NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2019 Form 10-K. In the opinion of NEE and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
1. Revenue from Contracts with Customers
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. NEE’s revenue from contracts with customers was approximately $3.9 billion ($2.5 billion at FPL) and $3.8 billion ($2.6 billion at FPL) for the three months ended March 31, 2020 and 2019, 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, 2020 and December 31, 2019, FPL's unbilled revenues amounted to approximately $434 million and $389 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 2020 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 which primarily relate to electric capacity sales associated with ISO annual auctions through 2024 and certain power purchase agreements with maturity dates through 2034. At March 31, 2020, NEER expects to record approximately $965 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
NextEra Energy Resources provides management, administrative and transportation and fuel management services to NEP and its subsidiaries under various agreements (service agreements). NextEra Energy Resources is also party to a cash sweep and credit support (CSCS) agreement with a subsidiary of NEP. At March 31, 2020 and December 31, 2019, the cash sweep amounts (due to NEP and its subsidiaries) held in accounts belonging to NextEra Energy Resources or its subsidiaries were approximately $60 million and $12 million, respectively, and are included in accounts payable. Fee income totaling approximately $28 million and $24 million for the three months ended March 31, 2020 and 2019, respectively, related to the CSCS agreement and the service agreements and is included in operating revenues in NEE's condensed consolidated statements of income. Amounts due from NEP of approximately $71 million and $53 million are included in other receivables and $32 million and $33 million are included in noncurrent other assets at March 31, 2020 and December 31, 2019, respectively. Under the CSCS agreement, NEECH or NextEra Energy Resources guaranteed or provided indemnifications, letters of credit or surety bonds totaling approximately $656 million at March 31, 2020 primarily related to obligations on behalf of NEP's subsidiaries with maturity dates ranging from 2020 to 2059 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, 2020, approximately $31 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.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Summarized financial information of NEP is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(millions)
|
Operating revenues
|
$
|
212
|
|
|
$
|
177
|
|
Operating income
|
$
|
49
|
|
|
$
|
34
|
|
Net loss
|
$
|
(720
|
)
|
|
$
|
(121
|
)
|
Net loss attributable to NEP
|
$
|
(222
|
)
|
|
$
|
(22
|
)
|
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,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(millions)
|
Service cost
|
$
|
21
|
|
|
$
|
20
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
23
|
|
|
29
|
|
|
2
|
|
|
3
|
|
Expected return on plan assets
|
(80
|
)
|
|
(79
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service benefit
|
—
|
|
|
—
|
|
|
(4
|
)
|
|
(4
|
)
|
Amortization of actuarial loss
|
4
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Special termination benefits(a)
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic income at NEE
|
$
|
(30
|
)
|
|
$
|
(30
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
Net periodic income allocated to FPL
|
$
|
(19
|
)
|
|
$
|
(18
|
)
|
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
_________________________
|
|
(a)
|
Reflects enhanced early retirement benefits.
|
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, 2020 and March 31, 2019, NEE reclassified from AOCI approximately $23 million ($3 million after tax) to gains on disposal of businesses/assets - net (see Note 11 - Disposal of a Business) and $6 million ($5 million after tax) to interest expense, respectively, because it became probable that related future transactions being hedged would not occur. At March 31, 2020, 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 $8 million of net losses included in AOCI at March 31, 2020 are 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.
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, 2020 and December 31, 2019, 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, 2020
|
|
Gross Basis
|
|
Net Basis
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(millions)
|
NEE:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
6,367
|
|
|
$
|
4,103
|
|
|
$
|
2,900
|
|
|
$
|
710
|
|
Interest rate contracts
|
39
|
|
|
1,517
|
|
|
9
|
|
|
1,487
|
|
Foreign currency contracts
|
21
|
|
|
107
|
|
|
21
|
|
|
107
|
|
Total fair values
|
$
|
6,427
|
|
|
$
|
5,727
|
|
|
$
|
2,930
|
|
|
$
|
2,304
|
|
|
|
|
|
|
|
|
|
FPL:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
5
|
|
|
$
|
17
|
|
|
$
|
3
|
|
|
$
|
15
|
|
|
|
|
|
|
|
|
|
Net fair value by NEE balance sheet line item:
|
|
|
|
|
|
|
|
Current derivative assets(a)
|
|
|
|
|
$
|
994
|
|
|
|
Noncurrent derivative assets(b)
|
|
|
|
|
1,936
|
|
|
|
Current derivative liabilities(c)
|
|
|
|
|
|
|
$
|
448
|
|
Noncurrent derivative liabilities
|
|
|
|
|
|
|
1,856
|
|
Total derivatives
|
|
|
|
|
$
|
2,930
|
|
|
$
|
2,304
|
|
|
|
|
|
|
|
|
|
Net fair value by FPL balance sheet line item:
|
|
|
|
|
|
|
|
Current other assets
|
|
|
|
|
$
|
3
|
|
|
|
Current other liabilities
|
|
|
|
|
|
|
$
|
15
|
|
Total derivatives
|
|
|
|
|
$
|
3
|
|
|
$
|
15
|
|
———————————————
|
|
(a)
|
Reflects the netting of approximately $27 million in margin cash collateral received from counterparties.
|
|
|
(b)
|
Reflects the netting of approximately $160 million in margin cash collateral received from counterparties.
|
|
|
(c)
|
Reflects the netting of approximately $113 million in margin cash collateral paid to counterparties.
|
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
Gross Basis
|
|
Net Basis
|
|
Assets
|
|
Liabilities
|
|
Assets
|
|
Liabilities
|
|
(millions)
|
NEE:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
5,050
|
|
|
$
|
3,201
|
|
|
$
|
2,350
|
|
|
$
|
576
|
|
Interest rate contracts
|
26
|
|
|
742
|
|
|
9
|
|
|
725
|
|
Foreign currency contracts
|
26
|
|
|
38
|
|
|
27
|
|
|
39
|
|
Total fair values
|
$
|
5,102
|
|
|
$
|
3,981
|
|
|
$
|
2,386
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
FPL:
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
3
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
Net fair value by NEE balance sheet line item:
|
|
|
|
|
|
|
|
Current derivative assets(a)
|
|
|
|
|
$
|
762
|
|
|
|
Noncurrent derivative assets(b)
|
|
|
|
|
1,624
|
|
|
|
Current derivative liabilities(c)
|
|
|
|
|
|
|
$
|
344
|
|
Current other liabilities(d)
|
|
|
|
|
|
|
133
|
|
Noncurrent derivative liabilities
|
|
|
|
|
|
|
863
|
|
Total derivatives
|
|
|
|
|
$
|
2,386
|
|
|
$
|
1,340
|
|
|
|
|
|
|
|
|
|
Net fair value by FPL balance sheet line item:
|
|
|
|
|
|
|
|
Current other assets
|
|
|
|
|
$
|
3
|
|
|
|
Current other liabilities
|
|
|
|
|
|
|
$
|
12
|
|
Noncurrent other liabilities
|
|
|
|
|
|
|
1
|
|
Total derivatives
|
|
|
|
|
$
|
3
|
|
|
$
|
13
|
|
———————————————
|
|
(a)
|
Reflects the netting of approximately $2 million in margin cash collateral received from counterparties.
