10-Q 1 nee10q1q2019.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 March 31, 2019

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 March 31, 2019: 478,935,335

Number of shares of Florida Power & Light Company common stock, without par value, outstanding at March 31, 2019, 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.
Gulf Power
Gulf Power Company
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
net generating capacity
net ownership interest in plant(s) capacity

net generation
net ownership interest in plant(s) generation

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 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 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 ballot or 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.
Development and 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 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, retail gas distribution system in Florida 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.

4

•
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.
•
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 could result in certain projects becoming 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, the ability for subsidiaries of NEE, including FPL, 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 adversely affected if they are 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 energy industry.
•
NEE may not realize the anticipated benefits of the Gulf Power acquisition, which could materially adversely affect NEE's business, financial condition, results of operations and prospects.

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, or in the case of Duane Arnold through expected shutdown, 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, among other factors, 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, 2018 (2018 Form 10-K), and investors should refer to that section of the 2018 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.

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 March 31,
 
 
2019
 
2018(a)
OPERATING REVENUES
 
$
4,075

 
$
3,857

OPERATING EXPENSES (INCOME)
 
 
 
 
Fuel, purchased power and interchange
 
967

 
819

Other operations and maintenance
 
815

 
771

Acquisition-related
 
16

 
—

Depreciation and amortization
 
772

 
856

Gains on disposal of businesses/assets - net
 
(26
)
 
(14
)
Taxes other than income taxes and other - net
 
396

 
366

Total operating expenses - net
 
2,940

 
2,798

OPERATING INCOME
 
1,135

 
1,059

OTHER INCOME (DEDUCTIONS)
 
 
 
 
Interest expense
 
(714
)
 
(226
)
Equity in earnings of equity method investees
 
16

 
197

Allowance for equity funds used during construction
 
26

 
22

Interest income
 
12

 
18

Gain on NEP deconsolidation
 
—

 
3,927

Gains on disposal of investments and other property - net
 
23

 
50

Change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds - net
 
117

 
(20
)
Other net periodic benefit income
 
51

 
51

Other - net
 
14

 
6

Total other income (deductions) - net
 
(455
)
 
4,025

INCOME BEFORE INCOME TAXES
 
680

 
5,084

INCOME TAXES
 
74

 
1,250

NET INCOME
 
606

 
3,834

NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
74

 
597

NET INCOME ATTRIBUTABLE TO NEE
 
$
680


$
4,431

Earnings per share attributable to NEE:
 
 
 
 
Basic
 
$
1.42

 
$
9.41

Assuming dilution
 
$
1.41

 
$
9.32

Weighted-average number of common shares outstanding:
 
 
 
 

Basic
 
478.3

 
470.7

Assuming dilution
 
481.8

 
474.3

———————————————
 
 
 
 
(a)   Amounts have been retrospectively adjusted for an accounting standards update related to leases.









This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

7



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

 
Three Months Ended March 31,
 
2019
 
2018(a)
NET INCOME
$
606

 
$
3,834

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 $3 and $3 tax expense, respectively)
10

 
7

Net unrealized gains (losses) on available for sale securities:
 
 
 
Net unrealized gains (losses) on securities still held (net of $3 tax expense and $2 tax benefit, respectively)
8

 
(5
)
Reclassification from accumulated other comprehensive income (loss) to net income (net of $1 tax expense and $2 tax benefit, respectively)
2

 
(1
)
Defined benefit pension and other benefits plans:
 
 
 
Net unrealized gain (loss) and unrecognized prior service benefit (cost) (net of $16 and less than $1 tax benefit, respectively)
(52
)
 
(1
)
Reclassification from accumulated other comprehensive income (loss) to net income (net of less than $1 and less than $1 tax benefit, respectively)
(1
)
 
(1
)
Net unrealized gains (losses) on foreign currency translation
10

 
(20
)
Other comprehensive income (loss) related to equity method investees (net of less than $1 tax benefit and $1 tax expense, respectively)
(1
)
 
2

Total other comprehensive loss, net of tax
(24
)
 
(19
)
IMPACT OF NEP DECONSOLIDATION (NET OF $15 TAX EXPENSE)
—

 
58

COMPREHENSIVE INCOME
582

 
3,873

COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
74

 
597

COMPREHENSIVE INCOME ATTRIBUTABLE TO NEE
$
656

 
$
4,470

______________________
(a) Amounts have been retrospectively adjusted for an accounting standards update related to leases.


























