Fair Value Measurements

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

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, 2016
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash:^(b)
NEE - equity securities	$	982	$	—		$	—				$	982
FPL - equity securities	$	120	$	—		$	—				$	120
Special use funds:^(c)
NEE:
Equity securities	$	1,410	$	1,503	^(d)	$	—				$	2,913
U.S. Government and municipal bonds	$	296	$	170		$	—				$	466
Corporate debt securities	$	1	$	763		$	—				$	764
Mortgage-backed securities	$	—	$	498		$	—				$	498
Other debt securities	$	—	$	81		$	—				$	81
FPL:
Equity securities	$	373	$	1,372	^(d)	$	—				$	1,745
U.S. Government and municipal bonds	$	221	$	141		$	—				$	362
Corporate debt securities	$	—	$	547		$	—				$	547
Mortgage-backed securities	$	—	$	384		$	—				$	384
Other debt securities	$	—	$	70		$	—				$	70
Other investments:
NEE:
Equity securities	$	26	$	9		$	—				$	35
Debt securities	$	8	$	153		$	—				$	161
Derivatives:
NEE:
Commodity contracts	$	1,563	$	1,827		$	1,200	$	(2,652	)	$	1,938	^(e)
Interest rate contracts	$	—	$	285		$	3	$	8		$	296	^(e)
Foreign currency contracts	$	—	$	1		$	—	$	—		$	1	^(e)
FPL - commodity contracts	$	—	$	208		$	4	$	(3	)	$	209	^(e)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,476	$	980		$	512	$	(2,485	)	$	483	^(e)
Interest rate contracts	$	—	$	171		$	113	$	8		$	292	^(e)
Foreign currency contracts	$	—	$	106		$	—	$	—		$	106	^(e)
FPL - commodity contracts	$	—	$	1		$	3	$	(3	)	$	1	^(e)

______________________

(a)

Includes the effect of the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral payments and receipts. NEE and FPL also have contract settlement receivable and payable balances that are subject to the master netting arrangements but are not offset within the consolidated balance sheets and are recorded in customer receivables - net and accounts payable, respectively.


(b)	Includes restricted cash of approximately $164 million ($120 million for FPL) in other current assets on the consolidated balance sheets.


(c)	Excludes investments accounted for under the equity method and loans not measured at fair value on a recurring basis. See Fair Value of Financial Instruments Recorded at Other than Fair Value below.


(d)	Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.


(e)	See Note 3 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's consolidated balance sheets.



	December 31, 2015
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash:^(b)
NEE - equity securities	$	312	$	—		$	—				$	312
FPL - equity securities	$	36	$	—		$	—				$	36
Special use funds:^(c)
NEE:
Equity securities	$	1,320	$	1,354	^(d)	$	—				$	2,674
U.S. Government and municipal bonds	$	446	$	166		$	—				$	612
Corporate debt securities	$	—	$	713		$	—				$	713
Mortgage-backed securities	$	—	$	412		$	—				$	412
Other debt securities	$	—	$	52		$	—				$	52
FPL:
Equity securities	$	364	$	1,234	^(d)	$	—				$	1,598
U.S. Government and municipal bonds	$	335	$	145		$	—				$	480
Corporate debt securities	$	—	$	531		$	—				$	531
Mortgage-backed securities	$	—	$	327		$	—				$	327
Other debt securities	$	—	$	40		$	—				$	40
Other investments:
NEE:
Equity securities	$	30	$	10		$	—				$	40
Debt securities	$	39	$	132		$	—				$	171
Derivatives:
NEE:
Commodity contracts	$	2,187	$	2,540		$	1,179	$	(3,969	)	$	1,937	^(e)
Interest rate contracts	$	—	$	35		$	—	$	(1	)	$	34	^(e)
FPL - commodity contracts	$	—	$	1		$	6	$	(3	)	$	4	^(e)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	2,153	$	1,887		$	540	$	(3,598	)	$	982	^(e)
Interest rate contracts	$	—	$	214		$	101	$	4		$	319	^(e)
Foreign currency contracts	$	—	$	132		$	—	$	(5	)	$	127	^(e)
FPL - commodity contracts	$	—	$	219		$	6	$	(3	)	$	222	^(e)

______________________

(a)


(b)	Includes restricted cash of approximately $61 million ($36 million for FPL) in other current assets on the consolidated balance sheets.


(c)	Excludes investments accounted for under the equity method and loans not measured at fair value on a recurring basis. See Fair Value of Financial Instruments Recorded at Other than Fair Value below.


(d)	Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.


(e)	See Note 3 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's consolidated balance sheets.

