10-Q 1 nee10q3q2018singlesource.htm 10-Q Document
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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, 2018

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 ¨                                                                     Florida Power & Light Company    Yes þ    No ¨

Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months.
NextEra Energy, Inc.    Yes þ    No ¨                                                                     Florida Power & Light Company    Yes þ    No ¨

Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
NextEra Energy, Inc.
Large Accelerated Filer þ
Accelerated Filer ¨
Non-Accelerated Filer ¨
Smaller Reporting Company ¨
Emerging Growth Company ¨
Florida Power & Light Company
Large Accelerated Filer ¨
Accelerated Filer ¨
Non-Accelerated Filer þ
Smaller Reporting Company ¨
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. o

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

Number of shares of NextEra Energy, Inc. common stock, $0.01 par value, outstanding at September 30, 2018477,945,257

Number of shares of Florida Power & Light Company common stock, without par value, outstanding at September 30, 2018, all of which were held, beneficially and of record, by NextEra Energy, Inc.: 1,000

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.




DEFINITIONS

Acronyms and defined terms used in the text include the following:

Term
Meaning
AFUDC
allowance for funds used during construction
AFUDC - equity
equity component of AFUDC
AOCI
accumulated other comprehensive income
capacity clause
capacity cost recovery clause, as established by the FPSC
Duane Arnold
Duane Arnold Energy Center
EPA
U.S. Environmental Protection Agency
FASB
Financial Accounting Standards Board
FERC
U.S. Federal Energy Regulatory Commission
Florida Southeast Connection
Florida Southeast Connection, LLC, a wholly owned NEER subsidiary
FPL
Florida Power & Light Company
FPSC
Florida Public Service Commission
fuel clause
fuel and purchased power cost recovery clause, as established by the FPSC
GAAP
generally accepted accounting principles in the U.S.
ISO
independent system operator
ITC
investment tax credit
kWh
kilowatt-hour(s)
Management's Discussion
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
MMBtu
One million British thermal units
MW
megawatt(s)
MWh
megawatt-hour(s)
NEE
NextEra Energy, Inc.
NEECH
NextEra Energy Capital Holdings, Inc.
NEER
NextEra Energy Resources, LLC
NEET
NextEra Energy Transmission, LLC
NEP
NextEra Energy Partners, LP
NEP OpCo
NextEra Energy Operating Partners, LP
Note __
Note __ to condensed consolidated financial statements
NRC
U.S. Nuclear Regulatory Commission
O&M expenses
other operations and maintenance expenses in the condensed consolidated statements of income
OCI
other comprehensive income
OTC
over-the-counter
OTTI
other than temporary impairment
PTC
production tax credit
PV
photovoltaic
Recovery Act
American Recovery and Reinvestment Act of 2009, as amended
regulatory ROE
return on common equity as determined for regulatory purposes
Sabal Trail
Sabal Trail Transmission, LLC, an entity in which a wholly owned NEER subsidiary has a 42.5% ownership interest
Seabrook
Seabrook Station
SEC
U.S. Securities and Exchange Commission
tax reform
Tax Cuts and Jobs Act
U.S.
United States of America

NEE, FPL, NEECH and NEER each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, NextEra, FPL Group, FPL Group Capital, FPL Energy, FPLE, NEP 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


TABLE OF CONTENTS





3


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 NEE's and/or FPL's 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 a reasonable return on invested 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 FPSC.
Any reductions or modifications to, or the elimination of, governmental incentives or policies that support utility scale renewable energy, including, but not limited to, tax laws, policies and incentives, renewable portfolio standards, feed-in tariffs or the EPA's final rule under Section 111(d) of the Clean Air Act, 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 and/or financing of new renewable energy projects, 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, interpretations or other regulatory initiatives.
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 and businesses 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, guidance or policies, including but not limited to changes in corporate income tax rates, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could materially 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.
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.

4


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.
NEE invests in gas and oil producing and transmission assets through NEER’s gas infrastructure business. The gas infrastructure business is exposed to fluctuating market prices of natural gas, natural gas liquids, oil and other energy commodities. A prolonged period of low gas and oil prices could impact NEER’s gas infrastructure business and cause NEER to delay or cancel certain gas infrastructure projects and for certain existing projects to be impaired, which could materially adversely affect NEE's results of operations.
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.
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 have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL.
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.
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.


5


Nuclear Generation Risks
The 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 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.
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 and/or result in reduced revenues.
The inability to operate any of NEE'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.
NEE's and FPL's nuclear units are periodically removed from service to accommodate planned 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 materially adversely affect the results of operations and financial condition of NEE and FPL.
NEE's, NEECH's and FPL's inability to maintain their current credit ratings may materially 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 credit providers 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, financial condition 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 condition 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.
NEP may not be able to access sources of capital on commercially reasonable terms, which would have a material adverse effect on its ability to consummate future acquisitions and on the value of NEE’s limited partner interest in NEP OpCo.
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, 2017 (2017 Form 10-K), and investors should refer to that section of the 2017 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 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' or affiliates' 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.

