Fair Value Measurements

12 Months Ended

Dec. 31, 2011

NEE and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. NEE's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value.

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

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

Derivative Instruments - NEE and FPL measure the fair value of commodity contracts on a daily basis using prices observed on commodities exchanges and in the over-the-counter 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 significant other observable inputs.

NEE and FPL also enter into over-the-counter 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. 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, through NEER, also enters into full requirements contracts, which, in many 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. This consideration includes, but is not limited to, assumptions about market liquidity, volatility and contract duration.

NEE uses interest rate and foreign currency swaps to mitigate and adjust interest rate and foreign currency exposure related to certain outstanding and forecasted debt issuances and borrowings. NEE estimates the fair value of these derivatives using a discounted cash flows valuation technique based on the net amount of estimated future cash inflows and outflows related to the swap agreements.

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



	December 31, 2011
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents:
NEE - equity securities	$	159	$	—		$	—	$	—		$	159
FPL - equity securities	$	11	$	—		$	—	$	—		$	11
Special use funds:
NEE:
Equity securities	$	709	$	1,206	^(b)	$	—	$	—		$	1,915
U.S. Government and municipal bonds	$	508	$	167		$	—	$	—		$	675
Corporate debt securities	$	—	$	516		$	—	$	—		$	516
Mortgage-backed securities	$	—	$	511		$	—	$	—		$	511
Other debt securities	$	—	$	47		$	—	$	—		$	47
FPL:
Equity securities	$	128	$	1,056	^(b)	$	—	$	—		$	1,184
U.S. Government and municipal bonds	$	458	$	134		$	—	$	—		$	592
Corporate debt securities	$	—	$	359		$	—	$	—		$	359
Mortgage-backed securities	$	—	$	434		$	—	$	—		$	434
Other debt securities	$	—	$	32		$	—	$	—		$	32
Other investments:
NEE:
Equity securities	$	4	$	—		$	—	$	—		$	4
U.S. Government and municipal bonds	$	8	$	—		$	—	$	—		$	8
Corporate debt securities	$	—	$	43		$	—	$	—		$	43
Mortgage-backed securities	$	—	$	33		$	—	$	—		$	33
Other	$	5	$	5		$	—	$	—		$	10
Derivatives:
NEE:
Commodity contracts	$	2,448	$	3,478		$	1,071	$	(5,477	)	$	1,520	^(c)
Interest rate swaps	$	—	$	37		$	—	$	—		$	37	^(c)
Foreign currency swaps	$	—	$	27		$	—	$	—		$	27	^(c)
FPL - commodity contracts	$	—	$	8		$	6	$	(2	)	$	12	^(c)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	2,588	$	3,582		$	585	$	(5,453	)	$	1,302	^(c)
Interest rate swaps	$	—	$	320		$	—	$	—		$	320	^(c)
Foreign currency swaps	$	—	$	9		$	—	$	—		$	9	^(c)
FPL - commodity contracts	$	—	$	513		$	2	$	(2	)	$	513	^(c)

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(a)	Includes the effect of the contractual ability to settle contracts under master netting arrangements and margin cash collateral payments and receipts.


(b)	At NEE, approximately $1,086 million ($979 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by NEE or FPL.


(c)	See Note 3 for a reconciliation of net derivatives to NEE's and FPL's consolidated balance sheets.



	December 31, 2010
	Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents:
NEE - equity securities	$	—	$	122		$	—	$	—		122
FPL - equity securities	$	—	$	7		$	—	$	—		7
Special use funds:
NEE:
Equity securities	$	741	$	1,245	^(b)	$	—	$	—		1,986
U.S. Government and municipal bonds	$	495	$	127		$	—	$	—		622
Corporate debt securities	$	—	$	486		$	—	$	—		486
Mortgage-backed securities	$	—	$	447		$	—	$	—		447
Other debt securities	$	—	$	108		$	—	$	—		108
FPL:
Equity securities	$	125	$	1,082	^(b)	$	—	$	—		1,207
U.S. Government and municipal bonds	$	458	$	111		$	—	$	—		569
Corporate debt securities	$	—	$	334		$	—	$	—		334
Mortgage-backed securities	$	—	$	381		$	—	$	—		381
Other debt securities	$	—	$	41		$	—	$	—		41
Other investments:
NEE:
Equity securities	$	3	$	1		$	—	$	—		4
U.S. Government and municipal bonds	$	8	$	4		$	—	$	—		12
Corporate debt securities	$	—	$	32		$	—	$	—		32
Mortgage-backed securities	$	—	$	58		$	—	$	—		58
Other	$	5	$	10		$	—	$	—		15
Derivatives:
NEE:
Commodity contracts	$	1,755	$	1,538		$	824	$	(3,177	)	$	940	^(c)
Interest rate swaps	$	—	$	107		$	—	$	—		$	107	^(c)
Foreign currency swaps	$	—	$	48		$	—	$	—		$	48	^(c)
FPL - commodity contracts	$	—	$	14		$	8	$	(13	)	$	9	^(c)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,821	$	1,509		$	528	$	(3,206	)	$	652	^(c)
Interest rate swaps	$	—	$	123		$	—	$	—		$	123	^(c)
Foreign currency swaps	$	—	$	4		$	—	$	—		$	4	^(c)
FPL - commodity contracts	$	—	$	257		$	1	$	(13	)	$	245	^(c)

