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Fair Value Measurements

9 Months Ended

Sep. 30, 2020

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 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.

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:



	September 30, 2020
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash equivalents:^(b)
NEE - equity securities	$	1,804	$	—		$	—				$	1,804
FPL - equity securities	$	191	$	—		$	—				$	191
Special use funds:^(c)
NEE:
Equity securities	$	1,994	$	2,187	^(d)	$	—				$	4,181
U.S. Government and municipal bonds	$	522	$	157		$	—				$	679
Corporate debt securities	$	1	$	850		$	—				$	851
Mortgage-backed securities	$	—	$	440		$	—				$	440
Other debt securities	$	—	$	112		$	—				$	112
FPL:
Equity securities	$	680	$	1,983	^(d)	$	—				$	2,663
U.S. Government and municipal bonds	$	405	$	103		$	—				$	508
Corporate debt securities	$	—	$	600		$	—				$	600
Mortgage-backed securities	$	—	$	348		$	—				$	348
Other debt securities	$	—	$	107		$	—				$	107
Other investments:^(e)
NEE:
Equity securities	$	61	$	—		$	—				$	61
Debt securities	$	93	$	109		$	—				$	202
Derivatives:
NEE:
Commodity contracts	$	1,029	$	1,796		$	1,610	$	(2,396	)	$	2,039	^(f)
Interest rate contracts	$	—	$	33		$	—	$	(28	)	$	5	^(f)
Foreign currency contracts	$	—	$	15		$	—	$	4		$	19	^(f)
FPL - commodity contracts	$	—	$	2		$	2	$	(2	)	$	2	^(f)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,027	$	1,328		$	440	$	(2,252	)	$	543	^(f)
Interest rate contracts	$	—	$	1,304		$	20	$	(28	)	$	1,296	^(f)
Foreign currency contracts	$	—	$	47		$	—	$	4		$	51	^(f)
FPL - commodity contracts	$	—	$	5		$	8	$	(2	)	$	11	^(f)

———————————————

(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 master netting arrangements but are not offset within the condensed consolidated balance sheets and are recorded in customer receivables - net and accounts payable, respectively.


(b)	Includes restricted cash equivalents of approximately $231 million ($73 million for FPL) in current other assets and $82 million ($41 million for FPL) in noncurrent other assets on the condensed 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)	Included in noncurrent other assets on NEE's condensed consolidated balance sheet.


(f)	See Note 4 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's condensed consolidated balance sheets.



	December 31, 2019
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash equivalents:^(b)
NEE - equity securities	$	363	$	—		$	—				$	363
FPL - equity securities	$	156	$	—		$	—				$	156
Special use funds:^(c)
NEE:
Equity securities	$	1,875	$	2,088	^(d)	$	—				$	3,963
U.S. Government and municipal bonds	$	567	$	150		$	—				$	717
Corporate debt securities	$	—	$	748		$	—				$	748
Mortgage-backed securities	$	—	$	517		$	—				$	517
Other debt securities	$	—	$	117		$	—				$	117
FPL:
Equity securities	$	596	$	1,895	^(d)	$	—				$	2,491
U.S. Government and municipal bonds	$	429	$	106		$	—				$	535
Corporate debt securities	$	—	$	533		$	—				$	533
Mortgage-backed securities	$	—	$	395		$	—				$	395
Other debt securities	$	—	$	111		$	—				$	111
Other investments:^(e)
NEE:
Equity securities	$	34	$	12		$	—				$	46
Debt securities	$	82	$	69		$	—				$	151
Derivatives:
NEE:
Commodity contracts	$	1,229	$	2,082		$	1,739	$	(2,700	)	$	2,350	^(f)
Interest rate contracts	$	—	$	24		$	2	$	(17	)	$	9	^(f)
Foreign currency contracts	$	—	$	26		$	—	$	1		$	27	^(f)
FPL - commodity contracts	$	—	$	3		$	1	$	(1	)	$	3	^(f)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,365	$	1,446		$	390	$	(2,625	)	$	576	^(f)
Interest rate contracts	$	—	$	598		$	144	$	(17	)	$	725	^(f)
Foreign currency contracts	$	—	$	38		$	—	$	1		$	39	^(f)
FPL - commodity contracts	$	—	$	5		$	9	$	(1	)	$	13	^(f)

———————————————

(a)


(b)	Includes restricted cash equivalents of approximately $60 million ($54 million for FPL) in current other assets and $64 million ($64 million for FPL) in noncurrent other assets on the condensed 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)	Included in noncurrent other assets on NEE's condensed consolidated balance sheet.