Significant Unobservable Inputs Used in Recurring Fair Value Measurements - The valuation of certain commodity contracts requires the use of significant unobservable inputs. All forward price, implied volatility, implied correlation and interest rate inputs used in the valuation of such contracts are directly based on third-party market data, such as broker quotes and exchange settlements, when that data is available. If third-party market data is not available, then industry standard methodologies are used to develop inputs that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Observable inputs, including some forward prices, implied volatilities and interest rates used for determining fair value are updated daily to reflect the best available market information. Unobservable inputs which are related to observable inputs, such as illiquid portions of forward price or volatility curves, are updated daily as well, using industry standard techniques such as interpolation and extrapolation, combining observable forward inputs supplemented by historical market and other relevant data. Other unobservable inputs, such as implied correlations, customer migration rates from full requirements contracts and some implied volatility curves, are modeled using proprietary models based on historical data and industry standard techniques.

All price, volatility, correlation and customer migration inputs used in valuation are subject to validation by the Trading Risk Management group. The Trading Risk Management group performs a risk management function responsible for assessing credit, market and operational risk impact, reviewing valuation methodology and modeling, confirming transactions, monitoring approval processes and developing and monitoring trading limits. The Trading Risk Management group is separate from the transacting group. For markets where independent third-party data is readily available, validation is conducted daily by directly reviewing this market data against inputs utilized by the transacting group, and indirectly by reviewing daily risk reports. For markets where independent third-party data is not readily available, additional analytical reviews are performed on at least a quarterly basis. These analytical reviews are designed to ensure that all price and volatility curves used for fair valuing transactions are adequately validated each quarter, and are reviewed and approved by the Trading Risk Management group. In addition, other valuation assumptions such as implied correlations and customer migration rates are reviewed and approved by the Trading Risk Management group on a periodic basis. Newly created models used in the valuation process are also subject to testing and approval by the Trading Risk Management group prior to use and established models are reviewed annually, or more often as needed, by the Trading Risk Management group.

On a monthly basis, the Exposure Management Committee (EMC), which is comprised of certain members of senior management, meets with representatives from the Trading Risk Management group and the transacting group to discuss NEE's and FPL's energy risk profile and operations, to review risk reports and to discuss fair value issues as necessary. The EMC develops guidelines required for an appropriate risk management control infrastructure, which includes implementation and monitoring of compliance with Trading Risk Management policy. The EMC executes its risk management responsibilities through direct oversight and delegation of its responsibilities to the Trading Risk Management group, as well as to other corporate and business unit personnel.

The significant unobservable inputs used in the valuation of NEE's commodity contracts categorized as Level 3 of the fair value hierarchy at December 31, 2016 are as follows:



Transaction Type	Fair Value at December 31, 2016				Valuation Technique(s)	Significant Unobservable Inputs	Range
	Assets		Liabilities
	(millions)
Forward contracts - power	$	621	$	206	Discounted cash flow	Forward price (per MWh)	$—	—	$91
Forward contracts - gas	27		10		Discounted cash flow	Forward price (per MMBtu)	$2	—	$11
Forward contracts - other commodity related	7		1		Discounted cash flow	Forward price (various)	$(17)	—	$57
Options - power	43		10		Option models	Implied correlations	1%	—	100%
						Implied volatilities	9%	—	296%
Options - primarily gas	223		230		Option models	Implied correlations	1%	—	100%
						Implied volatilities	1%	—	260%
Full requirements and unit contingent contracts	279		55		Discounted cash flow	Forward price (per MWh)	$(20)	—	$220
						Customer migration rate^(a)	—%	—	20%
Total	$	1,200	$	512

______________________


(a)	Applies only to full requirements contracts.

The sensitivity of NEE's fair value measurements to increases (decreases) in the significant unobservable inputs is as follows:



Significant Unobservable Input	Position	Impact on Fair Value Measurement
Forward price	Purchase power/gas	Increase (decrease)
	Sell power/gas	Decrease (increase)
Implied correlations	Purchase option	Decrease (increase)
	Sell option	Increase (decrease)
Implied volatilities	Purchase option	Increase (decrease)
	Sell option	Decrease (increase)
Customer migration rate	Sell power^(a)	Decrease (increase)

————————————


(a)	Assumes the contract is in a gain position.

In addition, the fair value measurement of interest rate contract net liabilities related to the solar projects in Spain of approximately $110 million at December 31, 2016 includes a significant credit valuation adjustment. The credit valuation adjustment, considered an unobservable input, reflects management's assessment of non-performance risk of the subsidiaries related to the solar projects in Spain that are party to the contracts. See Note 11 - Spain Solar Projects Debt Restructuring for further discussion.

