10-Q 1 nee10q1q2014.htm 10-Q NEE.10Q.1Q.2014

 

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 March 31, 2014
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 March 31, 2014: 436,118,602 shares.

As of March 31, 2014, 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, NextEra, 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 may result, are expected to, will continue, is anticipated, aim, believe, will, 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 materially 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 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 certain provisions 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, and may require NEE and FPL to limit or eliminate certain operations.
•
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 materially 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 materially 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 manage properly or hedge effectively the commodity risks within its portfolios could materially adversely affect NEE's business, financial condition, results of operations and prospects.
•
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.
•
NEE's and FPL's hedging and trading procedures and associated risk management tools may not protect against significant losses.
•
If price movements significantly or persistently deviate from historical behavior, NEE's and FPL's risk management tools associated with their hedging and trading procedures 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 a material 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 materially 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

4

premiums as a result of their participation in a secondary financial protection system and nuclear insurance mutual companies.
•
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 business, financial condition, liquidity and results of operations and prospects.
•
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 materially adversely affect NEE's liquidity, financial results and results of operations.
•
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, 2013 (2013 Form 10-K), and investors should refer to that section of the 2013 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 
 March 31,
 
2014
 
2013
OPERATING REVENUES
$
3,674

 
$
3,279

OPERATING EXPENSES
 

 
 

Fuel, purchased power and interchange
1,397

 
1,065

Other operations and maintenance
756

 
756

Impairment charge
—

 
300

Depreciation and amortization
463

 
419

Taxes other than income taxes and other
320

 
305

Total operating expenses
2,936

 
2,845

OPERATING INCOME
738

 
434

OTHER INCOME (DEDUCTIONS)
 

 
 

Interest expense
(319
)
 
(272
)
Benefits associated with differential membership interests - net
65

 
40

Allowance for equity funds used during construction
15

 
26

Interest income
22

 
19

Gains on disposal of assets - net
44

 
12

Gain (loss) associated with Maine fossil
21

 
(67
)
Other - net
(3
)
 
(7
)
Total other deductions - net
(155
)
 
(249
)
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
583

 
185

INCOME TAXES
153

 
144

INCOME FROM CONTINUING OPERATIONS
430

 
41

GAIN FROM DISCONTINUED OPERATIONS, NET OF INCOME TAXES
—

 
231

NET INCOME
$
430

 
$
272

Basic earnings per share of common stock:
 

 
 

Continuing operations
$
0.99

 
$
0.10

Discontinued operations
—

 
0.55

Net income
$
0.99

 
$
0.65

Earnings per share of common stock - assuming dilution:
 
 
 
Continuing operations
$
0.98

 
$
0.10

Discontinued operations
—

 
0.54

Net income
$
0.98

 
$
0.64

 
 
 
 
Dividends per share of common stock
$
0.725

 
$
0.66

Weighted-average number of common shares outstanding:
 

 
 

Basic
433.5

 
421.0

Assuming dilution
438.2

 
423.7








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 2013 Form 10-K.

6



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

 
Three Months Ended 
 March 31,
 
2014
 
2013
NET INCOME
$
430

 
$
272

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

 
 

Effective portion of net unrealized gains (losses) (net of $11 tax benefit and $27 tax expense, respectively)
(18
)
 
65

Reclassification from accumulated other comprehensive income to net income (net of $5 and $13 tax expense, respectively)
9

 
21

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

 
 

Net unrealized gains on securities still held (net of $10 and $26 tax expense, respectively)
13

 
40

Reclassification from accumulated other comprehensive income to net income (net of $15 and $4 tax benefit, respectively)
(25
)
 
(6
)
Defined benefit pension and other benefits plans (net of $3 and $4 tax expense, respectively)
5

 
7

Net unrealized losses on foreign currency translation (net of $8 and $5 tax benefit, respectively)
(17
)
 
(9
)
Other comprehensive income (loss) related to equity method investee (net of $1 tax benefit in 2014)
(2
)
 
1

Total other comprehensive income (loss), net of tax
(35
)
 
119

COMPREHENSIVE INCOME
$
395

 
$
391































This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2013 Form 10-K.