|
|
|
(b)
|
Reflects the netting of approximately $139 million in margin cash collateral received from counterparties.
|
|
|
(c)
|
Reflects the netting of approximately $66 million in margin cash collateral paid to counterparties.
|
|
|
(d)
|
See Note 11 - Disposal of a Business.
|
At March 31, 2020 and December 31, 2019, NEE had approximately $37 million and $10 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets in the above presentation. These amounts are included in current other liabilities on NEE's condensed consolidated balance sheets. Additionally, at March 31, 2020 and December 31, 2019, NEE had approximately $330 million and $360 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,
|
|
2020
|
|
2019
|
|
(millions)
|
Commodity contracts(a) - operating revenues
|
$
|
625
|
|
|
$
|
(4
|
)
|
Foreign currency contracts - interest expense
|
(79
|
)
|
|
(19
|
)
|
Interest rate contracts - interest expense
|
(905
|
)
|
|
(326
|
)
|
Losses reclassified from AOCI:
|
|
|
|
Interest rate contracts(b)
|
(25
|
)
|
|
(12
|
)
|
Foreign currency contracts - interest expense
|
(1
|
)
|
|
(1
|
)
|
Total
|
$
|
(385
|
)
|
|
$
|
(362
|
)
|
———————————————
|
|
(a)
|
For the three months ended March 31, 2020 and 2019, FPL recorded losses of approximately $3 million and gains of $2 million, respectively, related to commodity contracts as regulatory assets and regulatory liabilities, respectively, on its condensed consolidated balance sheets.
|
|
|
(b)
|
For the three months ended March 31, 2020, approximately $23 million was reclassified to gains on disposal of businesses/assets - net (see Note 11 - Disposal of a Business); remaining balances were reclassified to interest expense on NEE's condensed consolidated statements of income.
|
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, 2020
|
|
December 31, 2019
|
Commodity Type
|
|
NEE
|
|
FPL
|
|
NEE
|
|
FPL
|
|
|
(millions)
|
Power
|
|
(76
|
)
|
|
MWh
|
|
1
|
|
|
MWh
|
|
(81
|
)
|
|
MWh
|
|
1
|
|
|
MWh
|
Natural gas
|
|
(158
|
)
|
|
MMBtu
|
|
283
|
|
|
MMBtu
|
|
(1,723
|
)
|
|
MMBtu
|
|
161
|
|
|
MMBtu
|
Oil
|
|
(10
|
)
|
|
barrels
|
|
—
|
|
|
|
|
(13
|
)
|
|
barrels
|
|
—
|
|
|
|
At March 31, 2020 and December 31, 2019, NEE had interest rate contracts with a net notional amount of approximately $8.3 billion and $8.9 billion, respectively, and foreign currency contracts with a net notional amount of approximately $1.0 billion and $1.0 billion, respectively.
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, 2020 and December 31, 2019, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $2.7 billion ($12 million for FPL) and $1.7 billion ($12 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 three 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 $150 million (none at FPL) at March 31, 2020 and $215 million (none at FPL) at December 31, 2019. 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, 2020 and $1.2 billion ($35 million at FPL) at December 31, 2019. 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 $1.4 billion ($60 million at FPL) at March 31, 2020 and $590 million ($75 million at FPL) at December 31, 2019.
Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business. At March 31, 2020 and December 31, 2019, applicable NEE subsidiaries have posted approximately $2 million (none at FPL) and $2 million (none at FPL), respectively, in cash and $62 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 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.
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, 2020
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Netting(a)
|
|
Total
|
|
|
(millions)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents and restricted cash equivalents:(b)
|
|
|
|
|
|
|
|
|
|
|
NEE - equity securities
|
$
|
3,115
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
3,115
|
|
|
FPL - equity securities
|
$
|
1,127
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
$
|
1,127
|
|
|
Special use funds:(c)
|
|
|
|
|
|
|
|
|
|
|
NEE:
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
1,505
|
|
|
$
|
1,661
|
|
(d)
|
$
|
—
|
|
|
|
|
$
|
3,166
|
|
|
U.S. Government and municipal bonds
|
$
|
503
|
|
|
$
|
168
|
|
|
$
|
—
|
|
|
|
|
$
|
671
|
|
|
Corporate debt securities
|
$
|
1
|
|
|
$
|
732
|
|
|
$
|
—
|
|
|
|
|
$
|
733
|
|
|
Mortgage-backed securities
|
$
|
—
|
|
|
$
|
505
|
|
|
$
|
—
|
|
|
|
|
$
|
505
|
|
|
Other debt securities
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
|
|
$
|
107
|
|
|
FPL:
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
484
|
|
|
$
|
1,505
|
|
(d)
|
$
|
—
|
|
|
|
|
$
|
1,989
|
|
|
U.S. Government and municipal bonds
|
$
|
396
|
|
|
$
|
112
|
|
|
$
|
—
|
|
|
|
|
$
|
508
|
|
|
Corporate debt securities
|
$
|
—
|
|
|
$
|
529
|
|
|
$
|
—
|
|
|
|
|
$
|
529
|
|
|
Mortgage-backed securities
|
$
|
—
|
|
|
$
|
375
|
|
|
$
|
—
|
|
|
|
|
$
|
375
|
|
|
Other debt securities
|
$
|
—
|
|
|
$
|
99
|
|
|
$
|
—
|
|
|
|
|
$
|
99
|
|
|
Other investments:(e)
|
|
|
|
|
|
|
|
|
|
|
NEE:
|
|
|
|
|
|
|
|
|
|
|
Equity securities
|
$
|
30
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
|
|
$
|
41
|
|
|
Debt securities
|
$
|
65
|
|
|
$
|
79
|
|
|
$
|
—
|
|
|
|
|
$
|
144
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
NEE:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
1,628
|
|
|
$
|
2,714
|
|
|
$
|
2,025
|
|
|
$
|
(3,467
|
)
|
|
$
|
2,900
|
|
(f)
|
Interest rate contracts
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
(30
|
)
|
|
$
|
9
|
|
(f)
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
21
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
21
|
|
(f)
|
FPL - commodity contracts
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
2
|
|
|
$
|
(2
|
)
|
|
$
|
3
|
|
(f)
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
NEE:
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
$
|
1,838
|
|
|
$
|
1,780
|
|
|
$
|
485
|
|
|
$
|
(3,393
|
)
|
|
$
|
710
|
|
(f)
|
Interest rate contracts
|
$
|
—
|
|
|
$
|
1,496
|
|
|
$
|
21
|
|
|
$
|
(30
|
)
|
|
$
|
1,487
|
|
(f)
|
Foreign currency contracts
|
$
|
—
|
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
107
|
|
(f)
|
FPL - commodity contracts
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
11
|
|
|
$
|
(2
|
)
|
|
$
|
15
|
|
(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 $79 million ($77 million for FPL) in current other assets and $55 million ($55 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.