This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

8

NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except par value)
(unaudited)
 
 
March 31,
2019
 
December 31,
2018
PROPERTY, PLANT AND EQUIPMENT
 
 
 
 
Electric plant in service and other property
 
$
89,106

 
$
81,986

Nuclear fuel
 
1,854

 
1,740

Construction work in progress
 
7,198

 
8,357

Accumulated depreciation and amortization
 
(23,364
)
 
(21,749
)
Total property, plant and equipment - net ($10,219 and $10,553 related to VIEs, respectively)
 
74,794

 
70,334

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents
 
972

 
638

Customer receivables, net of allowances of $7 and $10, respectively
 
2,191

 
2,302

Other receivables
 
783

 
667

Materials, supplies and fossil fuel inventory
 
1,410

 
1,223

Regulatory assets ($23 and $41 related to a VIE, respectively)
 
450

 
448

Derivatives
 
474

 
564

Assets held for sale ($343 related to VIEs)
 
1,334

 
—

Other
 
608

 
551

Total current assets
 
8,222

 
6,393

OTHER ASSETS
 
 

 
 

Special use funds
 
6,360

 
5,886

Investment in equity method investees
 
6,735

 
6,748

Prepaid benefit costs
 
1,295

 
1,284

Regulatory assets
 
3,760

 
3,290

Derivatives
 
1,339

 
1,355

Goodwill
 
3,488

 
891

Other
 
3,036

 
7,521

Total other assets
 
26,013

 
26,975

TOTAL ASSETS
 
$
109,029

 
$
103,702

CAPITALIZATION
 
 

 
 

Common stock ($0.01 par value, authorized shares - 800; outstanding shares - 479 and 478, respectively)
 
$
5

 
$
5

Additional paid-in capital
 
10,515

 
10,490

Retained earnings
 
23,919

 
23,837

Accumulated other comprehensive loss
 
(213
)
 
(188
)
Total common shareholders' equity
 
34,226

 
34,144

Noncontrolling interests ($3,610 and $3,265 related to VIEs, respectively)
 
3,614

 
3,269

Total equity
 
37,840

 
37,413

Redeemable noncontrolling interests
 
71

 
468

Long-term debt ($984 and $1,020 related to VIEs, respectively)
 
29,883

 
26,782

Total capitalization
 
67,794

 
64,663

CURRENT LIABILITIES
 
 

 
 

Commercial paper
 
2,301

 
2,749

Other short-term debt
 
5,415

 
5,465

Current portion of long-term debt ($36 and $74 related to a VIE, respectively)
 
2,614

 
2,716

Accounts payable
 
2,398

 
2,386

Customer deposits
 
484

 
445

Accrued interest and taxes
 
619

 
477

Derivatives
 
674

 
675

Accrued construction-related expenditures
 
709

 
1,195

Regulatory liabilities
 
337

 
325

Liabilities associated with assets held for sale ($141 related to VIEs)
 
1,180

 
—

Other
 
1,195

 
1,130

Total current liabilities
 
17,926

 
17,563

OTHER LIABILITIES AND DEFERRED CREDITS
 
 

 
 

Asset retirement obligations
 
3,350

 
3,135

Deferred income taxes
 
8,050

 
7,367

Regulatory liabilities
 
9,734

 
9,009

Derivatives
 
616

 
516

Other
 
1,559

 
1,449

Total other liabilities and deferred credits
 
23,309

 
21,476

COMMITMENTS AND CONTINGENCIES
 


 