7

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

 
March 31,
2014
 
December 31,
2013
PROPERTY, PLANT AND EQUIPMENT
 
 
 
Electric plant in service and other property
$
63,428

 
$
62,699

Nuclear fuel
2,166

 
2,059

Construction work in progress
4,773

 
4,690

Less accumulated depreciation and amortization
(17,061
)
 
(16,728
)
Total property, plant and equipment - net ($5,077 and $5,127 related to VIEs, respectively)
53,306

 
52,720

CURRENT ASSETS
 

 
 

Cash and cash equivalents
488

 
438

Customer receivables, net of allowances of $18 and $14, respectively
1,904

 
1,777

Other receivables
647

 
512

Materials, supplies and fossil fuel inventory
1,148

 
1,153

Regulatory assets:
 
 
 
Deferred clause and franchise expenses
166

 
192

Other
116

 
116

Derivatives
533

 
498

Deferred income taxes
754

 
753

Other
385

 
403

Total current assets
6,141

 
5,842

OTHER ASSETS
 

 
 

Special use funds
4,866

 
4,780

Other investments
1,148

 
1,121

Prepaid benefit costs
1,476

 
1,456

Regulatory assets:
 

 
 

Securitized storm-recovery costs ($220 and $228 related to a VIE, respectively)
358

 
372

Other
440

 
426

Derivatives
984

 
1,163

Other
1,612

 
1,426

Total other assets
10,884

 
10,744

TOTAL ASSETS
$
70,331

 
$
69,306

CAPITALIZATION
 

 
 

Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 436 and 435, respectively)
$
4

 
$
4

Additional paid-in capital
6,451

 
6,411

Retained earnings
11,684

 
11,569

Accumulated other comprehensive income
21

 
56

Total common shareholders' equity
18,160

 
18,040

Long-term debt ($1,190 and $1,207 related to VIEs, respectively)
23,824

 
23,969

Total capitalization
41,984

 
42,009

CURRENT LIABILITIES
 

 
 

Commercial paper
1,869

 
691

Current maturities of long-term debt
3,822

 
3,766

Accounts payable
1,450

 
1,200

Customer deposits
452

 
452

Accrued interest and taxes
555

 
473

Derivatives
815

 
838

Accrued construction-related expenditures
458

 
839

Other
871

 
930

Total current liabilities
10,292

 
9,189

OTHER LIABILITIES AND DEFERRED CREDITS
 

 
 

Asset retirement obligations
1,877

 
1,850

Deferred income taxes
8,306

 
8,144

Regulatory liabilities:
 

 
 

Accrued asset removal costs
1,722

 
1,839

Asset retirement obligation regulatory expense difference
2,122

 
2,082

Other
457

 
462

Derivatives
396

 
473

Deferral related to differential membership interests - VIEs
1,933

 
2,001

Other
1,242

 
1,257

Total other liabilities and deferred credits
18,055

 
18,108

COMMITMENTS AND CONTINGENCIES


 


TOTAL CAPITALIZATION AND LIABILITIES
$
70,331

 
$
69,306






This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2013 Form 10-K.

8



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

 
Three Months Ended 
 March 31,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
430

 
$
272

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

 
 

Depreciation and amortization
463

 
419

Nuclear fuel and other amortization
88

 
81

Impairment charge
—

 
300

Unrealized losses on marked to market energy contracts
124

 
42

Deferred income taxes
190

 
363

Benefits associated with differential membership interests - net
(65
)
 
(40
)
Allowance for equity funds used during construction
(15
)
 
(26
)
Gains on disposal of assets - net
(44
)
 
(12
)
Gain from discontinued operations, net of income taxes
—

 
(231
)
Loss (gain) associated with Maine fossil
(21
)
 
67

Other - net
47

 
67

Changes in operating assets and liabilities:
 

 
 

Customer and other receivables
(90
)
 
136

Materials, supplies and fossil fuel inventory
9

 
(25
)
Other current assets
(24
)
 
(10
)
Other assets
(97
)
 
(25
)
Accounts payable and customer deposits
162

 
42

Margin cash collateral
(84
)
 