|
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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)
|
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 $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.
|
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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 March 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value at
|
|
Valuation
|
|
Significant
|
|
|
|
|
Weighted-
|
Transaction Type
|
|
March 31, 2020
|
|
Technique(s)
|
|
Unobservable Inputs
|
|
Range
|
average(a)
|
|
|
Assets
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
|
Forward contracts - power
|
|
$
|
864
|
|
|
$
|
111
|
|
|
Discounted cash flow
|
|
Forward price (per MWh)
|
|
$2
|
—
|
$194
|
$26
|
Forward contracts - gas
|
|
271
|
|
|
22
|
|
|
Discounted cash flow
|
|
Forward price (per MMBtu)
|
|
$1
|
—
|
$6
|
$2
|
Forward contracts - congestion
|
|
21
|
|
|
4
|
|
|
Discounted cash flow
|
|
Forward price (per MWh)
|
|
$(13)
|
—
|
$32
|
$—
|
Options - power
|
|
33
|
|
|
10
|
|
|
Option models
|
|
Implied correlations
|
|
31%
|
—
|
84%
|
50%
|
|
|
|
|
|
|
|
|
Implied volatilities
|
|
13%
|
—
|
295%
|
45%
|
Options - primarily gas
|
|
238
|
|
|
248
|
|
|
Option models
|
|
Implied correlations
|
|
31%
|
—
|
100%
|
53%
|
|
|
|
|
|
|
|
|
Implied volatilities
|
|
14%
|
—
|
278%
|
36%
|
Full requirements and unit contingent contracts
|
|
574
|
|
|
69
|
|
|
Discounted cash flow
|
|
Forward price (per MWh)
|
|
$6
|
—
|
$748
|
$46
|
|
|
|
|
|
|
|
|
Customer migration rate(b)
|
|
—%
|
—
|
13%
|
—%
|
Forward contracts - other
|
|
24
|
|
|
21
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,025
|
|
|
$
|
485
|
|
|
|
|
|
|
|
|
|
|
———————————————
|
|
(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.
|
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
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)
|
387
|
|
|
—
|
|
|
180
|
|
|
—
|
|
Included in other comprehensive income (loss)(b)
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Included in regulatory assets and liabilities
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Purchases
|
81
|
|
|
—
|
|
|
24
|
|
|
—
|
|
Sales(c)
|
114
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Settlements
|
(206
|
)
|
|
1
|
|
|
(39
|
)
|
|
20
|
|
Issuances
|
(32
|
)
|
|
—
|
|
|
(14
|
)
|
|
—
|
|
Transfers out(d)
|
(30
|
)
|
|
—
|
|
|
45
|
|
|
2
|
|
Fair value of net derivatives based on significant unobservable inputs at March 31
|
$
|
1,519
|
|
|
$
|
(9
|
)
|
|
$
|
844
|
|
|
$
|
(16
|
)
|
Gains (losses) included in earnings attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date(e)
|
$
|
308
|
|
|
$
|
—
|
|
|
$
|
116
|
|
|
$
|
—
|
|
———————————————
|
|
(a)
|
For the three months ended March 31, 2020 and 2019, realized and unrealized gains of approximately $405 million and $194 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 a Business.
|
|
|
(d)
|
Transfers from Level 3 to Level 2 were a result of increased observability of market data.
|
|
|
(e)
|
For the three months ended March 31, 2020 and 2019, unrealized gains of approximately $319 million and $130 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
Carrying
Amount
|
|
Estimated
Fair Value
|
|
|
(millions)
|
|
NEE:
|
|
|
Special use funds(a)
|
$
|
931
|
|
|
$
|
930
|
|
|
$
|
892
|
|
|
$
|
891
|
|
|
Other investments(b)
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
30
|
|
|
$
|
30
|
|
|
Long-term debt, including current portion(c)
|
$
|
43,605
|
|
|
$
|
45,791
|
|
(d)
|
$
|
39,667
|
|
|
$
|
42,928
|
|
(d)
|
FPL:
|
|
|
|
|
|
|
|
|
Special use funds(a)
|
$
|
736
|
|
|
$
|
735
|
|
|
$
|
706
|
|
|
$
|
705
|
|
|
Long-term debt, including current portion
|
$
|
15,422
|
|
|
$
|
17,721
|
|
(d)
|
$
|
14,161
|
|
|
$
|
16,448
|
|
(d)
|
———————————————
|
|
(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)
|
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 a Business.
|
|
|
(d)
|
At March 31, 2020 and December 31, 2019, substantially all is Level 2 for NEE and all is Level 2 for FPL.
|
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 $6,037 million and $6,880 million at March 31, 2020 and December 31, 2019, respectively, ($4,160 million and $4,697 million, respectively, for FPL) and FPL's storm fund assets of $76 million and $74 million at March 31, 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 $2,009 million and $2,030 million at March 31, 2020 and December 31, 2019, respectively, ($1,508 million and $1,523 million, respectively, for FPL).
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
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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.
The unrealized gains (losses) recognized during the three months ended March 31, 2020 and 2019 on equity securities held at March 31, 2020 and 2019 were $(808) million and $367 million, respectively ($(502) million and $234 million for the three months ended March 31, 2020 and 2019 for FPL). Debt securities included in the nuclear decommissioning funds have a weighted-average maturity at March 31, 2020 of approximately eight years at NEE and nine years at FPL. FPL's storm fund primarily consists of debt securities with a weighted-average maturity at March 31, 2020 of approximately one year. 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 debt securities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEE
|
|
FPL
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
(millions)
|
Realized gains
|
$
|
30
|
|
|
$
|
9
|
|
|
$
|
25
|
|
|
$
|
5
|
|
Realized losses
|
$
|
17
|
|
|
$
|
9
|
|
|
$
|
15
|
|
|
$
|
4
|
|
Proceeds from sale or maturity of securities
|
$
|
738
|
|
|
$
|
687
|
|
|
$
|
607
|
|
|
$
|
543
|
|
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
|
|
March 31, 2020
|
|
December 31, 2019
|
|
March 31, 2020
|
|
December 31, 2019
|
|
(millions)
|
Unrealized gains
|
$
|
89
|
|
|
$
|
75
|
|
|
$
|
70
|
|
|
$
|
58
|
|
Unrealized losses(a)
|
$
|
82
|
|
|
$
|
7
|
|
|
$
|
66
|
|
|
$
|
7
|
|
Fair value
|
$
|
603
|
|
|
$
|
314
|
|
|
$
|
448
|
|
|
$
|
240
|
|
———————————————
|
|
(a)
|
Unrealized losses on available for sale debt securities in an unrealized loss position for greater than twelve months at March 31, 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.
6. Income Taxes
NEE's effective income tax rate for the three months ended March 31, 2020 and 2019 was approximately (321.9)% and 10.9%, respectively. NEE's effective income tax rate for the three months ended March 31, 2020 is based on the composition of pre-tax
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
income and primarily reflects the impact of unfavorable changes in the fair value of interest rate derivative instruments and equity securities held in NEER's nuclear decommissioning funds, and the gain on the sale of the Spain solar projects that was not taxable for federal and state income tax purposes (see Note 11 - Disposal of a Business).