6


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,
 
 
2018
 
2017(a)
 
2018
 
2017(a)
OPERATING REVENUES
 
$
4,418

 
$
4,808

 
$
12,351

 
$
13,185

OPERATING EXPENSES (INCOME)
 
 
 
 
 
 
 
 
Fuel, purchased power and interchange
 
1,083

 
1,176

 
2,796

 
3,093

Other operations and maintenance
 
834

 
817

 
2,460

 
2,501

Merger-related
 
13

 
2

 
13

 
17

Depreciation and amortization
 
1,131

 
1,070

 
2,819

 
2,576

Losses (gains) on disposal of a business/assets - net
 
(9
)
 
(5
)
 
(64
)
 
(1,106
)
Taxes other than income taxes and other - net
 
396

 
397

 
1,148

 
1,115

Total operating expenses - net
 
3,448

 
3,457

 
9,172

 
8,196

OPERATING INCOME
 
970

 
1,351

 
3,179

 
4,989

OTHER INCOME (DEDUCTIONS)
 
 
 
 
 
 
 
 
Interest expense
 
(167
)
 
(381
)
 
(787
)
 
(1,171
)
Benefits associated with differential membership interests - net
 

 
67

 

 
311

Equity in earnings of equity method investees
 
122

 
56

 
372

 
153

Allowance for equity funds used during construction
 
24

 
21

 
68

 
68

Interest income
 
11

 
20

 
39

 
59

Gain on NEP deconsolidation
 

 

 
3,935

 

Gains on disposal of investments and other property - net
 
31

 
15

 
83

 
64

Change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds - net
 
30

 

 
22

 

Other net periodic benefit income
 
37

 
48

 
139

 
101

Other - net
 
11

 
23

 
30

 
7

Total other income (deductions) - net
 
99

 
(131
)
 
3,901

 
(408
)
INCOME BEFORE INCOME TAXES
 
1,069

 
1,220

 
7,080

 
4,581

INCOME TAXES
 
126

 
364

 
1,605

 
1,329

NET INCOME
 
943

 
856

 
5,475

 
3,252

NET (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
64

 
(9
)

754

 
(29
)
NET INCOME ATTRIBUTABLE TO NEE
 
$
1,007

 
$
847

 
$
6,229


$
3,223

Earnings per share attributable to NEE:
 
 
 
 
 
 
 
 
Basic
 
$
2.13

 
$
1.80

 
$
13.21

 
$
6.88

Assuming dilution
 
$
2.10


$
1.79

 
$
13.03

 
$
6.83

Dividends per share of common stock
 
$
1.11

 
$
0.9825

 
$
3.33

 
$
2.9475

Weighted-average number of common shares outstanding:
 
 
 
 
 
 
 
 

Basic
 
473.1

 
469.4

 
471.7

 
468.3

Assuming dilution
 
477.4

 
473.5

 
475.6

 
472.0

———————————————
 
 
 
 
 
 
 
 
(a)    Prior period amounts have been retrospectively adjusted as discussed in Note 3 - Amendments to Presentation of Retirement Benefits.




This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

7




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

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
NET INCOME
$
943

 
$
856

 
$
5,475

 
$
3,252

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX
 
 
 
 
 
 
 
Reclassification of unrealized losses on cash flow hedges from accumulated other comprehensive income (loss) to net income (net of $2, $4, $7 and $9 tax expense, respectively)
7

 
10

 
21

 
24

Net unrealized gains (losses) on available for sale securities:
 
 
 
 
 
 
 
Net unrealized gains (losses) on securities still held (net of $1 tax benefit, $23 tax expense, $5 tax benefit and $68 tax expense, respectively)
(2
)
 
31

 
(11
)
 
91

Reclassification from accumulated other comprehensive income (loss) to net income (net of less than $1 tax expense, $4, $1 and $15 tax benefit, respectively)

 
(6
)
 

 
(23
)
Defined benefit pension and other benefits plans (net of less than $1, less than $1, and $1 tax benefit and $4 tax expense, respectively)
(1
)
 
(1
)
 
(4
)
 
6

Net unrealized gains (losses) on foreign currency translation (net of $0, less than $1, $0 and $1 tax expense, respectively)
10

 
10

 
(10
)
 
30

Other comprehensive income related to equity method investees (net of less than $1, less than $1, $1 and less than $1 tax expense, respectively)
1

 
1

 
5

 
1

Total other comprehensive income, net of tax
15

 
45

 
1

 
129

IMPACT OF NEP DECONSOLIDATION (NET OF $15 TAX EXPENSE)

 

 
58

 

COMPREHENSIVE INCOME
958


901


5,534

 
3,381

COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
64

 
(9
)
 
754

 
(40
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NEE
$
1,022

 
$
892

 
$
6,288

 
$
3,341




This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

8


NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except par value)
(unaudited)
 
 
September 30,
2018
 
December 31,
2017
PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
Electric plant in service and other property
 
$
79,716

 
$
85,337

Nuclear fuel
 
1,901

 
1,767

Construction work in progress
 
8,708

 
6,679

Accumulated depreciation and amortization
 
(21,753
)
 