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



	Years Ended December 31,
	2016					2015						2014
	NEE			FPL		NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior year	$	538		$	—	$	622		$	5		$	622		$	—
Realized and unrealized gains (losses):
Included in earnings^(a)	333			—		451			—			(77		)	—
Included in other comprehensive income	8			—		11			—			18			—
Included in regulatory assets and liabilities	1			1		3			3			7			7
Purchases	261			—		180			—			55			—
Settlements	(390		)	—		(473		)	(8		)	194			(2		)
Issuances	(195		)	—		(202		)	—			(122		)	—
Transfers in^(b)	19			—		(13		)	—			80			—
Transfers out^(b)	3			—		(41		)	—			(155		)	—
Fair value of net derivatives based on significant unobservable inputs at December 31	$	578		$	1	$	538		$	—		$	622		$	5
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^(c)	$	219		$	—	$	277		$	—		$	248		$	—

______________________

(a)

For the year ended December 31, 2016, $397 million of realized and unrealized gains are reflected in the consolidated statements of income in operating revenues and the balance is reflected in interest expense. For the year ended December 31, 2015, $462 million of realized and unrealized gains are reflected in the consolidated statements of income in operating revenues and the balance is primarily reflected in interest expense. For the year December 31, 2014, $79 million of realized and unrealized losses are reflected in the consolidated statements of income in interest expense and the balance is primarily reflected in operating revenues.


(b)	Transfers into Level 3 were a result of decreased observability of market data. Transfers from Level 3 to Level 2 were a result of increased observability of market data and, in 2016, a favorable change to a credit valuation adjustment. NEE's and FPL's policy is to recognize all transfers at the beginning of the reporting period.


(c)	For the years ended December 31, 2016, 2015 and 2014, $283 million, $289 million, and $328 million of unrealized gains are reflected in the consolidated statements of income in operating revenues and the balance is reflected in interest expense.

Contingent Consideration - NEE recorded a liability related to a contingent holdback as part of the 2015 acquisition of a portfolio of seven long-term contracted natural gas pipeline assets located in Texas (Texas pipelines). See Note 7 - Texas Pipeline Business.

Nonrecurring Fair Value Measurements - In 2013, NEER initiated a plan and received internal authorization to pursue the sale of its ownership interests in oil-fired generation plants located in Maine (Maine fossil), which resulted in the recording of a loss during that period which was reflected within discontinued operations at NEE. In 2014, NEER decided not to pursue the sale of Maine fossil due to the divergence between the achievable sales price and management's view of the assets' value, which increased as a result of significant market changes. Accordingly, the Maine fossil assets were written-up to management's current estimate of fair value resulting in a gain of approximately $21 million ($12 million after tax) which is included as a separate line item in NEE's consolidated statements of income. The fair value measurement (Level 3) was estimated using an income approach based primarily on the updated capacity revenue forecasts.

Fair Value of Financial Instruments Recorded at Other than Fair Value - The carrying amounts of cash equivalents, commercial paper and other short-term debt approximate their fair values. The carrying amounts and estimated fair values of other financial instruments recorded at other than fair value are as follows:



	December 31, 2016					December 31, 2015
	Carrying Amount		Estimated Fair Value			Carrying Amount		Estimated Fair Value
	(millions)
NEE:
Special use funds^(a)	$	712	$	712		$	675	$	675
Other investments - primarily notes receivable	$	526	$	668	^(b)	$	512	$	722	^(b)
Long-term debt, including current maturities^(c)	$	30,418	$	31,623	^(d)	$	28,897	$	30,412	^(d)
FPL:
Special use funds^(a)	$	557	$	557		$	528	$	528
Long-term debt, including current maturities	$	10,072	$	11,211	^(d)	$	10,020	$	11,028	^(d)

______________________


(a)	Primarily represents investments accounted for under the equity method and loans not measured at fair value on a recurring basis.

(b)

Primarily classified as held to maturity. Fair values are primarily estimated using an income approach utilizing a discounted cash flow valuation technique based on certain observable yield curves and indices considering the credit profile of the borrower (Level 3). Notes receivable bear interest primarily at fixed rates and mature by 2029. Notes receivable are considered impaired and placed in non-accrual status when it becomes probable that all amounts due cannot be collected in accordance with the contractual terms of the agreement. The assessment to place notes receivable in non-accrual status considers various credit indicators, such as credit ratings and market-related information.


(c)	Excludes debt totaling $373 million and $938 million, respectively, reflected in liabilities associated with assets held for sale on NEE's consolidated balance sheets for which the carrying amount approximates fair value. See Note 1 - Assets and Liabilities Associated with Assets Held for Sale.