A reconciliation between the effective income tax rates and the applicable statutory rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NEE
|
|
FPL
|
|
Three Months Ended March 31,
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Statutory federal income tax rate
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
|
21.0
|
%
|
Increases (reductions) resulting from:
|
|
|
|
|
|
|
|
State income taxes - net of federal income tax benefit
|
(61.0
|
)
|
|
4.7
|
|
|
4.3
|
|
|
4.4
|
|
Taxes attributable to noncontrolling interests
|
32.7
|
|
|
2.3
|
|
|
—
|
|
|
—
|
|
PTCs and ITCs - NEER
|
(86.5
|
)
|
|
(8.3
|
)
|
|
—
|
|
|
—
|
|
Amortization of deferred regulatory credit
|
(55.5
|
)
|
|
(4.8
|
)
|
|
(5.0
|
)
|
|
(3.8
|
)
|
Foreign operations
|
(76.9
|
)
|
|
0.3
|
|
|
—
|
|
|
—
|
|
Other - net
|
(95.7
|
)
|
|
(4.3
|
)
|
|
(2.7
|
)
|
|
(0.7
|
)
|
Effective income tax rate
|
(321.9
|
)%
|
|
10.9
|
%
|
|
17.6
|
%
|
|
20.9
|
%
|
NEE recognizes PTCs as wind energy is generated and sold based on a per kWh rate prescribed in applicable federal and state statutes, which may differ significantly from amounts computed, on a quarterly basis, using an overall effective income tax rate anticipated for the full year. NEE uses this method of recognizing PTCs for specific reasons, including that PTCs are an integral part of the financial viability of most wind projects and a fundamental component of such wind projects' results of operations. PTCs, as well as ITCs, can significantly affect NEE's effective income tax rate depending on the amount of pretax income. The amount of PTCs recognized can be significantly affected by wind generation and by the roll off of PTCs after ten years of production.
7. Acquisitions
Gulf Power - On January 1, 2019, NEE acquired the outstanding common shares of Gulf Power, a rate-regulated electric utility under the jurisdiction of the FPSC. Gulf Power serves approximately 470,000 customers in eight counties throughout northwest Florida, has approximately 9,500 miles of transmission and distribution lines and owns approximately 2,300 MW of net generating capacity. The purchase price included approximately $4.44 billion in cash consideration and the assumption of approximately $1.3 billion of Gulf Power debt. The cash purchase price was funded through $4.5 billion of borrowings by NEECH in December 2018 under certain short-term bi-lateral term loan agreements; the proceeds of which borrowings were restricted and included in noncurrent other assets on NEE's condensed consolidated balance sheet at December 31, 2018. Such borrowings were repaid in April 2019.
Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed on January 1, 2019 based on their fair value. The approval by the FPSC of Gulf Power's rates, which is intended to allow Gulf Power to collect from retail customers total revenues equal to Gulf Power's costs of providing service, including a reasonable rate of return on invested capital, is considered a fundamental input in measuring the fair value of Gulf Power's assets and liabilities and, as such, NEE concluded that the carrying values of all assets and liabilities recoverable through rates are representative of their fair values. As a result, NEE acquired assets of approximately $5.2 billion, primarily relating to property, plant and equipment of $4.0 billion and regulatory assets of $494 million, and assumed liabilities of approximately $3.4 billion, including $1.3 billion of long-term debt, $635 million of regulatory liabilities and $562 million of deferred income taxes. The excess of the purchase price over the fair value of assets acquired and liabilities assumed resulted in approximately $2.7 billion of goodwill which has been recognized on NEE's condensed consolidated balance sheet at March 31, 2020. Goodwill associated with the Gulf Power acquisition is reflected within Corporate and Other and, for impairment testing, is included in the Gulf Power reporting unit. The goodwill arising from the transaction represents expected benefits from continued expansion of NEE's regulated businesses and the indefinite life of Gulf Power's service territory franchise.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Trans Bay Cable, LLC - On July 16, 2019, a wholly owned subsidiary of NEET acquired the membership interests of Trans Bay Cable, LLC (Trans Bay), which owns and operates a 53-mile, high-voltage direct current underwater transmission cable system in California extending from Pittsburg to San Francisco, with utility rates set by the FERC and revenues paid by the California Independent System Operator. The purchase price included approximately $670 million in cash consideration and the assumption of debt of approximately $422 million.
Under the acquisition method, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair value. The approval by the FERC of Trans Bay’s rates, which is intended to allow Trans Bay to collect total revenues equal to Trans Bay's costs for the development, financing, construction, operation and maintenance of Trans Bay, including a reasonable rate of return on invested capital, is considered a fundamental input in measuring the fair value of Trans Bay's assets and liabilities and, as such, NEE concluded that the carrying values of all assets and liabilities recoverable through rates are representative of their fair values. As a result, NEE acquired assets of approximately $703 million, primarily relating to property, plant and equipment, and assumed liabilities of approximately $643 million, primarily relating to long-term debt. The excess of the purchase price over the fair value of assets acquired and liabilities assumed resulted in approximately $610 million of goodwill which has been recognized on NEE's condensed consolidated balance sheet at March 31, 2020, of which approximately $572 million is expected to be deductible for tax purposes. Goodwill associated with the Trans Bay acquisition is reflected within NEER and, for impairment testing, is included in the rate-regulated transmission reporting unit. The goodwill arising from the transaction represents expected benefits from continued expansion of NEE's regulated businesses. The valuation of the acquired net assets is subject to change as NEE obtains additional information for its estimates during the measurement period.
8. Variable Interest Entities (VIEs)
NEER - At March 31, 2020, NEE consolidates 32 VIEs within the NEER segment. Subsidiaries within the NEER segment are considered the primary beneficiary of these VIEs since they control the most significant activities of these VIEs, including operations and maintenance, and they have the obligation to absorb expected losses of these VIEs.
NextEra Energy Resources consolidates two VIEs, which own and operate natural gas/oil electric generation facilities with the capability of producing 1,450 MW. These entities sell their electric output to third parties under power sales contracts with expiration dates in 2021 and 2031. The power sales contracts provide the offtaker the ability to dispatch the facilities and require the offtaker to absorb the cost of fuel. The assets and liabilities of these VIEs were approximately $204 million and $23 million, respectively, at March 31, 2020 and $216 million and $25 million, respectively, at December 31, 2019. At March 31, 2020 and December 31, 2019, the assets of these VIEs consisted primarily of property, plant and equipment.
Three indirect subsidiaries of NextEra Energy Resources have an approximately 50% ownership interest in five entities which own and operate solar photovoltaic (PV) facilities with the capability of producing a total of approximately 409.3 MW. Each of the three subsidiaries is considered a VIE since the non-managing members have no substantive rights over the managing members, and is consolidated by NextEra Energy Resources. These five entities sell their electric output to third parties under power sales contracts with expiration dates ranging from 2035 through 2042. The five entities have third-party debt which is secured by liens against the assets of the entities. The debt holders have no recourse to the general credit of NextEra Energy Resources for the repayment of debt. The assets and liabilities of these VIEs were approximately $778 million and $635 million, respectively, at March 31, 2020 and $776 million and $598 million, respectively, at December 31, 2019. At March 31, 2020 and December 31, 2019, the assets and liabilities of these VIEs consisted primarily of property, plant and equipment and long-term debt.