(21,367
)
Total property, plant and equipment - net ($9,686 and $16,485 related to VIEs, respectively)
 
68,572

 
72,416

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents
 
497

 
1,714

Customer receivables, net of allowances of $12 and $7, respectively
 
2,454

 
2,220

Other receivables
 
665

 
517

Materials, supplies and fossil fuel inventory
 
1,083

 
1,273

Regulatory assets ($61 and $71 related to a VIE, respectively)
 
399

 
336

Derivatives
 
463

 
489

Assets held for sale
 
2,270

 
140

Other
 
518

 
468

Total current assets
 
8,349

 
7,157

OTHER ASSETS
 
 

 
 

Special use funds
 
6,361

 
6,003

Investment in equity method investees
 
6,493

 
2,321

Prepaid benefit costs
 
1,509

 
1,427

Regulatory assets ($37 related to a VIE at December 31, 2017)
 
2,396

 
2,469

Derivatives
 
1,375

 
1,315

Other ($470 related to a VIE at December 31, 2017)
 
3,548

 
4,719

Total other assets
 
21,682

 
18,254

TOTAL ASSETS
 
$
98,603

 
$
97,827

CAPITALIZATION
 
 

 
 

Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 478 and 471, respectively)
 
$
5

 
$
5

Additional paid-in capital
 
10,470

 
9,100

Retained earnings
 
23,935

 
18,992

Accumulated other comprehensive income (loss)
 
(158
)
 
111

Total common shareholders' equity
 
34,252

 
28,208

Noncontrolling interests ($3,080 and $1,006 related to VIEs, respectively)
 
3,086

 
1,290

Total equity
 
37,338

 
29,498

Long-term debt ($1,020 and $5,941 related to VIEs, respectively)
 
27,048

 
31,463

Total capitalization
 
64,386

 
60,961

CURRENT LIABILITIES
 
 

 
 

Commercial paper
 
2,460

 
1,687

Other short-term debt
 
430

 
255

Current maturities of long-term debt ($74 and $70 related to a VIE, respectively)
 
2,649

 
1,676

Accounts payable
 
3,000

 
3,235

Customer deposits
 
448

 
448

Accrued interest and taxes
 
931

 
622

Derivatives
 
483

 
364

Accrued construction-related expenditures
 
905

 
1,033

Regulatory liabilities
 
396

 
346

Other
 
1,105

 
1,566

Total current liabilities
 
12,807

 
11,232

OTHER LIABILITIES AND DEFERRED CREDITS
 
 

 
 

Asset retirement obligations
 
3,065

 
3,031

Deferred income taxes
 
7,420

 
5,754

Regulatory liabilities
 
9,189

 
8,765

Derivatives
 
522

 
535

Deferral related to differential membership interests - VIEs
 

 
5,403

Other
 
1,214

 
2,146

Total other liabilities and deferred credits
 
21,410

 
25,634

COMMITMENTS AND CONTINGENCIES
 


 


TOTAL CAPITALIZATION AND LIABILITIES
 
$
98,603

 
$
97,827




This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

9




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


 
Nine Months Ended September 30,
 
 
2018
 
2017(a)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
5,475

 
$
3,252

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
2,819

 
2,576

Nuclear fuel and other amortization
 
176

 
210

Unrealized losses on marked to market derivative contracts - net
 
88

 
45

Foreign currency transaction gains
 
(5
)
 
(23
)
Deferred income taxes
 
1,555

 
1,316

Cost recovery clauses and franchise fees
 
(79
)
 
61

Acquisition of purchased power agreement
 
(52
)
 
(243
)
Benefits associated with differential membership interests - net
 

 
(311
)
Gains on disposal of a business/assets - net
 
(147
)
 
(1,170
)
Gain on NEP deconsolidation
 
(3,935
)
 

Recoverable storm-related costs
 

 
(334
)
Other - net
 
(133
)
 
116

Changes in operating assets and liabilities:
 
 
 
 
Current assets
 
(713
)
 
(545
)
Noncurrent assets
 
(97
)
 
(77
)
Current liabilities
 
227

 
444

Noncurrent liabilities
 
46

 
12

Net cash provided by operating activities
 
5,225

 
5,329

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures of FPL
 
(3,493
)
 
(3,676
)
Independent power and other investments of NEER
 
(4,825
)
 
(4,678
)
Nuclear fuel purchases
 
(217
)
 
(175
)
Other capital expenditures and other investments
 
(722
)
 
(58
)
Proceeds from sale of the fiber-optic telecommunications business
 

 
1,482

Sale of independent power and other investments of NEER
 
327

 
159

Proceeds from sale or maturity of securities in special use funds and other investments
 
2,579

 
2,059

Purchases of securities in special use funds and other investments
 
(2,860
)
 
(2,146
)
Distributions from equity method investees
 
637

 
7

Other - net
 
13

 
175

Net cash used in investing activities
 
(8,561
)
 
(6,851
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Issuances of long-term debt
 