TOTAL CAPITALIZATION AND LIABILITIES
 
$
109,029

 
$
103,702



This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

9



NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
 
 
Three Months Ended March 31,
 
 
2019
 
2018(a)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
606

 
$
3,834

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
772

 
856

Nuclear fuel and other amortization
 
90

 
69

Unrealized losses (gains) on marked to market derivative contracts - net
 
386

 
(193
)
Foreign currency transaction losses (gains)
 
(5
)
 
38

Deferred income taxes
 
220

 
1,270

Cost recovery clauses and franchise fees
 
(41
)
 
(47
)
Equity in earnings of equity method investees
 
(16
)
 
(197
)
Distributions of earnings from equity method investees
 
84

 
84

Gains on disposal of businesses, assets and investments - net
 
(49
)
 
(64
)
Gain on NEP deconsolidation
 
—

 
(3,927
)
Other - net
 
(112
)
 
(36
)
Changes in operating assets and liabilities:
 
 
 
 
Current assets
 
283

 
243

Noncurrent assets
 
(123
)
 
(22
)
Current liabilities
 
(514
)
 
(595
)
Noncurrent liabilities
 
16

 
(22
)
Net cash provided by operating activities
 
1,597

 
1,291

CASH FLOWS FROM INVESTING ACTIVITIES
 
 
 
 
Capital expenditures of FPL
 
(1,104
)
 
(1,166
)
Acquisition and capital expenditures of Gulf Power
 
(4,551
)
 
—

Independent power and other investments of NEER
 
(1,143
)
 
(2,300
)
Nuclear fuel purchases
 
(97
)
 
(110
)
Other capital expenditures and other investments
 
(134
)
 
(12
)
Proceeds from sale or maturity of securities in special use funds and other investments
 
966

 
919

Purchases of securities in special use funds and other investments
 
(1,019
)
 
(1,039
)
Other - net
 
137

 
41

Net cash used in investing activities
 
(6,945
)
 
(3,667
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 
 
 
Issuances of long-term debt
 
2,768

 
1,804

Retirements of long-term debt
 
(166
)
 
(942
)
Net change in commercial paper
 
(448
)
 
1,277

Repayments of other short-term debt
 
(50
)
 
(250
)
Payments from (to) related parties under a cash sweep and credit support agreement – net
 
(24
)
 
2

Issuances of common stock - net
 
20

 
7

Dividends on common stock
 
(598
)
 
(523
)
Other - net
 
(75
)
 
(65
)
Net cash provided by financing activities
 
1,427

 
1,310

Effects of currency translation on cash, cash equivalents and restricted cash
 
9

 
(9
)
Net decrease in cash, cash equivalents and restricted cash
 
(3,912
)
 
(1,075
)
Cash, cash equivalents and restricted cash at beginning of period
 
5,253

 
1,983

Cash, cash equivalents and restricted cash at end of period
 
$
1,341

 
$
908

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 
 
 
Accrued property additions
 
$
1,874

 
$
1,639

———————————————
 
 
 
 
(a) Amounts have been retrospectively adjusted for an accounting standards update related to leases.
 
 
 
 









This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

10



NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(millions, except per share amounts)
(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, 2018
478

 
$
5

 
$
10,490

 
$
(188
)
 
$
23,837

 
$
34,144

 
$
3,269

 
$
37,413

Net income (loss)
—

 
—

 
—

 
—

 
680

 
680

 
(74
)
 
 
Share-based payment activity
1

 
—

 
30

 
—

 
—

 
30

 
—

 
 
Dividends on common stock(a)
—

 
—

 
—

 
—

 
(598
)
 
(598
)
 
—

 
 
Other comprehensive loss
—

 
—

 
—

 
(24
)
 
—

 
(24
)
 
—

 
 
Differential membership interests activity
—

 
—

 
—

 
—

 
—

 
—

 
389

 
 
Other
—

 
—

 
(5
)
 
(1
)
 
—

 
(6
)
 
30

 
 
Balances, March 31, 2019
479

 
$
5

 
$
10,515

 
$
(213
)
 
$
23,919

 
$
34,226

 
$
3,614

 
$
37,840

———————————————
(a)
Dividends per share were $1.25.