NEE consolidates a NEET VIE that is constructing an approximately 280-mile electricity transmission line. A NEET subsidiary is the primary beneficiary and controls the most significant activities during the construction period, including controlling the construction budget. NEET is entitled to receive 50% of the profits and losses of the entity. The assets and liabilities of the VIE totaled approximately $235 million and $56 million, respectively, at March 31, 2020, and $173 million and $29 million, respectively, at December 31, 2019. At March 31, 2020 and December 31, 2019, the assets of this VIE consisted primarily of property, plant and equipment.
The other 26 NextEra Energy Resources VIEs that are consolidated relate to certain subsidiaries which have sold differential membership interests in entities which own and operate wind electric generation and solar PV facilities with the capability of producing a total of approximately 7,081 MW and 473 MW, respectively. These entities sell their electric output either under power sales contracts to third parties with expiration dates ranging from 2029 through 2053 or in the spot market. These entities are considered VIEs because the holders of differential membership interests do not have substantive rights over the significant activities of these entities. Certain of these entities have third-party debt which is secured by liens against the generation facilities and the other assets of these entities or by pledges of NextEra Energy Resources' ownership interest in these entities. The debt holders have no recourse to the general credit of NEER for the repayment of debt. The assets and liabilities of these VIEs totaled approximately $11.2 billion and $0.6 billion, respectively, at March 31, 2020, and $11.3 billion and $0.8 billion, respectively, at December 31, 2019. At March 31, 2020 and December 31, 2019, the assets and liabilities of these VIEs consisted primarily of property, plant and equipment and long-term debt.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Other - At March 31, 2020 and December 31, 2019, several NEE subsidiaries had investments totaling approximately $2,835 million ($2,330 million at FPL) and $3,247 million ($2,717 million at FPL), respectively, which are included in special use funds and noncurrent other assets on NEE's condensed consolidated balance sheets and in special use funds on FPL's condensed consolidated balance sheets. These investments represented primarily commingled funds and mortgage-backed securities. NEE subsidiaries, including FPL, are not the primary beneficiaries and therefore do not consolidate any of these entities because they do not control any of the ongoing activities of these entities, were not involved in the initial design of these entities and do not have a controlling financial interest in these entities.
Certain subsidiaries of NEE have noncontrolling interests in entities accounted for under the equity method, including NEE's noncontrolling interest in NEP OpCo. These entities are limited partnerships or similar entity structures in which the limited partners or non-managing members do not have substantive rights over the significant activities of these entities, and therefore are considered VIEs. NEE is not the primary beneficiary because it does not have a controlling financial interest in these entities, and therefore does not consolidate any of these entities. NEE’s investment in these entities totaled approximately $3,731 million and $4,254 million at March 31, 2020 and December 31, 2019, respectively. At March 31, 2020, subsidiaries of NEE had commitments to invest additional amounts in five of the entities. Such commitments are included in the NEER amounts in the table in Note 12 - Contracts.
9. Equity
Earnings Per Share - The reconciliation of NEE's basic and diluted earnings per share attributable to NEE is as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
(millions, except per share amounts)
|
Numerator - net income attributable to NEE(a)
|
$
|
421
|
|
|
$
|
680
|
|
Denominator:
|
|
|
|
Weighted-average number of common shares outstanding - basic
|
489.3
|
|
|
478.3
|
|
Equity units, stock options, performance share awards and restricted stock(b)
|
2.4
|
|
|
3.5
|
|
Weighted-average number of common shares outstanding - assuming dilution
|
491.7
|
|
|
481.8
|
|
Earnings per share attributable to NEE:
|
|
|
|
Basic
|
$
|
0.86
|
|
|
$
|
1.42
|
|
Assuming dilution
|
$
|
0.86
|
|
|
$
|
1.41
|
|
———————————————
|
|
(a)
|
The NEP Series A convertible preferred units and the NEP senior unsecured convertible notes were both antidilutive for the three months ended March 31, 2020 and 2019.
|
|
|
(b)
|
Calculated using the treasury stock method. Performance share awards are included in diluted weighted-average number of common shares outstanding based upon what would be issued if the end of the reporting period was the end of the term of the award.
|
Common shares issuable pursuant to stock options, performance share awards and/or equity units, as well as restricted stock which were not included in the denominator above due to their antidilutive effect were approximately 6.2 million and 0.5 million for the three months ended March 31, 2020 and 2019, respectively.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Accumulated Other Comprehensive Income (Loss) - The components of AOCI, net of tax, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Net Unrealized Gains (Losses) on Cash Flow Hedges
|
|
Net Unrealized Gains (Losses) on Available for Sale Securities
|
|
Defined Benefit Pension and Other Benefits Plans
|
|
Net Unrealized Gains (Losses) on Foreign Currency Translation
|
|
Other Comprehensive Income (Loss) Related to Equity Method Investees
|
|
Total
|
|
(millions)
|
Three Months Ended March 31, 2020
|
|
Balances, December 31, 2019
|
$
|
(27
|
)
|
|
$
|
11
|
|
|
$
|
(114
|
)
|
|
$
|
(42
|
)
|
|
$
|
3
|
|
|
$
|
(169
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(8
|
)
|
|
—
|
|
|
(35
|
)
|
|
—
|
|
|
(43
|
)
|
Amounts reclassified from AOCI
|
2
|
|
(a)
|
(1
|
)
|
(b)
|
3
|
|
(c)
|
—
|
|
|
—
|
|
|
4
|
|
Net other comprehensive income (loss)
|
2
|
|
|
(9
|
)
|
|
3
|
|
|
(35
|
)
|
|
—
|
|
|
(39
|
)
|
Impact of disposal of a business
|
23
|
|
(d)
|
—
|
|
|
—
|
|
|
(13
|
)
|
(d)
|
—
|
|
|
10
|
|
Balances, March 31, 2020
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
$
|
(111
|
)
|
|
$
|
(90
|
)
|
|
$
|
3
|
|
|
$
|
(198
|
)
|
Attributable to noncontrolling interests
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
(6
|
)
|
Attributable to NEE
|
$
|
(2
|
)
|
|
$
|
2
|
|
|
$
|
(111
|
)
|
|
$
|
(84
|
)
|
|
$
|
3
|
|
|
$
|
(192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Net Unrealized Gains (Losses) on Cash Flow Hedges
|
|
Net Unrealized Gains (Losses) on Available for Sale Securities
|
|
Defined Benefit Pension and Other Benefits Plans
|
|
Net Unrealized Gains (Losses) on Foreign Currency Translation
|
|
Other Comprehensive Income (Loss) Related to Equity Method Investees
|
|
Total
|
|
(millions)
|
Three Months Ended March 31, 2019
|
|
Balances, December 31, 2018
|
$
|
(55
|
)
|
|
$
|
(7
|
)
|
|
$
|
(65
|
)
|
|
$
|
(63
|
)
|
|
$
|
2
|
|
|
$
|
(188
|
)
|
Other comprehensive income (loss) before reclassifications
|
—
|
|
|
8
|
|
|
(52
|
)
|
|
10
|
|
|
(1
|
)
|
|
(35
|
)
|
Amounts reclassified from AOCI
|
10
|
|
(a)
|
2
|
|
(b)
|
(1
|
)
|
(c)
|
—
|
|
|
—
|
|
|
11
|
|
Net other comprehensive income (loss)
|
10
|
|
|
10
|
|
|
(53
|
)
|
|
10
|
|
|
(1
|
)
|
|
(24
|
)
|
Acquisition of Gulf Power
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Balances, March 31, 2019
|
$
|
(46
|
)
|
|
$
|
3
|
|
|
$
|
(118
|
)
|
|
$
|
(53
|
)
|
|
$
|
1
|
|
|
$
|
(213
|
)
|
———————————————
|
|
(a)
|
Reclassified to interest expense in NEE's condensed consolidated statements of income. See Note 4 - Income Statement Impact of Derivative Instruments.