4,028

 
5,196

Retirements of long-term debt
 
(2,593
)
 
(3,892
)
Proceeds from differential membership investors
 
103

 
340

Net change in commercial paper
 
773

 
1,806

Proceeds from other short-term debt
 
625

 
200

Repayments of other short-term debt
 
(450
)
 
(2
)
Payments from related parties under CSCS agreement – net
 
720

 

Issuances of common stock - net
 
714

 
36

Dividends on common stock
 
(1,570
)
 
(1,382
)
Other - net
 
(275
)
 
(540
)
Net cash provided by financing activities
 
2,075

 
1,762

Effects of currency translation on cash, cash equivalents and restricted cash
 
(1
)
 

Net increase (decrease) in cash, cash equivalents and restricted cash
 
(1,262
)
 
240

Cash, cash equivalents and restricted cash at beginning of period
 
1,983

 
1,529

Cash, cash equivalents and restricted cash at end of period
 
$
721

 
$
1,769

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
 
Accrued property additions
 
$
1,963

 
$
2,036

Increase in property, plant and equipment - net as a result of cash grants primarily under the Recovery Act
 
$

 
$
(145
)
Decrease (increase) in property, plant and equipment - net as a result of a settlement/noncash exchange
 
$
3

 
$
(92
)
———————————————
 
 
 
 
(a) Prior period amounts have been retrospectively adjusted as discussed in Note 11 - Restricted Cash.
 
 
 
 

This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

10




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

 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Common
Shareholders'
Equity
 
Non-
controlling
Interests
 
Total
Equity
 
Shares
 
Aggregate
Par Value
 
Balances, December 31, 2017
471

 
$
5

 
$
9,100

 
$
111

 
$
18,992

 
$
28,208

 
$
1,290

 
$
29,498

Net income (loss)

 

 

 

 
6,229

 
6,229

 
(754
)
 
 
Issuances of common stock, net of issuance cost of less than $1
6

 

 
700

 

 

 
700

 

 
 
Share-based payment activity
1

 

 
82

 

 

 
82

 

 
 
Dividends on common stock

 

 

 

 
(1,570
)
 
(1,570
)
 

 
 
Other comprehensive income

 

 

 
1

 

 
1

 

 
 
Impact of NEP deconsolidation(a)

 

 

 
58

 

 
58

 
(2,695
)
 
 
Adoption of accounting standards updates(b)

 

 
593

 
(328
)
 
285

 
550

 
5,303

 
 
Other

 

 
(5
)
 

 
(1
)
 
(6
)
 
(58
)
 
 
Balances, September 30, 2018
478

 
$
5

 
$
10,470

 
$
(158
)
 
$
23,935

 
$
34,252

 
$
3,086

 
$
37,338

———————————————
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(a) See Note 2.
(b) See Notes 1, 5 - Financial Instruments Accounting Standards Update, 6 and 11 - Accounting for Partial Sales of Nonfinancial Assets.


 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained
Earnings
 
Total
Common
Shareholders'
Equity
 
Non-
controlling
Interests
 
Total
Equity
 
Shares
 
Aggregate
Par Value
 
Balances, December 31, 2016
468

 
$
5

 
$
8,948

 
$
(70
)
 
$
15,458

 
$
24,341

 
$
990

 
$
25,331

Net income

 

 

 

 
3,223

 
3,223

 
29

 
 
Issuances of common stock, net of issuance cost of less than $1
2

 

 
24

 

 

 
24

 

 
 
Share-based payment activity

 

 
77

 

 

 
77

 

 
 
Dividends on common stock

 

 

 

 
(1,382
)
 
(1,382
)
 

 
 
Other comprehensive income

 

 

 
118

 

 
118

 
11

 
 
Sale of NEER assets to NEP

 

 

 

 

 

 
(17
)
 
 
Other

 

 
(3
)
 

 

 
(3
)
 
(90
)
 
 
Balances, September 30, 2017
470

 
$
5

 
$
9,046

 
$
48

 
$
17,299

 
$
26,398

 
$
923

 
$
27,321




















This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

11




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

 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
OPERATING REVENUES
 
$
3,399

 
$
3,477

 
$
8,927

 
$
9,095

OPERATING EXPENSES (INCOME)
 
 

 
 

 
 

 
 
Fuel, purchased power and interchange
 
941

 
1,036

 
2,418

 
2,696

Other operations and maintenance
 
385

 
362

 
1,119

 
1,137

Depreciation and amortization
 
804

 
704

 
1,860

 
1,514

Taxes other than income taxes and other - net
 
352

 
353

 
984

 
975

Total operating expenses - net
 
2,482

 
2,455

 
6,381

 
6,322

OPERATING INCOME
 
917

 
1,022

 
2,546

 
2,773

OTHER INCOME (DEDUCTIONS)
 
 

 
 

 
 

 
 
Interest expense
 
(136
)
 
(121
)
 
(411
)
 
(360
)
Allowance for equity funds used during construction
 
23

 
20

 
64

 
55

Other - net
 
2

 
1

 
5

 
2

Total other deductions - net
 
(111
)
 