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


$
5

 
$
9,100

 
$
111

 
$
19,020

 
$
28,236

 
$
1,295

 
$
29,531

Net income (loss)
—

 
—

 
—

 
—

 
4,431

 
4,431

 
(597
)
 
 
Share-based payment activity
—

 
—

 
5

 
—

 
—

 
5

 
—

 
 
Dividends on common stock(b)
—

 
—

 
—

 
—

 
(523
)
 
(523
)
 
—

 
 
Other comprehensive loss
—

 
—

 
—

 
(19
)
 
—

 
(19
)
 
—

 
 
Impact of NEP deconsolidation(c)
—

 
—

 
—

 
58

 
—

 
58

 
(2,700
)
 
 
Adoption of accounting standards updates
—

 
—

 
590

 
(328
)
 
280

 
542

 
5,303

 
 
Differential membership interests activity
—

 
—

 
—

 
—

 
—

 
—

 
(14
)
 
 
Other
—

 
—

 
1

 
—

 
(1
)
 
—

 
—

 
 
Balances, March 31, 2018
471

 
$
5

 
$
9,696

 
$
(178
)
 
$
23,207

 
$
32,730

 
$
3,287

 
$
36,017

———————————————
(a)
Amounts have been retrospectively adjusted for an accounting standards update related to leases.
(b)
Dividends per share were $1.11.
(c)
See Note 2.



















This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

11



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

 
 
Three Months Ended March 31,
 
 
2019
 
2018(a)
OPERATING REVENUES
 
$
2,618

 
$
2,620

OPERATING EXPENSES (INCOME)
 
 

 
 
Fuel, purchased power and interchange
 
729

 
712

Other operations and maintenance
 
340

 
347

Depreciation and amortization
 
375

 
546

Taxes other than income taxes and other - net
 
317

 
308

Total operating expenses - net
 
1,761

 
1,913

OPERATING INCOME
 
857

 
707

OTHER INCOME (DEDUCTIONS)
 
 

 
 
Interest expense
 
(139
)
 
(133
)
Allowance for equity funds used during construction
 
24

 
21

Other - net
 
2

 
1

Total other deductions - net
 
(113
)
 
(111
)
INCOME BEFORE INCOME TAXES
 
744

 
596

INCOME TAXES
 
156

 
112

NET INCOME(b)
 
$
588

 
$
484

_______________________
(a)
Amounts have been retrospectively adjusted for an accounting standards update related to leases.
(b)
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 2018 Form 10-K.

12



FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amount)
(unaudited)
 
 
March 31,
2019
 
December 31,
2018
ELECTRIC UTILITY PLANT AND OTHER PROPERTY
 
 
 
 
Plant in service and other property
 
$
51,536

 
$
49,640

Nuclear fuel
 
1,262

 
1,189

Construction work in progress
 
2,543

 
3,888

Accumulated depreciation and amortization
 
(13,135
)
 
(13,218
)
Total electric utility plant and other property - net
 
42,206

 
41,499

CURRENT ASSETS
 
 

 
 

Cash and cash equivalents
 
77

 
112

Customer receivables, net of allowances of $1 and $3, respectively
 
993

 
1,026

Other receivables
 
326

 
284

Materials, supplies and fossil fuel inventory
 
690

 
670

Regulatory assets ($23 and $41 related to a VIE, respectively)
 
399

 
447

Other
 
166

 
239

Total current assets
 
2,651

 
2,778

OTHER ASSETS
 
 

 
 

Special use funds
 
4,367

 
4,056

Prepaid benefit costs
 
1,425

 
1,407

Regulatory assets
 
2,827

 
2,843

Goodwill
 
302

 
302

Other
 
546

 
599

Total other assets
 
9,467

 
9,207

TOTAL ASSETS
 
$
54,324

 
$
53,484

CAPITALIZATION
 
 

 
 