(2
)
Income taxes
(42
)
 
(205
)
Interest and other taxes
122

 
74

Other current liabilities
(161
)
 
(219
)
Other liabilities
25

 
14

Net cash provided by operating activities
1,017

 
1,082

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures of FPL
(999
)
 
(810
)
Independent power and other investments of NEER
(752
)
 
(972
)
Cash grants under the American Recovery and Reinvestment Act of 2009
—

 
170

Nuclear fuel purchases
(91
)
 
(24
)
Other capital expenditures and other investments
(24
)
 
(61
)
Sale of independent power investments
53

 
—

Change in loan proceeds restricted for construction
(28
)
 
112

Proceeds from sale or maturity of securities in special use funds and other investments
1,451

 
1,005

Purchases of securities in special use funds and other investments
(1,481
)
 
(1,014
)
Other - net
29

 
16

Net cash used in investing activities
(1,842
)
 
(1,578
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Issuances of long-term debt
655

 
623

Retirements of long-term debt
(717
)
 
(923
)
Payments to differential membership investors
(22
)
 
(20
)
Net change in short-term debt
1,179

 
966

Issuances of common stock - net
25

 
8

Dividends on common stock
(315
)
 
(279
)
Other - net
70

 
7

Net cash provided by financing activities
875

 
382

Net increase (decrease) in cash and cash equivalents
50

 
(114
)
Cash and cash equivalents at beginning of period
438

 
329

Cash and cash equivalents at end of period
$
488

 
$
215

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 

 
 

Accrued property additions
$
802

 
$
674

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

 
$
700

Changes in property, plant and equipment as a result of a settlement
$
128

 
$
—





This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2013 Form 10-K.

9



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

 
Three Months Ended 
 March 31,
 
2014
 
2013
OPERATING REVENUES
$
2,535

 
$
2,188

OPERATING EXPENSES
 

 
 

Fuel, purchased power and interchange
1,036

 
820

Other operations and maintenance
384

 
385

Depreciation and amortization
209

 
181

Taxes other than income taxes and other
274

 
259

Total operating expenses
1,903

 
1,645

OPERATING INCOME
632

 
543

OTHER INCOME (DEDUCTIONS)
 

 
 

Interest expense
(102
)
 
(102
)
Allowance for equity funds used during construction
15

 
18

Other - net
1

 
1

Total other deductions - net
(86
)
 
(83
)
INCOME BEFORE INCOME TAXES
546

 
460

INCOME TAXES
199

 
172

NET INCOME(a)
$
347

 
$
288

_______________________
(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 2013 Form 10-K.

10



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

 
March 31,
2014
 
December 31,
2013
ELECTRIC UTILITY PLANT
 
 
 
Plant in service and other property
$
37,132

 
$
36,838

Nuclear fuel
1,329

 
1,240

Construction work in progress
2,241

 
1,818

Less accumulated depreciation and amortization
(11,085
)
 
(10,944
)
Total electric utility plant - net
29,617

 
28,952

CURRENT ASSETS
 

 
 

Cash and cash equivalents
38

 
19

Customer receivables, net of allowances of $4 and $5, respectively
706

 
757

Other receivables
111

 
137

Materials, supplies and fossil fuel inventory
764

 
742

Regulatory assets:
 

 
 

Deferred clause and franchise expenses
166

 
192

Other
107

 
105

Other
237

 
261

Total current assets
2,129

 
2,213

OTHER ASSETS
 

 
 

Special use funds
3,327

 
3,273

Prepaid benefit costs
1,154

 
1,142

Regulatory assets:
 

 
 

Securitized storm-recovery costs ($220 and $228 related to a VIE, respectively)
358

 
372

Other
407

 
396

Other
197

 
140

Total other assets
5,443

 
5,323

TOTAL ASSETS
$
37,189

 
$
36,488

CAPITALIZATION
 

 
 

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

 
$
1,373

Additional paid-in capital
6,278

 
6,179

Retained earnings
5,879

 
5,532

Total common shareholder's equity
13,530

 
13,084

Long-term debt ($300 and $331 related to a VIE, respectively)
8,443

 
8,473

Total capitalization
21,973

 
21,557

CURRENT LIABILITIES
 

 
 

