
Loss of approximately $3 million is included in interest expense and the balance is included in other - net.
(c)
Loss of approximately $2 million is included in interest expense and the balance is included in other - net.


15

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)


For the three and nine months ended September 30, 2013, NEE recorded a gain of approximately $2 million and a loss of $55 million, respectively, on fair value hedges which resulted in a corresponding increase and decrease in the related debt, respectively.  For the three and nine months ended September 30, 2012, NEE recorded a gain of approximately $6 million and $41 million, respectively, on 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, 2013
 
December 31, 2012
 
 
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
$
689

 
$
203

 
$
2

(a) 
$
—

 
$
851

 
$
321

 
$
4

(a) 
$
—


Current derivative liabilities
1,113

 
1,489

 
6

(b) 
61

(b) 
1,441

 
1,838

 
12

(b) 
32

(b) 
Noncurrent derivative assets
1,798

 
717

 
—


—

 
1,748

 
715

 
1

(c) 
—

 
Noncurrent derivative liabilities
235

 
505

 
1

(d) 
9

(d) 
192

 
438

 
—


—

 
Foreign currency swap:

 

 





 

 




Current derivative liabilities
—

 
80

 
—


—


—

 
3

 
—


—


Noncurrent derivative liabilities
—

 
—

 
—

 
—

 
—

 
30

 
—

 
—

 
Interest rate contracts:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current derivative assets
1

 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
Current derivative liabilities
—

 
91

 
—

 
—

 
—

 
—

 
—

 
—

 
Total
$
3,836

 
$
3,085

 
$
9


$
70


$
4,232

 
$
3,345

 
$
17


$
32


————————————
(a)
Included in current other assets on FPL's condensed consolidated balance sheets.
(b)
Included in current other liabilities on FPL's condensed consolidated balance sheets.
(c)
Included in noncurrent other assets on FPL's condensed consolidated balance sheets.
(d)
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 as follows:

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
 
(millions)
Commodity contracts:(a)
 
 
 
 
 
 
 
Operating revenues
$
138

 
$
(218
)
 
$
111

 
$
102

Fuel, purchased power and interchange
(9
)
 
(4
)
 
2

 
36

Foreign currency swap - other - net
3


9

 
(49
)
 
(13
)
Interest rate contracts - interest expense
3

 
—

 
14

 
—

Total
$
135

 
$
(213
)
 
$
78

 
$
125

————————————
(a)
For the three months ended September 30, 2013 and 2012, FPL recorded approximately $22 million of losses and $90 million of gains, respectively, related to commodity contracts as regulatory assets and regulatory liabilities, respectively, on its condensed consolidated balance sheets.  For the nine months ended September 30, 2013 and 2012, FPL recorded approximately $27 million and $86 million of losses, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.


16

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)


Notional Volumes of Derivative Instruments - 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.  These volumes are only an indication of the commodity exposure that is managed through the use of derivatives.  They do not represent net physical asset positions or non-derivative positions and their hedges, nor do they represent NEE’s and FPL’s net economic exposure, but only the net notional derivative positions that fully or partially hedge the related asset positions.  NEE and FPL had derivative commodity contracts for the following net notional volumes:

 
 
September 30, 2013
 
December 31, 2012
Commodity Type
 
NEE
 
FPL
 
NEE
 
FPL
 
 
(millions)
Power
 
(110
)
 
MWh(a)
 
—

 
 
 
(77
)
 
MWh(a)
 
—

 
 
Natural gas
 
1,174

 
MMBtu(b)
 
705

 
MMBtu(b)
 
1,293

 
MMBtu(b)
 
894

 
MMBtu(b)
Oil
 
(10
)
 
barrels
 
—

 
 
 
(8
)
 
barrels
 
—

 
 
————————————
(a)
Megawatt-hours
(b)
One million British thermal units

At September 30, 2013 and December 31, 2012, NEE had interest rate contracts with a notional amount totaling approximately $7.6 billion and $7.3 billion, respectively, and foreign currency swaps with a notional amount totaling approximately $662 million and $662 million, respectively.

Credit-Risk-Related Contingent Features - Certain 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, 2013 and December 31, 2012, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $1.7 billion ($70 million for FPL) and $1.8 billion ($32 million for FPL), respectively.

If the credit-risk-related contingent features underlying these agreements and other commodity-related contracts were triggered, certain subsidiaries of NEE, including 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), applicable NEE subsidiaries would be required to post collateral such that the total posted collateral would be approximately $300 million ($20 million at FPL) as of September 30, 2013 and $400 million ($20 million at FPL) as of December 31, 2012.  If FPL's and NEECH's credit ratings were downgraded to below investment grade, applicable NEE subsidiaries would be required to post additional collateral such that the total posted collateral would be approximately $2.2 billion ($0.5 billion at FPL) and $2.3 billion ($0.5 billion at FPL) as of September 30, 2013 and December 31, 2012, respectively.  Some 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, applicable NEE subsidiaries could be required to post additional collateral of up to approximately $700 million ($150 million at FPL) and $700 million ($100 million at FPL) as of September 30, 2013 and December 31, 2012, respectively.

Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business.  At September 30, 2013, applicable NEE subsidiaries have posted approximately $29 million (none at FPL) in cash which could be applied toward the collateral requirements described above. In addition, at September 30, 2013 and December 31, 2012, applicable NEE subsidiaries have posted approximately $78 million (none at FPL) and $150 million (none at FPL), respectively, in the form of letters of credit which could be applied toward the collateral requirements described above.  FPL and NEECH have credit facilities generally 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.