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

 
$
1,373

Additional paid-in capital
 
10,852

 
10,601

Retained earnings
 
9,628

 
9,040

Total common shareholder's equity
 
21,853

 
21,014

Long-term debt
 
12,323

 
11,688

Total capitalization
 
34,176

 
32,702

CURRENT LIABILITIES
 
 

 
 

Commercial paper
 
396

 
1,256

Current portion of long-term debt ($36 and $74 related to a VIE, respectively)
 
56

 
95

Accounts payable
 
698

 
731

Customer deposits
 
446

 
442

Accrued interest and taxes
 
467

 
376

Accrued construction-related expenditures
 
338

 
323

Regulatory liabilities
 
293

 
310

Other
 
430

 
543

Total current liabilities
 
3,124

 
4,076

OTHER LIABILITIES AND DEFERRED CREDITS
 
 

 
 

Asset retirement obligations
 
2,223

 
2,147

Deferred income taxes
 
5,298

 
5,165

Regulatory liabilities
 
9,026

 
8,886

Other
 
477

 
508

Total other liabilities and deferred credits
 
17,024

 
16,706

COMMITMENTS AND CONTINGENCIES
 


 


TOTAL CAPITALIZATION AND LIABILITIES
 
$
54,324

 
$
53,484









This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

13

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

 
 
Three Months Ended March 31,
 
 
2019
 
2018(a)
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
Net income
 
$
588

 
$
484

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
 
Depreciation and amortization
 
375

 
546

Nuclear fuel and other amortization
 
45

 
41

Deferred income taxes
 
203

 
265

Cost recovery clauses and franchise fees
 
(27
)
 
(47
)
Other - net
 
10

 
(59
)
Changes in operating assets and liabilities:
 
 
 
 

Current assets
 
(35
)
 
(51
)
Noncurrent assets
 
(19
)
 
(20
)
Current liabilities
 
31

 
(513
)
Noncurrent liabilities
 
(35
)
 
(56
)
Net cash provided by operating activities
 
1,136

 
590

CASH FLOWS FROM INVESTING ACTIVITIES
 
 

 
 

Capital expenditures
 
(1,104
)
 
(1,166
)
Nuclear fuel purchases
 
(36
)
 
(37
)
Proceeds from sale or maturity of securities in special use funds
 
562

 
430

Purchases of securities in special use funds
 
(596
)
 
(534
)
Other - net
 
1

 
19

Net cash used in investing activities
 
(1,173
)
 
(1,288
)
CASH FLOWS FROM FINANCING ACTIVITIES
 
 

 
 

Issuances of long-term debt
 
643

 
1,000

Retirements of long-term debt
 
(39
)
 
(787
)
Net change in commercial paper
 
(860
)
 
(126
)
Repayments of other short-term debt
 
—

 
(250
)
Capital contributions from NEE
 
250

 
850

Other - net
 
(12
)
 
(21
)
Net cash provided by (used in) financing activities
 
(18
)
 
666

Net decrease in cash, cash equivalents and restricted cash
 
(55
)
 
(32
)
Cash, cash equivalents and restricted cash at beginning of period
 
254

 
174

Cash, cash equivalents and restricted cash at end of period
 
$
199

 
$
142

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
 
 

 
 

Accrued property additions
 
$
585

 
$
641

———————————————
 
 
 
 
 
(a) Amounts have been retrospectively adjusted for an accounting standards update related to leases.
 
 
 
 
 












This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

14

FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
(millions)
(unaudited)

 
Common
Stock
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Common
Shareholder's
Equity
Balances, December 31, 2018
$
1,373

 
$
10,601

 
$
9,040

 
$
21,014

Net income
—

 
—

 
588

 
 
Capital contributions from NEE
—

 
250

 
—

 
 
Other
—

 
1

 
—

 
 
Balances, March 31, 2019
$
1,373

 
$
10,852

 
$
9,628

 
$
21,853




 
Common
Stock
 
Additional
Paid-In Capital
 
Retained
Earnings
 
Common
Shareholder's
Equity
Balances, December 31, 2017
$
1,373

 
$
8,291

 
$
7,376

 
$
17,040

Net income
—

 
—

 
484

 
 
Capital contributions from NEE
—

 
850

 
—

 
 
Other
—

 
—

 
(7
)
 
 
Balances, March 31, 2018
1,373

 
9,141

 
7,853

 
18,367





































This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2018 Form 10-K.