(100
)
 
(342
)
 
(303
)
INCOME BEFORE INCOME TAXES
 
806

 
922

 
2,204

 
2,470

INCOME TAXES
 
152

 
356

 
440

 
933

NET INCOME(a)
 
$
654

 
$
566

 
$
1,764

 
$
1,537

_______________________
(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 2017 Form 10-K.

12




FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amount)
(unaudited)
 
 
September 30,
2018
 
December 31,
2017
ELECTRIC UTILITY PLANT AND OTHER PROPERTY
 
 
 
 
Plant in service and other property
 
$
49,479

 
$
47,167

Nuclear fuel
 
1,221

 
1,192

Construction work in progress
 
3,778

 
3,623

Accumulated depreciation and amortization
 
(13,326
)
 
(12,802
)
Total electric utility plant and other property - net
 
41,152

 
39,180

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents
 
103

 
33

Customer receivables, net of allowances of $5 and $2, respectively
 
1,372

 
1,073

Other receivables
 
233

 
160

Materials, supplies and fossil fuel inventory
 
698

 
840

Regulatory assets ($61 and $71 related to a VIE, respectively)
 
399

 
335

Other
 
232

 
243

Total current assets
 
3,037

 
2,684

OTHER ASSETS
 
 

 
 

Special use funds
 
4,364

 
4,090

Prepaid benefit costs
 
1,402

 
1,351

Regulatory assets ($37 related to a VIE at December 31, 2017)
 
2,168

 
2,249

Other
 
855

 
690

Total other assets
 
8,789

 
8,380

TOTAL ASSETS
 
$
52,978

 
$
50,244

CAPITALIZATION
 
 

 
 

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

 
$
1,373

Additional paid-in capital
 
10,603

 
8,291

Retained earnings
 
9,133

 
7,376

Total common shareholder's equity
 
21,109

 
17,040

Long-term debt ($74 related to a VIE at December 31, 2017)
 
11,595

 
11,236

Total capitalization
 
32,704

 
28,276

CURRENT LIABILITIES
 
 

 
 

Commercial paper
 
205

 
1,687

Other short-term debt
 

 
250

Current maturities of long-term debt ($74 and $70 related to a VIE, respectively)
 
96

 
466

Accounts payable
 
756

 
893

Customer deposits
 
445

 
445

Accrued interest and taxes
 
868

 
439

Accrued construction-related expenditures
 
250

 
300

Regulatory liabilities
 
381

 
333

Other
 
502

 
984

Total current liabilities
 
3,503

 
5,797

OTHER LIABILITIES AND DEFERRED CREDITS
 
 

 
 

Asset retirement obligations
 
2,122

 
2,047

Deferred income taxes
 
5,133

 
5,005

Regulatory liabilities
 
9,072

 
8,642

Other
 
444

 
477

Total other liabilities and deferred credits
 
16,771

 
16,171

COMMITMENTS AND CONTINGENCIES
 


 


TOTAL CAPITALIZATION AND LIABILITIES
 
$
52,978

 
$
50,244








This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

13


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

 
 
Nine Months Ended September 30,
 
 
2018
 
2017(a)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
1,764

 
$
1,537

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
1,860

 
1,514

Nuclear fuel and other amortization
 
110

 
153

Deferred income taxes
 
195

 
987

Cost recovery clauses and franchise fees
 
(79
)
 
61

Acquisition of purchased power agreement
 
(52
)
 
(243
)
Recoverable storm-related costs
 

 
(334
)
Other - net
 
34

 
(53
)
Changes in operating assets and liabilities:
 
 
 
 

Current assets
 
(301
)
 
(578
)
Noncurrent assets
 
(14
)
 
(45
)
Current liabilities
 
32

 
507

Noncurrent liabilities
 
(3
)
 
(13
)
Net cash provided by operating activities
 
3,546

 
3,493

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(3,493
)
 
(3,676
)
Nuclear fuel purchases
 
(104
)
 
(104
)
Proceeds from sale or maturity of securities in special use funds
 
1,623

 
1,241

Purchases of securities in special use funds
 
(1,786
)
 
(1,320
)
Other - net
 
205

 
(1
)
Net cash used in investing activities
 
(3,555
)
 
(3,860
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Issuances of long-term debt
 
1,594

 
200

Retirements of long-term debt
 
(1,580
)
 
(73
)
Net change in commercial paper
 
(1,482
)
 
811

Proceeds from other short-term debt
 

 
200

Repayments of other short-term debt
 
(250
)
 
(2
)
Capital contribution from NEE
 
1,786

 

Dividends to NEE
 

 
(800
)
Other - net
 
(28
)
 
(2
)
Net cash provided by financing activities
 
40

 
334

Net decrease in cash, cash equivalents and restricted cash
 
31

 
(33
)
Cash, cash equivalents and restricted cash at beginning of period
 
174

 
153

Cash, cash equivalents and restricted cash at end of period
 
$
205

 
$
120

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 

 
 

Accrued property additions
 
$
460

 
$
400

Decrease (increase) in electric utility plant and other property - net as a result of a noncash exchange
 
$
3

 
$
(96
)
NEE's noncash contribution of a consolidated subsidiary - net
 
$
526

 
$

———————————————
 
 
 
 
 
(a) Prior period amounts have been retrospectively adjusted as discussed in Note 11 - Restricted Cash.
 