17

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)


3.  Fair Value Measurements

The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available.  NEE and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis.  NEE's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels.  Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value.

Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less.  NEE and FPL primarily hold investments in money market funds.  The fair value of these funds is calculated using current market prices.

Special Use Funds and Other Investments - NEE and FPL hold primarily debt and equity securities directly, as well as indirectly through commingled funds.  Substantially all directly held equity securities are valued at their quoted market prices.  For directly held debt securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations.  A primary price source is identified based on asset type, class or issue of each security.  Commingled funds, which are similar to mutual funds, are maintained by banks or investment companies and hold certain investments in accordance with a stated set of objectives.  The fair value of commingled funds is primarily derived from the quoted prices in active markets of the underlying securities.  Because the fund shares are offered to a limited group of investors, they are not considered to be traded in an active market.

Derivative Instruments - NEE and FPL measure the fair value of commodity contracts using prices observed on commodities exchanges and in the OTC markets, or through the use of industry-standard valuation techniques, such as option modeling or discounted cash flows techniques, incorporating both observable and unobservable valuation inputs.  The resulting measurements are the best estimate of fair value as represented by the transfer of the asset or liability through an orderly transaction in the marketplace at the measurement date.

Most exchange-traded derivative assets and liabilities are valued directly using unadjusted quoted prices.  For exchange-traded derivative assets and liabilities where the principal market is deemed to be inactive based on average daily volumes and open interest, the measurement is established using settlement prices from the exchanges, and therefore considered to be valued using other observable inputs.

NEE, through its subsidiaries, including FPL, also enters into OTC commodity contract derivatives.  The majority of these contracts are transacted at liquid trading points, and the prices for these contracts are verified using quoted prices in active markets from exchanges, brokers or pricing services for similar contracts.

NEE, through NEER, also enters into full requirements contracts, which, in most cases, meet the definition of derivatives and are measured at fair value.  These contracts typically have one or more inputs that are not observable and are significant to the valuation of the contract.  In addition, certain exchange and non-exchange traded derivative options at NEE have one or more significant inputs that are not observable, and are valued using industry-standard option models.

In all cases where NEE and FPL use significant unobservable inputs for the valuation of a commodity contract, consideration is given to the assumptions that market participants would use in valuing the asset or liability.  The primary input to the valuation models for commodity contracts is the forward commodity curve for the respective instruments.  Other inputs include, but are not limited to, assumptions about market liquidity, volatility, correlation and contract duration as more fully described below in Significant Unobservable Inputs Used in Recurring Fair Value Measurements.  In instances where the reference markets are deemed to be inactive or do not have transactions for a similar contract, the derivative assets and liabilities may be valued using significant other observable inputs and potentially significant unobservable inputs.  In such instances, the valuation for these contracts is established using techniques including extrapolation from or interpolation between actively traded contracts, or estimated basis adjustments from liquid trading points.  NEE and FPL regularly evaluate and validate the inputs used to determine fair value by a number of methods, consisting of various market price verification procedures, including the use of pricing services and multiple broker quotes to support the market price of the various commodities.  In all cases where there are assumptions and models used to generate inputs for valuing derivative assets and liabilities, the review and verification of the assumptions, models and changes to the models are undertaken by individuals that are independent of those responsible for estimating fair value.


18

NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)


NEE uses interest rate contracts and foreign currency swaps to mitigate and adjust interest rate and foreign currency exposure related to certain outstanding and forecasted debt issuances and borrowings when deemed appropriate based on market conditions or when required by financing agreements.  NEE estimates the fair value of these derivatives using a discounted cash flows valuation technique based on the net amount of estimated future cash inflows and outflows related to the agreements.

Recurring Fair Value Measurements - NEE's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:

 
September 30, 2013
 
 
Quoted Prices in
Active Markets for
Identical Assets
or Liabilities
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Netting(a)
 
Total
 
 
(millions)
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
NEE - equity securities
$
109

 
$
—

 
$
—

 
$
—

 
$
109

 
FPL - equity securities
$
4

 
$
—

 
$
—

 
$
—

 
$
4

 
Special use funds:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
1,041

 
$
1,475

(b) 
$
—

 
$
—

 
$
2,516

 
U.S. Government and municipal bonds
$
491

 
$
156

 
$
—

 
$
—

 
$
647

 
Corporate debt securities
$
—

 
$
560

 
$
—

 
$
—

 
$
560

 
Mortgage-backed securities
$
—

 
$
510

 
$
—

 
$
—

 
$
510

 
Other debt securities
$
19

 
$
42

 
$
—

 
$
—

 
$
61

 
FPL:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
217

 
$
1,330

(b) 
$
—

 
$
—

 
$
1,547

 
U.S. Government and municipal bonds
$
429

 
$
131

 
$
—

 
$
—

 
$
560

 
Corporate debt securities
$
—

 
$
397

 
$
—

 
$
—

 
$
397

 
Mortgage-backed securities
$
—

 
$
429

 
$
—

 
$
—

 
$
429

 
Other debt securities
$
18

 
$
28

 
$
—

 
$
—

 
$
46

 
Other investments:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
45

 
$
—

 
$
—

 
$
—

 
$
45

 
U.S. Government and municipal bonds
$
11

 
$
10

 
$
—

 
$
—

 
$
21

 
Corporate debt securities
$
—

 
$
56

 
$
—

 
$
—

 
$
56

 
Mortgage-backed securities
$
—

 
$
38

 
$
—

 
$
—

 
$
38

 
Other