15

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 2018 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. In addition, certain prior year amounts have been retrospectively adjusted for an accounting standards update related to leases. 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

FPL and NEER generate substantially all of NEE’s operating revenues, which primarily include revenues from contracts with customers, as well as derivative and lease transactions at NEER. 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 months ended March 31, 2019 and 2018, NEE’s revenue from contracts with customers was approximately $3.8 billion ($2.6 billion at FPL) and $3.6 billion ($2.6 billion at FPL), respectively. NEE's and FPL's receivables are primarily associated with revenues earned from contracts with customers, as well as derivative and lease transactions at NEER, 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 are 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. At March 31, 2019 and December 31, 2018, FPL's unbilled revenues amounted to approximately $442 million and $432 million, respectively, and are included in customer receivables on NEE's and FPL's condensed consolidated balance sheets.
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 2019 to 2053, 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 March 31, 2019, NEER expects to record approximately $890 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

NEP was deconsolidated from NEE for financial reporting purposes in January 2018 as a result of changes made to NEP's governance structure during 2017 that, among other things, enhanced NEP common unitholder governance rights. 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 the investment in equity method investees on NEE's condensed consolidated balance sheets. 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 three months ended March 31, 2018. NEER continues to operate the projects owned by NEP.
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 March 31, 2019 and December 31, 2018, the cash sweep amounts (due to NEP and its subsidiaries) held in accounts belonging to NEER or its subsidiaries was approximately $42 million and $66 million, respectively, and is included in accounts payable. Fee income totaling approximately $24 million and $24 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 months ended March 31, 2019 and 2018, respectively. Amounts due from NEP of approximately $46 million and $45 million are included in other receivables and $58 million and $34 million are included in noncurrent other assets at March 31, 2019 and December 31, 2018, respectively. Under the CSCS agreement, NEECH or NEER guaranteed or provided indemnifications, letters of credit or bonds

16

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


totaling approximately $761 million at March 31, 2019 primarily related to obligations on behalf of NEP's subsidiaries with maturity dates ranging from 2019 to 2050 and included 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 sheets at fair value. At March 31, 2019, approximately $33 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.

In March 2019, subsidiaries of NEER entered into an agreement to sell their ownership interests in certain wind and solar generation facilities to a NEP subsidiary. 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.

The components of net periodic income for the plans are as follows:
 
Pension Benefits
 
Postretirement Benefits
 
Three Months Ended March 31,
 
Three Months Ended March 31,
 
2019
 
2018
 
2019
 
2018
 
(millions)
Service cost
$
20

 
$
18

 
$
—

 
$
—

Interest cost
29

 
20

 
3

 
2

Expected return on plan assets
(79
)
 
(69
)
 
—

 
—

Amortization of prior service benefit
—

 
—

 
(4
)
 
(4
)
Net periodic income at NEE
$
(30
)
 
$
(31
)
 
$
(1
)
 
$
(2
)
Net periodic income allocated to FPL
$
(18
)
 
$
(20
)
 
$
(1
)
 
$
(2
)


17

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


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 and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate. 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.
 
For interest rate and foreign currency derivative instruments, 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. In addition, for the three months ended March 31, 2019, NEE reclassified approximately $6 million ($5 million after tax) from AOCI to interest expense primarily because it became probable that related future transactions being hedged would not occur. At March 31, 2019, 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 $9 million of net losses included in AOCI at March 31, 2019 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.


18

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, 2019 and December 31, 2018, 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.
 