Commercial paper
324

 
204

Current maturities of long-term debt
358

 
356

Accounts payable
691

 
611

Customer deposits
447

 
447

Accrued interest and taxes
382

 
272

Accrued construction-related expenditures
150

 
202

Other
419

 
438

Total current liabilities
2,771

 
2,530

OTHER LIABILITIES AND DEFERRED CREDITS
 

 
 

Asset retirement obligations
1,302

 
1,285

Deferred income taxes
6,444

 
6,355

Regulatory liabilities:
 

 
 

Accrued asset removal costs
1,722

 
1,839

Asset retirement obligation regulatory expense difference
2,122

 
2,082

Other
387

 
386

Other
468

 
454

Total other liabilities and deferred credits
12,445

 
12,401

COMMITMENTS AND CONTINGENCIES


 


TOTAL CAPITALIZATION AND LIABILITIES
$
37,189

 
$
36,488



This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2013 Form 10-K.

11

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

 
Three Months Ended 
 March 31,
 
2014
 
2013
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
Net income
$
347

 
$
288

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

 
 

Depreciation and amortization
209

 
181

Nuclear fuel and other amortization
47

 
34

Deferred income taxes
168

 
238

Allowance for equity funds used during construction
(15
)
 
(18
)
Other - net
10

 
23

Changes in operating assets and liabilities:
 

 
 

Customer and other receivables
68

 
106

Materials, supplies and fossil fuel inventory
(22
)
 
(2
)
Other current assets
(18
)
 
(17
)
Other assets
(69
)
 
(10
)
Accounts payable and customer deposits
91

 
74

Income taxes
31

 
(66
)
Interest and other taxes
95

 
81

Other current liabilities
(94
)
 
(127
)
Other liabilities
27

 
(9
)
Net cash provided by operating activities
875

 
776

CASH FLOWS FROM INVESTING ACTIVITIES
 

 
 

Capital expenditures
(999
)
 
(810
)
Nuclear fuel purchases
(68
)
 
(11
)
Proceeds from sale or maturity of securities in special use funds
1,162

 
685

Purchases of securities in special use funds
(1,184
)
 
(701
)
Other - net
22

 
(1
)
Net cash used in investing activities
(1,067
)
 
(838
)
CASH FLOWS FROM FINANCING ACTIVITIES
 

 
 

Retirements of long-term debt
(29
)
 
(427
)
Net change in short-term debt
120

 
800

Capital contribution from NEE
100

 
—

Dividends to NEE
—

 
(340
)
Other - net
20

 
24

Net cash provided by financing activities
211

 
57

Net increase (decrease) in cash and cash equivalents
19

 
(5
)
Cash and cash equivalents at beginning of period
19

 
40

Cash and cash equivalents at end of period
$
38

 
$
35

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 

 
 

Accrued property additions
$
317

 
$
339









This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2013 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 2013 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. See Note 3 - Nonrecurring Fair Value Measurements for a discussion of the decision not to pursue the sale of NEER's ownership interests in oil-fired generating plants located in Maine with a total generating capacity of 796 megawatts (MW) (Maine fossil) and the related financial statement impacts. 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
 
Three Months Ended 
 March 31,
 
Three Months Ended 
 March 31,
 
2014
 
2013
 
2014
 
2013
 
(millions)
Service cost
$
16

 
$
18

 
$
1

 
$
1

Interest cost
25

 
24

 
4

 
4

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

 
—

Amortization of prior service cost (benefit)
1

 
2

 
(1
)
 
(1
)
Amortization of losses
—

 
1

 
—

 
1

Net periodic benefit (income) cost at NEE
$
(18
)
 
$
(15
)
 
$
4

 
$
5

Net periodic benefit (income) cost at FPL
$
(11
)
 
$
(10
)
 
$
3

 
$
3


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 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, including supply/demand imbalances, changes in traditional flows of energy, changes in short- and long-term weather patterns and anticipated regulatory and legislative outcomes.  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).  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 9 - Spain Solar Projects).  At March 31, 2014, 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 $61 million of net losses included in AOCI at March 31, 2014 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.