(f)	See Note 4 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's condensed 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, block-to-hourly price shaping, 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.

The significant unobservable inputs used in the valuation of NEE's commodity contracts categorized as Level 3 of the fair value hierarchy at September 30, 2020 are as follows:



	Fair Value at				Valuation	Significant				Weighted-
Transaction Type	September 30, 2020				Technique(s)	Unobservable Inputs	Range			average^(a)
	Assets		Liabilities
	(millions)
Forward contracts - power	$	754	$	106	Discounted cash flow	Forward price (per MWh)	$2	—	$157	$28
Forward contracts - gas	270		40		Discounted cash flow	Forward price (per MMBtu)	$—	—	$8	$3
Forward contracts - congestion	25		5		Discounted cash flow	Forward price (per MWh)	$(5)	—	$33	$—
Options - power	35		17		Option models	Implied correlations	40%	—	85%	55%
						Implied volatilities	5%	—	152%	48%
Options - primarily gas	198		203		Option models	Implied correlations	40%	—	100%	57%
						Implied volatilities	16%	—	270%	42%
Full requirements and unit contingent contracts	301		56		Discounted cash flow	Forward price (per MWh)	$6	—	$382	$48
						Customer migration rate^(b)	—%	—	122%	2%
Forward contracts - other	27		13
Total	$	1,610	$	440

———————————————


(a)	Unobservable inputs were weighted by volume.


(b)	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.

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



	Three Months Ended September 30,
	2020						2019
	NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at June 30	$	1,305		$	(6	)	$	1,231		$	(13	)
Realized and unrealized gains (losses):
Included in earnings^(a)	(55		)	—			(29		)	—
Included in other comprehensive income (loss)^(b)	—			—			6			—
Included in regulatory assets and liabilities	(1		)	(1		)	2			2
Purchases	37			—			27			—
Settlements	(108		)	1			(146		)	1
Issuances	(26		)	—			(13		)	—
Transfers out^(c)	(2		)	—			(27		)	—
Fair value of net derivatives based on significant unobservable inputs at September 30	$	1,150		$	(6	)	$	1,051		$	(10	)
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date^(d)	$	(46	)	$	—		$	53		$	—

———————————————


(a)	For the three months ended September 30, 2020 and 2019, realized and unrealized losses of approximately $55 million and $23 million, respectively, are included in the condensed consolidated statements of income in operating revenues and the balance is included in interest expense.


(b)	Included in net unrealized gains (losses) on foreign currency translation in the condensed consolidated statements of comprehensive income.


(c)	Transfers from Level 3 to Level 2 were a result of increased observability of market data.


(d)	For the three months ended September 30, 2020 and 2019, unrealized gains (losses) of approximately $(46) million and $61 million, respectively, are included in the condensed consolidated statements of income in operating revenues and the balance is included in interest expense.



	Nine Months Ended September 30,
	2020						2019
	NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior period	$	1,207		$	(8	)	$	647		$	(36	)
Realized and unrealized gains (losses):
Included in earnings^(a)	294			—			663			—
Included in other comprehensive income (loss)^(b)	1			—			7			—
Included in regulatory assets and liabilities	(3		)	(3		)	1			1
Purchases	157			—			94			—
Sales^(c)	114			—			—			—
Settlements	(490		)	5			(265		)	23
Issuances	(98		)	—			(64		)	—
Transfers out^(d)	(32		)	—			(32		)	2
Fair value of net derivatives based on significant unobservable inputs at September 30	$	1,150		$	(6	)	$	1,051		$	(10	)
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date^(e)	$	79		$	—		$	476		$	—

———————————————


(a)	For the nine months ended September 30, 2020 and 2019, realized and unrealized gains of approximately $314 million and $680 million, respectively, are included in the condensed consolidated statements of income in operating revenues and the balance is included in interest expense.


(b)	Included in net unrealized gains (losses) on foreign currency translation in the condensed consolidated statements of comprehensive income.


(c)	See Note 11 - Disposal of Businesses.


(d)	Transfers from Level 3 to Level 2 were a result of increased observability of market data.


(e)	For the nine months ended September 30, 2020 and 2019, unrealized gains of approximately $90 million and $493 million, respectively, are included in the condensed consolidated statements of income in operating revenues and the balance is included in interest expense.