March 31, 2019
 
Gross Basis
 
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
Commodity contracts
$
3,812

 
$
2,478

 
$
1,772

 
$
499

Interest rate contracts
19

 
759

 
19

 
759

Foreign currency contracts
9

 
34

 
22

 
47

Total fair values
$
3,840

 
$
3,271

 
$
1,813

 
$
1,305

 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
Commodity contracts
$
7

 
$
21

 
$
5

 
$
19

 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
$
474

 
 
Noncurrent derivative assets(b)
 
 
 
 
1,339

 
 
Current derivative liabilities
 
 
 
 
 
 
$
674

Liabilities associated with assets held for sale
 
 
 
 
 
 
15

Noncurrent derivative liabilities
 
 
 
 
 
 
616

Total derivatives
 
 
 
 
$
1,813

 
$
1,305

 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
Current other assets
 
 
 
 
$
5

 
 
Current other liabilities
 
 
 
 
 
 
$
12

Noncurrent other liabilities
 
 
 
 
 
 
7

Total derivatives
 
 
 
 
$
5

 
$
19

———————————————
(a)
Reflects the netting of approximately $31 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $30 million in margin cash collateral received from counterparties.

19

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


 
December 31, 2018
 
Gross Basis
 
Net Basis
 
Assets
 
Liabilities
 
Assets
 
Liabilities
 
(millions)
NEE:
 
 
 
 
 
 
 
Commodity contracts
$
4,651

 
$
3,305

 
$
1,840

 
$
683

Interest rate contracts
56

 
472

 
49

 
465

Foreign currency contracts
17

 
30

 
30

 
43

Total fair values
$
4,724

 
$
3,807

 
$
1,919

 
$
1,191

 
 
 
 
 
 
 
 
FPL:
 
 
 
 
 
 
 
Commodity contracts
$
2

 
$
43

 
$
—

 
$
41

 
 
 
 
 
 
 
 
Net fair value by NEE balance sheet line item:
 
 
 
 
 
 
 
Current derivative assets(a)
 
 
 
 
$
564

 
 
Noncurrent derivative assets(b)
 
 
 
 
1,355

 
 
Current derivative liabilities
 
 
 
 
 
 
$
675

Noncurrent derivative liabilities
 
 
 
 
 
 
516

Total derivatives
 
 
 
 
$
1,919

 
$
1,191

 
 
 
 
 
 
 
 
Net fair value by FPL balance sheet line item:
 
 
 
 
 
 
 
Current other liabilities
 
 
 
 
 
 
$
32

Noncurrent other liabilities
 
 
 
 
 
 
9

Total derivatives
 
 
 
 
$
—

 
$
41

———————————————
(a)
Reflects the netting of approximately $124 million in margin cash collateral received from counterparties.
(b)
Reflects the netting of approximately $65 million in margin cash collateral received from counterparties.


At March 31, 2019 and December 31, 2018, NEE had approximately $13 million and $16 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, 2019 and December 31, 2018, NEE had approximately $263 million and $157 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 March 31,
 
2019
 
2018
 
(millions)
Commodity contracts(a) - operating revenues
$
(4
)
 
$
137

Foreign currency contracts - interest expense
(19
)
 
45

Interest rate contracts - interest expense
(326
)
 
59

Losses reclassified from AOCI to interest expense:
 
 
 
Interest rate contracts
(12
)
 
(9
)
Foreign currency contracts
(1
)
 
(1
)
Total
$
(362
)
 
$
231

———————————————
(a)
For the three months ended March 31, 2019 and 2018, FPL recorded gains of approximately $2 million and $4 million, respectively, related to commodity contracts as regulatory liabilities on its condensed consolidated balance sheets.


20

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:
 
 
March 31, 2019
 
December 31, 2018
Commodity Type
 
NEE
 
FPL
 
NEE
 
FPL
 
 
(millions)
Power
 
(94
)
 
MWh
 
1

 
MWh
 
(100
)
 
MWh
 
1

 
MWh
Natural gas
 
(1,114
)
 
MMBtu
 
334

 
MMBtu
 
(491
)
 
MMBtu
 
231

 
MMBtu
Oil
 
(25
)
 
barrels
 
—

 
 
 
(30
)
 
barrels
 
—

 
 

At March 31, 2019 and December 31, 2018, NEE had interest rate contracts with notional amounts totaling approximately $17.5 billion and $18.2 billion, respectively, and foreign currency contracts with notional amounts totaling approximately $656 million and $656 million, respectively. In April 2019, NEECH terminated a forward starting interest rate swap agreement with a notional amount of $5.2 billion.