14

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


Fair Value of Derivative Instruments - The tables below present NEE's and FPL's gross derivative positions at March 31, 2014 and December 31, 2013, as required by disclosure rules.  However, the majority of the underlying contracts are subject to master netting agreements and generally would not be contractually settled on a gross basis.  Therefore, the tables below also present the derivative positions on a net basis, 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), as well as the location of the net derivative position on the condensed consolidated balance sheets.

 
March 31, 2014
 
Fair Values of Derivatives
Designated as Hedging
Instruments for Accounting
Purposes - Gross Basis
 
Fair Values of Derivatives Not
Designated as Hedging
Instruments for Accounting
Purposes - Gross Basis
 
Total Derivatives Combined -
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
—

 
$
—

 
$
4,553

 
$
3,705

 
$
1,441

 
$
834

Interest rate contracts
76

 
125

 
—

 
108

 
76

 
233

Foreign currency swaps
—

 
49

 
—

 
95

 
—

 
144

Total fair values
$
76

 
$
174

 
$
4,553

 
$
3,908

 
$
1,517

 
$
1,211

 
 
 
 
 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
—

 
$
—

 
$
123

 
$
3

 
$
130

 
$
10

 
 
 
 
 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
 
 
 
 
$
533

 
 
Noncurrent derivative assets(b)
 
 
 
 
 
 
 
 
984

 
 
Current derivative liabilities
 
 
 
 
 
 
 
 
 
 
$
815

Noncurrent derivative liabilities(c)
 
 
 
 
 
 
 
 
 
 
396

Total derivatives
 
 
 
 
 
 
 
 
$
1,517

 
$
1,211

 
 
 
 
 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
 
 
 
 
Current other assets
 
 
 
 
 
 
 
 
$
129

 
 
Noncurrent other assets
 
 
 
 
 
 
 
 
1

 
 
Noncurrent other liabilities
 
 
 
 
 
 
 
 
 
 
$
10

Total derivatives
 
 
 
 
 
 
 
 
$
130

 
$
10

______________________
(a)
Reflects the netting of approximately $165 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $88 million in margin cash collateral received from counterparties.
(c)
Reflects the netting of approximately $12 million in margin cash collateral provided to counterparties.


15

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


 
December 31, 2013
 
Fair Values of Derivatives
Designated as Hedging
Instruments for Accounting
Purposes - Gross Basis
 
Fair Values of Derivatives Not
Designated as Hedging
Instruments for Accounting
Purposes - Gross Basis
 
Total Derivatives Combined -
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
—

 
$
—

 
$
4,543

 
$
3,633

 
$
1,571

 
$
940

Interest rate contracts
89

 
127

 
1

 
93

 
90

 
220

Foreign currency swaps
—

 
50

 
—

 
101

 
—

 
151

Total fair values
$
89

 
$
177

 
$
4,544

 
$
3,827

 
$
1,661

 
$
1,311

 
 
 
 
 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
—

 
$
—

 
$
55

 
$
9

 
$
48

 
$
2

 
 
 
 
 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
 
 
 
 
$
498

 
 
Noncurrent derivative assets(b)
 
 
 
 
 
 
 
 
1,163

 
 
Current derivative liabilities
 
 
 
 
 
 
 
 
 
 
$
838

Noncurrent derivative liabilities
 
 
 
 
 
 
 
 
 
 
473

Total derivatives
 
 
 
 
 
 
 
 
$
1,661

 
$
1,311

 
 
 
 
 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
 
 
 
 
Current other assets
 
 
 
 
 
 
 
 
$
48

 
 
Current other liabilities
 
 
 
 
 
 
 
 
 
 
$
1

Noncurrent other liabilities
 
 
 
 
 
 
 
 
 
 
1

Total derivatives
 
 
 
 
 
 
 
 
$
48

 
$
2

______________________
(a)
Reflects the netting of approximately $181 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $98 million in margin cash collateral received from counterparties.