|
|
|
(b)
|
Reclassified to gains on disposal of investments and other property - net in NEE's condensed consolidated statements of income.
|
|
|
(c)
|
Reclassified to other net periodic benefit income in NEE's condensed consolidated statements of income.
|
|
|
(d)
|
Reclassified to gains on disposal of businesses/assets - net and interest expense in NEE's condensed consolidated statements of income. See Note 4 - Income Statement Impact of Derivative Instruments. See Note 11 - Disposal of a Business.
|
10. Debt
Significant long-term debt issuances and borrowings during the three months ended March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal Amount
|
|
Interest Rate
|
|
Maturity Date
|
|
(millions)
|
|
|
|
|
|
|
FPL:
|
|
|
|
|
|
First mortgage bonds
|
$
|
1,100
|
|
|
2.85
|
%
|
|
2025
|
Senior unsecured notes
|
$
|
175
|
|
|
Variable
|
|
(a)
|
2070
|
NEECH:
|
|
|
|
|
|
Debentures, related to NEE's equity units
|
$
|
2,500
|
|
|
1.84
|
%
|
|
2025
|
———————————————
|
|
(a)
|
Variable rate is based on an underlying index less a specified margin. Permit individual noteholders to require repayment at specified dates prior to maturity.
|
In February 2020, NEE sold $2.5 billion of equity units (initially consisting of Corporate Units). Each equity unit has a stated amount of $50 and consists of a contract to purchase NEE common stock (stock purchase contract) and, initially, a 5% undivided beneficial ownership interest in a Series K Debenture due March 1, 2025, issued in the principal amount of $1,000 by NEECH. Each stock purchase contract requires the holder to purchase by no later than March 1, 2023 (the final settlement date) for a price of $50 in
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
cash, a number of shares of NEE common stock (subject to antidilution adjustments) based on a price per share range of $282.04 to $352.55. If purchased on the final settlement date, as of March 31, 2020, the number of shares issued would (subject to antidilution adjustments) range from 0.1773 shares if the applicable market value of a share of common stock is less than or equal to $282.04 to 0.1418 shares if the applicable market value of a share is equal to or greater than $352.55, with applicable market value to be determined using the average closing prices of NEE common stock over a 20-day trading period ending February 24, 2023. Total annual distributions on the equity units are at the rate of 5.279%, consisting of interest on the debentures (1.84% per year) and payments under the stock purchase contracts (3.439% per year). The interest rate on the debentures is expected to be reset on or after August 25, 2022. A holder of an equity unit may satisfy its purchase obligation with proceeds raised from remarketing the NEECH debentures that are part of its equity unit. The undivided beneficial ownership interest in the NEECH debenture that is a component of each Corporate Unit is pledged to NEE to secure the holder's obligation to purchase NEE common stock under the related stock purchase contract. If a successful remarketing does not occur on or before the third business day prior to the final settlement date, and a holder has not notified NEE of its intention to settle the stock purchase contract with cash, the debentures that are components of the Corporate Units will be used to satisfy in full the holders' obligations to purchase NEE common stock under the related stock purchase contracts on the final settlement date. The debentures are fully and unconditionally guaranteed by NEE.
In April 2020, NEECH sold $1.25 billion principal amount of its 2.75% Debentures, Series due May 1, 2025, which are fully and unconditionally guaranteed by NEE.
11. Summary of Significant Accounting and Reporting Policies
Restricted Cash - At March 31, 2020 and December 31, 2019, NEE had approximately $499 million ($132 million for FPL) and $508 million ($118 million for FPL), respectively, of restricted cash, of which approximately $392 million ($77 million for FPL) and $411 million ($54 million for FPL), respectively, is included in current other assets and the remaining balance is included in noncurrent other assets on NEE's and FPL's condensed consolidated balance sheets. Restricted cash is primarily related to debt service payments, bond proceeds held for construction at FPL and margin cash collateral requirements. In addition, where offsetting positions exist, restricted cash related to margin cash collateral of $160 million is netted against derivative assets and $113 million is netted against derivative liabilities at March 31, 2020 and $139 million is netted against derivative assets and $66 million is netted against derivative liabilities at December 31, 2019. See Note 4.
Disposal of a Business - On February 11, 2020, a subsidiary of NextEra Energy Resources completed the sale of its ownership interest in two solar generation facilities located in Spain with a total generating capacity of 99.8 MW for net cash proceeds of approximately €117 million (approximately $128 million), subject to working capital and other adjustments. In connection with the sale, a gain of approximately $260 million (pretax and after tax) was recorded in NEE's condensed consolidated statements of income for the three months ended March 31, 2020. The carrying amounts of the major classes of assets related to the facilities that were classified as held for sale, which are included in current other assets on NEE's condensed consolidated balance sheets, were approximately $440 million at December 31, 2019 and primarily represent property, plant and equipment. Liabilities associated with assets held for sale, which are included in current other liabilities on NEE's condensed consolidated balance sheets, were approximately $647 million at December 31, 2019 and primarily represent long-term debt and interest rate derivatives.
Measurement of Credit Losses on Financial Instruments - Effective January 1, 2020, NEE and FPL adopted an accounting standards update that provides for a new methodology, the current expected credit loss (CECL) model, to account for credit losses for certain financial assets measured at amortized cost. On January 1, 2020, NEE recorded a reduction to retained earnings of approximately $11 million representing the cumulative effect of adopting the new standards update, which primarily related to the impact of applying the CECL model to NEER's receivables. The impact of adopting the new standards update was not material to FPL. See also Note 5 - Special Use Funds.