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, 2019 and December 31, 2018, 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 ($20 million for FPL) and $1.8 billion ($34 million for FPL), respectively.

If the credit-risk-related contingent features underlying these derivative agreements 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 derivative 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 $110 million (none at FPL) at March 31, 2019 and $270 million (none at FPL) at December 31, 2018. 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 $1.1 billion ($30 million at FPL) at March 31, 2019 and $1.5 billion ($45 million at FPL) at December 31, 2018. Some derivative contracts do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or have credit-related cross-default triggers. In the event these provisions were triggered, applicable NEE subsidiaries could be required to post additional collateral of up to approximately $800 million ($100 million at FPL) at March 31, 2019 and $610 million ($145 million at FPL) at December 31, 2018.

Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business. At March 31, 2019 and December 31, 2018, applicable NEE subsidiaries have posted approximately $2 million (none at FPL) and $2 million (none at FPL), respectively, in cash and $6 million (none at FPL) and $88 million (none at FPL), respectively, in the form of letters of credit, each of which could be applied toward the collateral requirements described above. FPL and NEECH have capacity under their 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 whereby 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.

5.  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

21

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


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 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 and Restricted Cash Equivalents - NEE and FPL hold investments in money market funds. The fair value of these funds is estimated using a market approach based on current observable 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 a combination of market and income approaches utilizing prices observed on commodities exchanges and in the OTC markets, or through the use of industry-standard valuation techniques, such as option modeling or discounted cash flows techniques, incorporating both observable and unobservable valuation inputs. The resulting measurements are the best estimate of fair value as represented by the transfer of the asset or liability through an orderly transaction in the marketplace at the measurement date.

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

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

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

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

NEE uses interest rate contracts and foreign currency contracts to mitigate and adjust interest rate and foreign currency exchange exposure related primarily to certain outstanding and expected future 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 an income approach based on a discounted cash flows valuation technique utilizing the net amount of estimated future cash inflows and outflows related to the agreements.


22

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, 2019
 
 
Level 1
 
Level 2
 
Level 3
 
Netting(a)
 
Total
 
 
(millions)
 
Assets:
 
 
 
 
 
 
 
 
 
 
Cash equivalents and restricted cash equivalents:(b)
 
 
 
 
 
 
 
 
 
 
NEE - equity securities
$
805

 
$
—

 
$
—

 
 
 
$
805

 
FPL - equity securities
$
171

 
$
—

 
$
—

 
 
 
$
171

 
Special use funds:(c)
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
1,606

 
$
1,824

(d) 
$
—

 
 
 
$
3,430

 
U.S. Government and municipal bonds
$
466

 
$
133

 
$
—

 
 
 
$
599

 
Corporate debt securities
$
—

 
$
775

 
$
—

 
 
 
$
775

 
Mortgage-backed securities
$
—

 
$
466

 
$
—

 
 
 
$
466

 
Other debt securities
$
—

 
$
160

 
$
—

 
 
 
$
160

 
FPL:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
454

 
$
1,655

(d) 
$
—

 
 
 
$
2,109

 
U.S. Government and municipal bonds
$
341

 
$
104

 
$
—

 
 
 
$
445

 
Corporate debt securities
$
—

 
$
564

 
$
—

 
 
 
$
564

 
Mortgage-backed securities
$
—

 
$
354

 
$
—

 
 
 
$
354

 
Other debt securities
$
—

 
$
136

 
$
—

 
 
 
$
136

 
Other investments:(e)
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Equity securities
$
16

 
$
12

 
$
—

 
 
 
$
28

 
Debt securities
$
78

 
$
69

 
$
—

 
 
 
$
147

 
Derivatives:
 
 
 
 
 
 
 
 
 
 
NEE:
 
 
 
 
 
 
 
 
 
 
Commodity contracts
$
810

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