 
 
 
 




This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2017 Form 10-K.

14


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 2017 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. The results of operations for an interim period generally will not give a true indication of results for the year.

1.  Revenue from Contracts with Customers

Effective January 1, 2018, NEE and FPL adopted an accounting standards update that provides guidance on the recognition of revenue from contracts with customers and requires additional disclosures regarding such contracts (new revenue standard). Under the new revenue standard, revenue is recognized when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The promised goods or services in the majority of NEE’s contracts with customers under the new revenue standard is, at FPL, for the delivery of electricity based on tariff rates approved by the FPSC and, at NEER, for the delivery of energy commodities and the availability of electric capacity and electric transmission. NEE and FPL adopted the new revenue standard using the modified retrospective approach applying it only to contracts that were not complete at January 1, 2018. On January 1, 2018, NEE recorded a reduction to retained earnings of approximately $25 million representing the cumulative effect of adopting the new revenue standard, which was primarily due to identifying separate performance obligations in certain energy-related contracts at NEER. The cumulative effect of adopting the new revenue standard was not material at FPL. The impact of applying the new revenue standard to NEE’s and FPL's September 30, 2018 financial statements as compared to the prior revenue standard was not material.
FPL and NEER generate substantially all of NEE’s operating revenues, which primarily include revenues from contracts with customers, as well as, at NEER, derivative and lease transactions. For the vast majority of contracts with customers, NEE believes that the obligation to deliver energy, capacity or transmission is satisfied over time as the customer simultaneously receives and consumes benefits as NEE performs. For the three and nine months ended September 30, 2018, NEE’s revenue from contracts with customers was approximately $4.1 billion ($3.4 billion at FPL) and $10.9 billion ($8.9 billion at FPL), respectively. NEE's and FPL's receivables are primarily associated with revenues earned from contracts with customers, as well as, at NEER, derivative and lease transactions, and consist of both billed and unbilled amounts, which are recorded in customer receivables and other receivables on NEE's and FPL's condensed consolidated balance sheets. Receivables represent unconditional rights to consideration and reflect the differences in timing of revenue recognition and cash collections. For substantially all of NEE's and FPL's receivables, regardless of the type of revenue transaction from which the receivable originated, customer and counterparty credit risk is managed in the same manner and the terms and conditions of payment are similar.
 
FPL - FPL’s revenues are derived primarily from tariff-based sales that result from providing electricity to retail customers in Florida with no defined contractual term. Electricity sales to retail customers account for approximately 90% of FPL’s operating revenues, the majority of which is to residential customers. FPL’s retail customers receive a bill monthly based on the amount of monthly kWh usage with payment due monthly. For these types of sales, FPL recognizes revenue as electricity is delivered and billed to customers, as well as an estimate for electricity delivered and not yet billed. The billed and unbilled amounts represent the value of electricity delivered to the customer.
NEER - NEER’s revenue from contracts with customers is derived primarily from the sale of energy commodities, electric capacity and electric transmission. For these types of sales, NEER recognizes revenue as energy commodities are delivered and as electric capacity and electric transmission are made available, consistent with the amounts billed to customers based on rates stipulated in the respective contracts as well as an accrual for amounts earned but not yet billed. The amounts billed and accrued represent the value of energy or transmission delivered and/or the capacity of energy or transmission available to the customer. Revenues yet to be earned under these contracts, which have maturity dates ranging from 2018 to 2043, will vary based on the volume of energy or transmission delivered and/or available. NEER’s customers typically receive bills monthly with payment due within 30 days. Certain contracts with customers contain a fixed price related primarily to electric capacity sales associated with ISO annual auctions through 2020 and certain power purchase agreements with maturity dates through 2034. At September 30, 2018, NEER expects to record approximately $650 million of revenues related to the fixed price components of such contracts over the remaining terms of the related contracts as the capacity is provided.

2.  NEP Deconsolidation

During the third quarter of 2017, changes to NEP's governance structure were made that, among other things, enhanced NEP unitholder governance rights. The new governance structure established a NEP board of directors where NEP unitholders have the ability to nominate and elect board members, subject to certain limitations and requirements. As a result of these governance changes, NEP was deconsolidated from NEE on January 1, 2018, which is when the term of office of the first NEP unitholder-elected directors took effect. NEER continues to operate the projects owned by NEP and provide services to NEP under various related party operations and maintenance, administrative and management services agreements.