Allowance for Doubtful Accounts - FPL maintains an accumulated provision for uncollectible customer accounts receivable that is estimated primarily using a percentage, derived from historical revenue and write-off trends, of the previous four months of revenue. NEER regularly reviews collectibility of its receivables and establishes a provision for losses estimated as a percentage of accounts receivable based on the historical bad debt write-off trends for its retail electricity provider operations. When necessary, NEER uses the specific identification method for all other receivables. Current events and reasonable and supportable forecasts are considered when reviewing all receivables for collectibility.
Reference Rate Reform - In March 2020, the Financial Accounting Standards Board (FASB) issued an accounting standards update which provides certain options to apply GAAP guidance on contract modifications and hedge accounting as companies transition from the London Inter-Bank Offered Rate (LIBOR) and other interbank offered rates to alternative reference rates that are yet to be determined or finalized. NEE’s and FPL’s contracts that reference LIBOR or other interbank offered rates mainly relate to debt and derivative instruments. The standards update was effective upon issuance but can be applied prospectively through December 31, 2022. NEE and FPL are currently evaluating whether to apply the options provided by the standards update with regard to their contracts that reference LIBOR or other interbank offered rates as an interest rate benchmark.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
12. Commitments and Contingencies
Commitments - NEE and its subsidiaries have made commitments in connection with a portion of their projected capital expenditures. Capital expenditures at FPL and Gulf Power include, among other things, the cost for construction of additional facilities and equipment to meet customer demand, as well as capital improvements to and maintenance of existing facilities. At NEER, capital expenditures include, among other things, the cost, including capitalized interest, for construction and development of wind and solar projects, the procurement of nuclear fuel and the cost to maintain existing rate-regulated transmission facilities, as well as equity contributions to joint ventures for the development and construction of natural gas pipeline assets and a rate-regulated transmission facility.
At March 31, 2020, estimated capital expenditures for the remainder of 2020 through 2024 for which applicable internal approvals (and also, if required, regulatory approvals such as FPSC approvals for FPL and Gulf Power) have been received were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Total
|
|
(millions)
|
FPL:
|
|
|
|
|
|
|
|
|
|
|
|
Generation:(a)
|
|
|
|
|
|
|
|
|
|
|
|
New(b)
|
$
|
980
|
|
|
$
|
885
|
|
|
$
|
550
|
|
|
$
|
490
|
|
|
$
|
710
|
|
|
$
|
3,615
|
|
Existing
|
750
|
|
|
950
|
|
|
1,075
|
|
|
1,155
|
|
|
885
|
|
|
4,815
|
|
Transmission and distribution(c)
|
2,450
|
|
|
4,040
|
|
|
4,110
|
|
|
4,450
|
|
|
4,450
|
|
|
19,500
|
|
Nuclear fuel
|
135
|
|
|
220
|
|
|
165
|
|
|
120
|
|
|
145
|
|
|
785
|
|
General and other
|
560
|
|
|
500
|
|
|
440
|
|
|
415
|
|
|
420
|
|
|
2,335
|
|
Total
|
$
|
4,875
|
|
|
$
|
6,595
|
|
|
$
|
6,340
|
|
|
$
|
6,630
|
|
|
$
|
6,610
|
|
|
$
|
31,050
|
|
Gulf Power
|
$
|
620
|
|
|
$
|
810
|
|
|
$
|
645
|
|
|
$
|
650
|
|
|
$
|
680
|
|
|
$
|
3,405
|
|
NEER:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wind(d)
|
$
|
2,580
|
|
|
$
|
180
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
2,790
|
|
Solar(e)
|
855
|
|
|
485
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
1,345
|
|
Battery storage
|
85
|
|
|
455
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
540
|
|
Nuclear, including nuclear fuel
|
95
|
|
|
210
|
|
|
165
|
|
|
120
|
|
|
180
|
|
|
770
|
|
Natural gas pipelines(f)
|
525
|
|
|
280
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
830
|
|
Rate-regulated transmission
|
235
|
|
|
140
|
|
|
30
|
|
|
10
|
|
|
15
|
|
|
430
|
|
Other
|
550
|
|
|
55
|
|
|
65
|
|
|
50
|
|
|
60
|
|
|
780
|
|
Total
|
$
|
4,925
|
|
|
$
|
1,805
|
|
|
$
|
295
|
|
|
$
|
195
|
|
|
$
|
265
|
|
|
$
|
7,485
|
|
———————————————
|
|
(a)
|
Includes AFUDC of approximately $25 million, $70 million, $40 million, $20 million and $30 million for the remainder of 2020 through 2024, respectively.
|
|
|
(b)
|
Includes land, generation structures, transmission interconnection and integration and licensing.
|
|
|
(c)
|
Includes AFUDC of approximately $30 million, $55 million, $55 million, $40 million and $35 million for the remainder of 2020 through 2024, respectively.
|
|
|
(d)
|
Consists of capital expenditures for new wind projects, repowering of existing wind projects and related transmission totaling approximately 4,215 MW.
|
|
|
(e)
|
Includes capital expenditures for new solar projects and related transmission totaling approximately 1,580 MW.
|
|
|
(f)
|
Construction of two natural gas pipelines are subject to certain conditions, including applicable regulatory approvals. In addition, completion of another natural gas pipeline is subject to final permitting.
|
The above estimates are subject to continuing review and adjustment and actual capital expenditures may vary significantly from these estimates.
Contracts - In addition to the commitments made in connection with the estimated capital expenditures included in the table in Commitments above, FPL has firm commitments under long-term contracts primarily for the transportation of natural gas and coal with expiration dates through 2042.
At March 31, 2020, NEER has entered into contracts with expiration dates ranging from late April 2020 through 2033 primarily for the purchase of wind turbines, wind towers and solar modules and related construction and development activities, as well as for the supply of uranium, and the conversion, enrichment and fabrication of nuclear fuel, and has made commitments for the construction of natural gas pipelines and a rate-regulated transmission facility. Approximately $4.0 billion of related commitments are included in the estimated capital expenditures table in Commitments above. In addition, NEER has contracts primarily for the transportation and storage of natural gas with expiration dates ranging from late April 2020 through 2040.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The required capacity and/or minimum payments under contracts, including those discussed above, at March 31, 2020 were estimated as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remainder of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
(millions)
|
FPL(a)
|
$
|
800
|
|
|
$
|
1,010
|
|
|
$
|
990
|
|
|
$
|
975
|
|
|
$
|
970
|
|
|
$
|
11,350
|
|
NEER(b)(c)(d)
|
$
|
3,170
|
|
|
$
|
585
|
|
|
$
|
260
|
|
|
$
|
180
|
|
|
$
|
185
|
|
|
$
|
1,395
|
|
———————————————
|
|
(a)
|
Includes approximately $305 million, $415 million, $415 million, $410 million, $410 million and $6,765 million for the remainder of 2020 through 2024 and thereafter, respectively, of firm commitments related to the natural gas transportation agreements with Sabal Trail and Florida Southeast Connection. The charges associated with these agreements are recoverable through the fuel clause and totaled approximately $79 million and $79 million for the three months ended March 31, 2020 and 2019, respectively, of which $27 million and $28 million, respectively, were eliminated in consolidation at NEE.