(d)

As of December 31, 2016 and 2015, for NEE, approximately $29,804 million and $18,031 million, respectively, is estimated using a market approach based on quoted market prices for the same or similar issues (Level 2); the balance is estimated using an income approach utilizing a discounted cash flow valuation technique, considering the current credit profile of the debtor (Level 3). For FPL, primarily estimated using quoted market prices for the same or similar issues (Level 2).

Special Use Funds - The special use funds noted above and those carried at fair value (see Recurring Fair Value Measurements above) consist of NEE's and FPL's nuclear decommissioning fund assets of $5,434 million and $5,064 million at December 31, 2016 and 2015, respectively, ($3,665 million and $3,430 million, respectively, for FPL) and, in 2015, FPL's storm fund assets of $74 million. The investments held in the special use funds consist of equity and debt securities which are primarily classified as available for sale and carried at estimated fair value. The amortized cost of debt and equity securities is approximately $1,820 million and $1,543 million, respectively, at December 31, 2016 and $1,823 million and $1,505 million, respectively, at December 31, 2015 ($1,373 million and $764 million, respectively, at December 31, 2016 and $1,409 million and $732 million, respectively, at December 31, 2015 for FPL). For FPL's special use funds, consistent with regulatory treatment, changes in fair value, including any other than temporary impairment losses, result in a corresponding adjustment to the related regulatory liability accounts. For NEE's non-rate regulated operations, changes in fair value result in a corresponding adjustment to OCI, except for unrealized losses associated with marketable securities considered to be other than temporary, including any credit losses, which are recognized as other than temporary impairment losses on securities held in nuclear decommissioning funds in NEE's consolidated statements of income. Debt securities included in the nuclear decommissioning funds have a weighted-average maturity at December 31, 2016 of approximately nine years at both NEE and FPL. The cost of securities sold is determined using the specific identification method.

Realized gains and losses and proceeds from the sale or maturity of available for sale securities are as follows:



	NEE						FPL
	Years Ended December 31,						Years Ended December 31,
	2016		2015		2014		2016		2015		2014
	(millions)
Realized gains	$	116	$	194	$	211	$	53	$	70	$	120
Realized losses	$	76	$	87	$	115	$	44	$	43	$	94
Proceeds from sale or maturity of securities	$	3,400	$	4,643	$	4,092	$	2,442	$	3,724	$	3,349

The unrealized gains on available for sale securities are as follows:



	NEE				FPL
	December 31,				December 31,
	2016		2015		2016		2015
			(millions)
Equity securities	$	1,396	$	1,166	$	1,007	$	863
Debt securities	$	22	$	17	$	17	$	14

The unrealized losses on available for sale debt securities and the fair value of available for sale debt securities in an unrealized loss position are as follows:



	NEE				FPL
	December 31,				December 31,
	2016		2015		2016		2015
			(millions)
Unrealized losses^(a)	$	34	$	51	$	28	$	45
Fair value	$	959	$	1,129	$	722	$	861

______________________


(a)	Unrealized losses on available for sale debt securities in an unrealized loss position for greater than twelve months at December 31, 2016 and 2015 were not material to NEE or FPL.

Regulations issued by the FERC and the NRC provide general risk management guidelines to protect nuclear decommissioning funds and to allow such funds to earn a reasonable return. The FERC regulations prohibit, among other investments, investments in any securities of NEE or its subsidiaries, affiliates or associates, excluding investments tied to market indices or mutual funds. Similar restrictions applicable to the decommissioning funds for NEER's nuclear plants are included in the NRC operating licenses for those facilities or in NRC regulations applicable to NRC licensees not in cost-of-service environments. With respect to the decommissioning fund for Seabrook, decommissioning fund contributions and withdrawals are also regulated by the NDFC pursuant to New Hampshire law.

The nuclear decommissioning reserve funds are managed by investment managers who must comply with the guidelines of NEE and FPL and the rules of the applicable regulatory authorities. The funds' assets are invested giving consideration to taxes, liquidity, risk, diversification and other prudent investment objectives.

Financial Instruments Accounting Standards Update - In January 2016, the FASB issued an accounting standards update which modifies current guidance for financial instruments. The standards update requires that equity investments (except investments accounted for under the equity method and investments that are consolidated) be measured at fair value with changes in fair value recognized in net income and provides an option for those equity investments that do not have readily determinable fair values to be measured at cost minus impairment (plus or minus changes resulting from observable price changes). The standards update also makes certain changes to presentation and disclosure requirements of financial instruments. The standards update is effective for NEE and FPL beginning January 1, 2018 and will be applied retrospectively with the cumulative effect recognized as of the date of initial application. NEE and FPL are currently evaluating the effect the adoption of this standards update will have, if any, on their consolidated financial statements.