15


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


In connection with the deconsolidation, NEE recorded an initial investment in NEP of approximately $4.4 billion based on the fair value of NEP OpCo and NEP common units that were held by subsidiaries of NEE on the deconsolidation date, which investment is included in investment in equity method investees on NEE's condensed consolidated balance sheet at September 30, 2018. The fair value was based on the market price of NEP common units as of January 1, 2018, which resulted in NEE recording a gain of approximately $3.9 billion ($3.0 billion after tax) during the nine months ended September 30, 2018. Total assets of approximately $7.8 billion, primarily property, plant and equipment, total liabilities of approximately $4.8 billion, primarily long-term debt, and total noncontrolling interests of approximately $2.7 billion were removed from NEE's balance sheet as part of the deconsolidation.

During the third quarter 2018, NEP issued approximately $82 million of its common units under its $150 million at-the-market equity issuance program implemented in July 2018, which replaced the prior program, resulting in a decrease in NEE's partnership interest in NEP OpCo. As a result, at September 30, 2018, NEE's equity method investment in NEP represents NEE’s partnership interest in NEP OpCo's operating projects of approximately 64.4% (and NEE’s direct interest in 2.5% of NEP’s common units). The equity method investment in NEP includes approximately $3.3 billion related to NEE’s share of the basis difference between the fair value and the underlying carrying value of NEP’s net assets attributable to NEP OpCo's common unitholders at September 30, 2018, a portion of which is being amortized. Basis difference amounts related to property, plant and equipment, net are being amortized over the remaining useful lives of such property, and amounts related to power purchase agreements are being amortized over the remaining terms of such agreements. The related amortization is included in equity in earnings of equity method investees in NEE's condensed consolidated statements of income.

NEER provides management, administrative and transportation and fuel management services to NEP and its subsidiaries under various agreements (service agreements). NEER is also party to a cash sweep and credit support (CSCS) agreement with a subsidiary of NEP. At September 30, 2018, the cash sweep amount (due to NEP and its subsidiaries) held in accounts belonging to NEER or its subsidiaries was approximately $807 million and is included in accounts payable. Fee income totaling approximately $18 million and $66 million related to the CSCS agreement and the service agreements is included in operating revenues in NEE's condensed consolidated statements of income for the three and nine months ended September 30, 2018, respectively. Amounts due from NEP of approximately $38 million and $21 million at September 30, 2018 are primarily included in other receivables and noncurrent other assets, respectively. Under the CSCS agreement, NEECH or NEER guaranteed or provided indemnifications, letters of credit or bonds totaling approximately $635 million at September 30, 2018 primarily related to obligations on behalf of NEP's subsidiaries with maturity dates ranging from 2018 to 2050 and including certain project performance obligations, obligations under financing and interconnection agreements and obligations related to the sale of differential membership interests. Payment guarantees and related contracts with respect to unconsolidated entities for which NEE or one of its subsidiaries are the guarantor are recorded on NEE’s condensed consolidated balance sheet at fair value. As a result of deconsolidation, approximately $32 million related to the fair value of the credit support provided under the CSCS agreement is recorded as noncurrent other liabilities on NEE's condensed consolidated balance sheet at September 30, 2018.

In August 2018, subsidiaries of NEER entered into an agreement with a subsidiary of NEP to sell ownership interests in certain wind and solar generation facilities. See Note 11 - Assets and Liabilities Associated with Assets Held for Sale.

3.  Employee Retirement Benefits

NEE sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NEE and its subsidiaries and sponsors a contributory postretirement plan for other benefits for retirees of NEE and its subsidiaries meeting certain eligibility requirements.


16


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


The components of net periodic benefit (income) cost for the plans are as follows:
 
Pension Benefits
 
Postretirement Benefits
 
Pension Benefits
 
Postretirement Benefits
 
Three Months Ended September 30,
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
2018
 
2017
 
(millions)
Service cost
$
18

 
$
16

 
$

 
$

 
$
52

 
$
49

 
$
1

 
$
1

Interest cost
20

 
21

 
2

 
2

 
62

 
63

 
5

 
6

Expected return on plan assets
(69
)
 
(67
)
 

 

 
(207
)
 
(202
)
 

 

Amortization of prior service benefit

 

 
(4
)
 
(4
)
 
(1
)
 
(1
)
 
(12
)
 
(6
)
Special termination benefits(a)
14

 

 

 

 
14

 
38

 

 

Postretirement benefits settlement

 

 

 

 

 

 

 
1

Net periodic benefit (income) cost at NEE
$
(17
)
 
$
(30
)
 
$
(2
)
 
$
(2
)
 
$
(80
)
 
$
(53
)
 
$
(6
)
 
$
2

Net periodic benefit (income) cost at FPL
$
(11
)
 
$
(20
)
 
$
(2
)
 
$
(2
)
 
$
(51
)
 
$
(32
)
 
$
(4
)
 
$
1

———————————————
(a)
Reflects enhanced early retirement programs.

Amendments to Presentation of Retirement Benefits - Effective January 1, 2018, NEE adopted an accounting standards update that requires certain changes in classification of components of net periodic pension and postretirement benefit costs within the income statement and allows only the service cost component to be eligible for capitalization. NEE adopted the standards update using the retrospective approach for presentation of the components of net periodic pension and postretirement benefit costs and the prospective approach for capitalization of service cost. Upon adoption, NEE, among other things, reclassified the non-service cost components noted in the net periodic benefit (income) cost table above from O&M expense to other net periodic benefit income in NEE's condensed consolidated statements of income. The adoption of this standards update did not have an impact on net income attributable to NEE and did not have any impact on FPL as NEE is the plan sponsor.