At March 31, 2014 and December 31, 2013, NEE had approximately $45 million and $24 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 March 31, 2014 and December 31, 2013, NEE had approximately $109 million and $42 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative assets or liabilities in the above presentation.  These amounts are included in current other assets on NEE's condensed consolidated balance sheets.

Income Statement Impact of Derivative Instruments - 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 March 31,
 
2014
 
2013
 
Interest
Rate
Contracts
 
Foreign
Currency
Swaps
 
Total
 
Interest
Rate
Contracts
 
Foreign
Currency
Swaps
 
Total
 
(millions)
Gains (losses) recognized in OCI
$
(27
)
 
$
(2
)
 
$
(29
)
 
$
100

 
$
(8
)
 
$
92

Gains (losses) reclassified from AOCI to net income
$
(16
)
(a) 
$
2

(b) 
$
(14
)
 
$
(15
)
(a) 
$
(19
)
(b) 
$
(34
)
————————————
(a)
Included in interest expense.
(b)
Loss of approximately $1 million is included in interest expense and the balance is included in other - net.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the three months ended March 31, 2014 and 2013, NEE recorded a gain of approximately $4 million and a loss of $9 million, respectively, on fair value hedges which resulted in a corresponding increase and decrease, respectively, in the related debt.


16

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


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 
 March 31,
 
2014
 
2013
 
(millions)
Commodity contracts:(a)
 
 
 
Operating revenues
$
(272
)
 
$
(42
)
Fuel, purchased power and interchange
(4
)
 
3

Foreign currency swap - other - net
5


(32
)
Interest rate contracts - interest expense
(27
)
 
—

Total
$
(298
)
 
$
(71
)
————————————
(a)
For the three months ended March 31, 2014 and 2013, FPL recorded approximately $136 million and $144 million of gains, respectively, related to commodity contracts as regulatory liabilities on its condensed consolidated balance sheets.  

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:

 
 
March 31, 2014
 
December 31, 2013
Commodity Type
 
NEE
 
FPL
 
NEE
 
FPL
 
 
(millions)
Power
 
(111
)
 
MWh(a)
 
—

 
 
 
(276
)
 
MWh(a)
 
—

 
 
Natural gas
 
1,333

 
MMBtu(b)
 
937

 
MMBtu(b)
 
1,140

 
MMBtu(b)
 
674

 
MMBtu(b)
Oil
 
(9
)
 
barrels
 
—

 
 
 
(10
)
 
barrels
 
—

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

At March 31, 2014 and December 31, 2013, NEE had interest rate contracts with a notional amount totaling approximately $6.8 billion and $6.5 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 March 31, 2014 and December 31, 2013, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $1.8 billion ($4 million for FPL) and $2.1 billion ($9 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 March 31, 2014 and $400 million ($20 million at FPL) as of December 31, 2013.  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 ($0.4 billion at FPL) and $2.3 billion ($0.4 billion at FPL) as of March 31, 2014 and December 31, 2013, respectively.  Some contracts do not contain credit ratings downgrade triggers, but do contain

17

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


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 $800 million ($200 million at FPL) and $800 million ($150 million at FPL) as of March 31, 2014 and December 31, 2013, respectively.

Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business.  At March 31, 2014 and December 31, 2013, applicable NEE subsidiaries have posted approximately $73 million (none at FPL) and $210 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.

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 primarily holds 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.


18

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


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.

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.


19

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


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:

 
March 31, 2014
 
 
Level 1
 
Level 2
 
Level 3
 
Netting(a)
 
Total
 
 
(millions)
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
NEE - equity securities
$
84

 
$
—

 
$
—

 
$
—

 
$
84

 
Special use funds:(b)
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
1,235