Fair Value of Financial Instruments Recorded at Other than Fair Value - The carrying amounts of 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:



	September 30, 2020					December 31, 2019
	Carrying Amount		Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(millions)
NEE:
Special use funds^(a)	$	912	$	912		$	892		$	891
Other investments^(b)	$	25	$	25		$	30		$	30
Long-term debt, including current portion	$	47,838	$	52,527	^(c)	$	39,667	^(d)	$	42,928	^{(c) (d)}
FPL:
Special use funds^(a)	$	719	$	718		$	706		$	705
Long-term debt, including current portion	$	15,809	$	19,415	^(c)	$	14,161		$	16,448	^(c)

———————————————


(a)	Primarily represents investments accounted for under the equity method and loans not measured at fair value on a recurring basis (Level 2).


(b)	Included in noncurrent other assets on NEE's condensed consolidated balance sheets.


(c)	At September 30, 2020 and December 31, 2019, substantially all is Level 2 for NEE and all is Level 2 for FPL.


(d)	Excludes debt totaling approximately $463 million classified as held for sale, which is included in current other liabilities on NEE's condensed consolidated balance sheet at December 31, 2019, for which the carrying amount approximated fair value. See Note 11 - Disposal of Businesses.

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 nuclear decommissioning fund assets of approximately $7,099 million and $6,880 million at September 30, 2020 and December 31, 2019, respectively, ($4,869 million and $4,697 million, respectively, for FPL) and FPL's storm fund assets of $76 million and $74 million at September 30, 2020 and December 31, 2019, respectively. The investments held in the special use funds consist of equity and available for sale debt securities which are primarily carried at estimated fair value. The amortized cost of debt securities is approximately $1,984 million and $2,030 million at September 30, 2020 and December 31, 2019, respectively ($1,492 million and $1,523 million, respectively, for FPL). Debt securities included in the nuclear decommissioning funds have a weighted-average maturity at September 30, 2020 of approximately nine years at both NEE and FPL. FPL's storm fund primarily consists of debt securities with a weighted-average maturity at September 30, 2020 of approximately one year. The cost of securities sold is determined using the specific identification method.

Effective January 1, 2020, NEE and FPL adopted an accounting standards update that provides a modified version of the other than temporary impairment model for debt securities. The new available for sale debt security impairment model no longer allows consideration of the length of time during which the fair value has been less than its amortized cost basis when determining whether a credit loss exists. Credit losses are required to be presented as an allowance rather than as a write-down on securities not intended to be sold or required to be sold. NEE and FPL adopted this model prospectively. See Note 11 - Measurement of Credit Losses on Financial Instruments.

For FPL's special use funds, changes in fair value of debt and equity securities, including any estimated credit losses of debt securities, result in a corresponding adjustment to the related regulatory asset or liability accounts, consistent with regulatory treatment. For NEE's non-rate regulated operations, changes in fair value of debt securities result in a corresponding adjustment to OCI, except for estimated credit losses and unrealized losses on debt securities intended or required to be sold prior to recovery of the amortized cost basis, which are recognized in other - net in NEE's condensed consolidated statements of income. Changes in fair value of equity securities are recorded in change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds - net in NEE’s condensed consolidated statements of income.

Unrealized gains (losses) recognized on equity securities held at September 30, 2020 and 2019 are as follows:



	NEE								FPL
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019		2020		2019		2020		2019
	(millions)
Unrealized gains (losses)	$	223	$	21	$	65	$	500	$	129	$	18	$	50	$	327

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



	NEE								FPL
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019		2020		2019		2020		2019
	(millions)
Realized gains	$	30	$	21	$	86	$	47	$	21	$	15	$	66	$	30
Realized losses	$	17	$	14	$	50	$	34	$	10	$	11	$	38	$	20
Proceeds from sale or maturity of securities	$	555	$	612	$	2,046	$	2,087	$	475	$	489	$	1,747	$	1,717

The unrealized gains and 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
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
	(millions)
Unrealized gains	$	120	$	75	$	92	$	58
Unrealized losses^(a)	$	23	$	7	$	21	$	7
Fair value	$	314	$	314	$	239	$	240

———————————————


(a)	Unrealized losses on available for sale debt securities in an unrealized loss position for greater than twelve months at September 30, 2020 and December 31, 2019 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 New Hampshire Nuclear Decommissioning Financing Committee 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.

- 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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