4.  Derivative Instruments
 
NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the physical and financial risks inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated primarily with outstanding and expected future debt issuances and borrowings, and to optimize the value of NEER's power generation and gas infrastructure assets. NEE and FPL do not utilize hedge accounting for their cash flow and fair value hedges.
 
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 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 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.
 
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 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; the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate. 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

17


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


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.
 
For interest rate and foreign currency derivative instruments, essentially all changes in the derivatives' fair value, as well as the transaction gain or loss on foreign denominated debt, are recognized in interest expense and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. At September 30, 2018, NEE's AOCI included amounts related to discontinued interest rate cash flow hedges with expiration dates through March 2035 and foreign currency cash flow hedges with expiration dates through September 2030. Approximately $21 million of net losses included in AOCI at September 30, 2018 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 scheduled principal payments.

Fair Value of Derivative Instruments - The tables below present NEE's and FPL's gross derivative positions at September 30, 2018 and December 31, 2017, 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 5 - Recurring Fair Value Measurements for netting information), as well as the location of the net derivative position on the condensed consolidated balance sheets.
 
September 30, 2018
 
Gross Basis
 
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
Commodity contracts
$
4,100

 
$
3,122

 
$
1,669

 
$
767

Interest rate contracts
163

 
203

 
156

 
196

Foreign currency contracts

 
29

 
13

 
42

Total fair values
$
4,263

 
$
3,354

 
$
1,838

 
$
1,005

 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
Commodity contracts
$
4

 
$
4

 
$
3

 
$
3

 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
$
463

 
 
Noncurrent derivative assets(b)
 
 
 
 
1,375

 
 
Current derivative liabilities
 
 
 
 
 
 
$
483

Noncurrent derivative liabilities
 
 
 
 
 
 
522

Total derivatives
 
 
 
 
$
1,838

 
$
1,005

 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
Current other assets
 
 
 
 
$
3

 
 
Current other liabilities
 
 
 
 
 
 
$
2

Noncurrent other liabilities
 
 
 
 
 
 
1

Total derivatives
 
 
 
 
$
3

 
$
3

———————————————
(a)
Reflects the netting of approximately $28 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $48 million in margin cash collateral received from counterparties.

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


 
December 31, 2017
 
Gross Basis
 
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
Commodity contracts
$
3,962

 
$
2,792

 
$
1,737

 
$
567

Interest rate contracts
50

 
275

 
55

 
280

Foreign currency contracts

 
40

 
12

 
52

Total fair values
$
4,012

 
$
3,107

 
$
1,804

 
$
899

 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
Commodity contracts
$
3

 
$
3

 
$
2

 
$
2

 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
$
489

 
 
Noncurrent derivative assets
 
 
 
 
1,315

 
 
Current derivative liabilities
 
 
 
 
 
 
$
364

Noncurrent derivative liabilities(b)
 
 
 
 
 
 
535

Total derivatives
 
 
 
 
$
1,804

 
$
899

 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
Current other assets
 
 
 
 
$
2

 
 
Current other liabilities
 
 
 
 
 
 
$
2

Total derivatives
 
 
 
 
$
2

 
$
2

———————————————
(a)
Reflects the netting of approximately $39 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $39 million in margin cash collateral paid to counterparties.

At September 30, 2018 and December 31, 2017, NEE had approximately $12 million and $10 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, 2018 and December 31, 2017, NEE had approximately $152 million and $40 million (none at FPL), respectively, in margin cash collateral paid 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 derivatives are recorded in NEE's condensed consolidated statements of income as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
 
(millions)
Commodity contracts(a) - operating revenues
$
(187
)
 
$
114

 
$
(7
)
 
$
538

Foreign currency contracts - interest expense
(17
)
 
(4
)
 
3

 
53

Foreign currency contracts - other - net

 
(2
)
 

 
(5
)
Interest rate contracts - interest expense
142

 
(41
)
 
115

 
(232
)
Losses reclassified from AOCI to interest expense:
 
 
 
 
 
 
 
Interest rate contracts
(8
)
 
(13
)
 
(25
)
 
(36
)
Foreign currency contracts
(1
)
 
(1
)
 
(3
)
 
(80
)
Total
$
(71
)
 
$
53

 
$
83

 
$
238

———————————————
(a)
For the three and nine months ended September 30, 2018, FPL recorded approximately $1 million of losses and $4 million of gains, respectively, related to commodity contracts as regulatory assets and regulatory liabilities, respectively, on its condensed consolidated balance sheets. For the three and nine months ended September 30, 2017, FPL recorded losses of approximately $12 million and $164 million, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.


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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, 2018
 
December 31, 2017
Commodity Type
 
NEE
 
FPL
 
NEE
 
FPL
 
 
(millions)
Power
 
(108
)