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(a)	Includes the effect of the contractual ability to settle contracts under master netting arrangements and margin cash collateral payments and receipts.


(b)	At NEE, approximately $1,084 million ($980 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by NEE or FPL.


(c)	See Note 3 for a reconciliation of net derivatives to NEE's and FPL's consolidated balance sheets.

The reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs is as follows:



	Years Ended December 31,
	2011						2010						2009
	NEE			FPL			NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior year	$	296		$	7		$	364		$	11		$	404		$	(1	)
Realized and unrealized gains (losses):
Included in earnings^(a)	454			—			407			—			555			—
Included in regulatory assets and liabilities	3			3			1			1			7			7
Purchases, sales, settlements and issuances^(b)	(258		)	(6		)	(432		)	(5		)	(521		)	6
Transfers in^(c)	6			—			2			—			16			—
Transfers out^(c)	(15		)	—			(46		)	—			(97		)	(1		)
Fair value of net derivatives based on significant unobservable inputs at December 31	$	486		$	4		$	296		$	7		$	364		$	11
The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to derivatives still held at the reporting date^(d)	$	423		$	—		$	170		$	—		$	270		$	—

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(a)	For the years ended December 31, 2011, 2010 and 2009, $441 million, $384 million and $555 million, respectively, of realized and unrealized gains are reflected in the consolidated statements of income in operating revenues and the balance is reflected in fuel, purchased power and interchange.


(b)	For the year ended December 31, 2011, includes $270 million of purchases, $166 million of settlements and $362 million of issuances.


(c)	Transfers into Level 3 were a result of decreased observability of market data and transfers from Level 3 to Level 2 were a result of increased observability of market data. NEE's and FPL's policy is to recognize all transfers at the beginning of the reporting period.


(d)	For the years ended December 31, 2011, 2010 and 2009, $423 million, $153 million and $270 million, respectively, of unrealized gains are reflected in the consolidated statements of income in operating revenues and the balance is reflected in fuel, purchased power and interchange.

Nonrecurring Fair Value Measurements - NEE tests long-lived assets for recoverability whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In 2011, recent market value indications and the impact of newly proposed environmental regulations suggested that the carrying value of certain NEER assets, primarily wind assets in West Texas and oil-fired assets in Maine, may be impaired. NEER performed a fair value analysis and concluded that an impairment charge related to the long-lived assets, primarily property, plant and equipment, was necessary. The fair value analysis was primarily based on the income approach using significant unobservable inputs (Level 3) including revenue and generation forecasts, projected capital and maintenance expenditures and discount rates. As a result, long-lived assets held and used with a carrying amount of approximately $79 million were written down to their fair value of $28 million, resulting in an impairment charge of $51 million ($31 million after-tax), which is recorded as a separate line item in NEE's consolidated statements of income for the year ended December 31, 2011.

In 2011, subsidiaries of NEER completed the sales of their ownership interests in five natural gas-fired generating plants with a total generating capacity of approximately 2,700 mw for net cash proceeds of approximately $1.2 billion, after transaction costs and working capital and other adjustments. Approximately $363 million of these proceeds were used to repay debt associated with certain of the projects. A NEER affiliate will continue to operate the facilities included in the sales under service contracts: three facilities for a five-year period, one facility for a two-year period and the fifth facility for a one-year period. In connection with the sales, a loss of approximately $151 million ($98 million after-tax) was recorded in NEE's consolidated statements of income. The loss includes the reclassification of $30 million from AOCI as a result of the discontinuance of certain cash flow hedges because it became probable that the related forecasted transactions being hedged would not occur. See Note 3.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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