 
$
1,290

(c) 
$
—

 
$
—

 
$
2,525

 
U.S. Government and municipal bonds
$
617

 
$
166

 
$
—

 
$
—

 
$
783

 
Corporate debt securities
$
—

 
$
612

 
$
—

 
$
—

 
$
612

 
Mortgage-backed securities
$
—

 
$
514

 
$
—

 
$
—

 
$
514

 
Other debt securities
$
25

 
$
44

 
$
—

 
$
—

 
$
69

 
FPL:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
366

 
$
1,128

(c) 
$
—

 
$
—

 
$
1,494

 
U.S. Government and municipal bonds
$
520

 
$
147

 
$
—

 
$
—

 
$
667

 
Corporate debt securities
$
—

 
$
427

 
$
—

 
$
—

 
$
427

 
Mortgage-backed securities
$
—

 
$
438

 
$
—

 
$
—

 
$
438

 
Other debt securities
$
25

 
$
25

 
$
—

 
$
—

 
$
50

 
Other investments:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
44

 
$
—

 
$
—

 
$
—

 
$
44

 
Debt securities
$
21

 
$
103

 
$
—

 
$
—

 
$
124

 
Derivatives:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
1,529

 
$
1,989

 
$
1,035

 
$
(3,112
)
 
$
1,441

(d) 
Interest rate contracts
$
—

 
$
76

 
$
—

 
$
—

 
$
76

(d) 
FPL - commodity contracts
$
—

 
$
119

 
$
4

 
$
7

 
$
130

(d) 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
1,434

 
$
1,804

 
$
467

 
$
(2,871
)
 
$
834

(d) 
Interest rate contracts
$
—

 
$
125

 
$
108

 
$
—

 
$
233

(d) 
Foreign currency swaps
$
—

 
$
144

 
$
—

 
$
—

 
$
144

(d) 
FPL - commodity contracts
$
—

 
$
2

 
$
1

 
$
7

 
$
10

(d) 
————————————
(a)
Includes the effect of the contractual ability to settle contracts under master netting arrangements and margin cash collateral payments and receipts.  NEE and FPL also have contract settlement receivable and payable balances that are subject to the master netting arrangements but are not offset within the condensed consolidated balance sheets and are recorded in customer receivables - net and accounts payable, respectively.
(b)
Excludes investments accounted for under the equity method and loans not measured at fair value on a recurring basis. See Fair Value of Financial Instruments Recorded at the Carrying Amount below.
(c)
Invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.
(d)
See Note 2 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's condensed consolidated balance sheets.


20

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


 
December 31, 2013
 
 
Level 1
 
Level 2
 
Level 3
 
Netting(a)
 
Total
 
 
(millions)
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
NEE - equity securities
$
20

 
$
—

 
$
—

 
$
—

 
$
20

 
Special use funds:(b)
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
1,170

 
$
1,336

(c) 
$
—

 
$
—

 
$
2,506

 
U.S. Government and municipal bonds
$
647

 
$
180

 
$
—

 
$
—

 
$
827

 
Corporate debt securities
$
—

 
$
597

 
$
—

 
$
—

 
$
597

 
Mortgage-backed securities
$
—

 
$
479

 
$
—

 
$
—

 
$
479

 
Other debt securities
$
16

 
$
44

 
$
—

 
$
—

 
$
60

 
FPL:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
291

 
$
1,176

(c) 
$
—

 
$
—

 
$
1,467

 
U.S. Government and municipal bonds
$
584

 
$
154

 
$
—

 
$
—

 
$
738

 
Corporate debt securities
$
—

 
$
421

 
$
—

 
$
—

 
$
421

 
Mortgage-backed securities
$
—

 
$
401

 
$
—

 
$
—

 
$
401

 
Other debt securities
$
16

 
$
30

 
$
—

 
$
—

 
$
46

 
Other investments:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
51

 
$
—

 
$
—

 
$
—

 
$
51

 
Debt securities
$
11

 
$
107

 
$
—

 
$
—

 
$
118

 
Derivatives:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
1,368

 
$
2,106

 
$
1,069

 
$
(2,972
)
 
$
1,571

(d) 
Interest rate contracts
$
—

 
$
90

 
$
—

 
$
—

 
$
90

(d) 
FPL - commodity contracts
$
—

 
$
53

 
$
2

 
$
(7
)
 
$
48

(d) 
Liabilities:
 
 
 
 
 
 
 
 
 
 
Derivatives:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
1,285

 
$
1,994

 
$
354

 
$
(2,693
)
 
$
940

(d) 
Interest rate contracts
$
—

 
$
127

 
$
93

 
$
—

 
$
220