|
|
|
(b)
|
Includes approximately $70 million, $70 million, $70 million, $70 million and $1,110 million for 2021 through 2024 and thereafter, respectively, of firm commitments related to a natural gas transportation agreement with a joint venture, in which NEER has a 31% equity investment, that is constructing a natural gas pipeline. These firm commitments are subject to the completion of construction of the pipeline, which is expected in 2020.
|
|
|
(c)
|
Includes approximately $110 million of commitments to invest in technology investments through 2029.
|
|
|
(d)
|
Includes approximately $230 million, $20 million, $20 million, $20 million, $10 million and $15 million for the remainder of 2020 through 2024 and thereafter, respectively, of joint obligations of NEECH and NEER.
|
Insurance - Liability for accidents at nuclear power plants is governed by the Price-Anderson Act, which limits the liability of nuclear reactor owners to the amount of insurance available from both private sources and an industry retrospective payment plan. In accordance with this Act, NEE maintains $450 million of private liability insurance per site, which is the maximum obtainable, and participates in a secondary financial protection system, which provides up to $13.5 billion of liability insurance coverage per incident at any nuclear reactor in the U.S. Under the secondary financial protection system, NEE is subject to retrospective assessments of up to $1.1 billion ($550 million for FPL), plus any applicable taxes, per incident at any nuclear reactor in the U.S., payable at a rate not to exceed $164 million ($82 million for FPL) per incident per year. NEE and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook, Duane Arnold and St. Lucie Unit No. 2, which approximates $16 million, $41 million and $20 million, plus any applicable taxes, per incident, respectively.
NEE participates in a nuclear insurance mutual company that provides $2.75 billion of limited insurance coverage per occurrence per site for property damage, decontamination and premature decommissioning risks at its nuclear plants and a sublimit of $1.5 billion for non-nuclear perils, except for Duane Arnold which has a sublimit of $500 million. NEE participates in co-insurance of 10% of the first $400 million of losses per site per occurrence. The proceeds from such insurance, however, must first be used for reactor stabilization and site decontamination before they can be used for plant repair. NEE also participates in an insurance program that provides limited coverage for replacement power costs if a nuclear plant is out of service for an extended period of time because of an accident. In the event of an accident at one of NEE's or another participating insured's nuclear plants, NEE could be assessed up to $173 million ($106 million for FPL), plus any applicable taxes, in retrospective premiums in a policy year. NEE and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook, Duane Arnold and St. Lucie Unit No. 2, which approximates $2 million, $4 million and $4 million, plus any applicable taxes, respectively.
Due to the high cost and limited coverage available from third-party insurers, NEE does not have property insurance coverage for a substantial portion of either its transmission and distribution property or natural gas pipeline assets. If either FPL's or Gulf Power's future storm restoration costs exceed their respective storm reserve, FPL and Gulf Power may recover their storm restoration costs, subject to prudence review by the FPSC, through surcharges approved by the FPSC or through securitization provisions pursuant to Florida law.
In the event of a loss, the amount of insurance available might not be adequate to cover property damage and other expenses incurred. Uninsured losses and other expenses, to the extent not recovered from customers in the case of FPL or Gulf Power, would be borne by NEE and either FPL or Gulf Power, and could have a material adverse effect on NEE's and FPL's financial condition, results of operations and liquidity.
Coronavirus Pandemic - NEE and FPL are closely monitoring the global outbreak of the novel coronavirus (COVID-19) and are taking steps intended to mitigate the potential risks to NEE and FPL posed by COVID-19. NEE, including FPL, has implemented its pandemic plan, which includes putting in place various processes and procedures to limit the impact on its business, as well as the spread of the virus in its workforce. NEE and its subsidiaries, including FPL, have been able to access the capital markets. To date, there has been no material impact on NEE’s or FPL’s workforce, operations, financial performance, liquidity or on their supply chain as a result of COVID-19; however, the ultimate severity or duration of the outbreak or its effects on the global, national or local economy, the capital and credit markets, or NEE’s and FPL’s workforce, customers and suppliers are uncertain. NEE and FPL cannot predict whether COVID-19 will have a material impact on their businesses, financial condition, liquidity or results of operations.
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(unaudited)
13. Segment Information
The table below presents information for NEE's reportable segments, FPL, a rate-regulated utility business, and NEER, which is comprised of competitive energy and rate-regulated transmission businesses, as well as for Gulf Power, a rate-regulated utility business acquired in January 2019 (see Note 7 - Gulf Power). Corporate and Other represents other business activities and includes eliminating entries. During the fourth quarter of 2019, NEET, which was previously reported in Corporate and Other, was moved to the NEER segment. Prior year amounts for NEER and Corporate and Other were adjusted to reflect this segment change.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2020
|
|
2019
|
|
FPL
|
|
Gulf Power
|
|
NEER(a)
|
|
Corporate
and Other
|
|
NEE
Consoli-
dated
|
|
FPL
|
|
Gulf Power
|
|
NEER(a)
|
|
Corporate
and Other
|
|
NEE
Consoli-
dated
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
Operating revenues
|
$
|
2,540
|
|
|
$
|
328
|
|
|
$
|
1,773
|
|
|
$
|
(28
|
)
|
|
$
|
4,613
|
|
|
$
|
2,618
|
|
|
$
|
328
|
|
|
$
|
1,161
|
|
|
$
|
(32
|
)
|
|
$
|
4,075
|
|
Operating expenses - net
|
$
|
1,625
|
|
|
$
|
270
|
|
|
$
|
706
|
|
|
$
|
31
|
|
|
$
|
2,632
|
|
|
$
|
1,761
|
|
|
$
|
271
|
|
|
$
|
865
|
|
|
$
|
43
|
|
|
$
|
2,940
|
|
Net income (loss) attributable to NEE
|
$
|
642
|
|
|
$
|
40
|
|
|
$
|
318
|
|
(b)
|
$
|
(579
|
)
|
|
$
|
421
|
|
|
$
|
588
|
|
|
$
|
37
|
|
|
$
|
321
|
|
(b)
|
$
|
(266
|
)
|
|
$
|
680
|
|
———————————————
|
|
(a)
|
Interest expense allocated from NEECH is based on a deemed capital structure of 70% debt and differential membership interests sold by NextEra Energy Resources' subsidiaries. Residual NEECH corporate interest expense is included in Corporate and Other.
|
|
|
(b)
|
See Note 6 for a discussion of NEER's tax benefits related to PTCs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
December 31, 2019
|
|
FPL
|
|
Gulf Power
|
|
NEER
|
|
Corporate
and Other
|
|
NEE
Consoli-
dated
|
|
FPL
|
|
Gulf Power
|
|
NEER
|
|
Corporate
and Other
|
|
NEE
Consoli-
dated
|
|
|
|
|
|
|
|
|
|
(millions)
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
58,317
|
|
|
$
|
6,240
|
|
|
$
|
51,455
|
|
|
$
|
4,625
|
|
|
$
|
120,637
|
|
|
$
|
57,188
|
|
|
$
|
5,855
|
|
|
$
|
51,516
|
|
|
$
|
3,132
|
|
|
$
|
117,691
|
|