NEE 10-Q
Nextera Energy Inc (NEE)
10-Q
2022-04-22
For: 2022-03-31
View Original
Added on
April 09, 2026
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended March 31, 2022
OR
For the transition period from ________ to ________
| Commission File Number | Exact name of registrants as specified in their charters, address of principal executive offices and registrants' telephone number | IRS Employer Identification Number | ||||||||||||
(561 ) 694-4000
State or other jurisdiction of incorporation or organization: Florida
Securities registered pursuant to Section 12(b) of the Act:
| Registrants | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||||||
| NextEra Energy, Inc. | ||||||||||||||||||||
| Florida Power & Light Company | None | |||||||||||||||||||
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) have been subject to such filing requirements for the past 90 days.
NextEra Energy, Inc. Yes ☑ No ☐ Florida Power & Light Company Yes ☑ No ☐
Indicate by check mark whether the registrants have submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S‑T during the preceding 12 months.
NextEra Energy, Inc. Yes ☑ No ☐ Florida Power & Light Company Yes ☑ No ☐
Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
NextEra Energy, Inc. Large Accelerated Filer ☑ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller Reporting Company ☐ Emerging Growth Company ☐
Florida Power & Light Company Large Accelerated Filer ☐ Accelerated Filer ☐ Non-Accelerated Filer ☑ Smaller Reporting Company ☐ Emerging Growth Company ☐
If an emerging growth company, indicate by check mark if the registrants have elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Exchange Act of 1934. ☐
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐
Number of shares of NextEra Energy, Inc. common stock, $0.01 par value, outstanding at March 31, 2022: 1,964,499,706
Number of shares of Florida Power & Light Company common stock, without par value, outstanding at March 31, 2022, all of which were held, beneficially and of record, by NextEra Energy, Inc.: 1,000
This combined Form 10-Q represents separate filings by NextEra Energy, Inc. and Florida Power & Light Company. Information contained herein relating to an individual registrant is filed by that registrant on its own behalf. Florida Power & Light Company makes no representations as to the information relating to NextEra Energy, Inc.'s other operations.
Florida Power & Light Company meets the conditions set forth in General Instruction H.(1)(a) and (b) of Form 10-Q and is therefore filing this Form with the reduced disclosure format.
DEFINITIONS
Acronyms and defined terms used in the text include the following:
| Term | Meaning | ||||
| AFUDC | allowance for funds used during construction | ||||
AFUDC – equity | equity component of AFUDC | ||||
| AOCI | accumulated other comprehensive income | ||||
| CSCS agreement | amended and restated cash sweep and credit support agreement | ||||
| Duane Arnold | Duane Arnold Energy Center | ||||
| FERC | U.S. Federal Energy Regulatory Commission | ||||
| Florida Southeast Connection | Florida Southeast Connection, LLC, a wholly owned NextEra Energy Resources subsidiary | ||||
| FPL | the legal entity, Florida Power & Light Company | ||||
| FPSC | Florida Public Service Commission | ||||
| fuel clause | fuel and purchased power cost recovery clause, as established by the FPSC | ||||
| GAAP | generally accepted accounting principles in the U.S. | ||||
| ISO | independent system operator | ||||
| ITC | investment tax credit | ||||
| kWh | kilowatt-hour(s) | ||||
| Management's Discussion | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | ||||
| MMBtu | One million British thermal units | ||||
| MW | megawatt(s) | ||||
| MWh | megawatt-hour(s) | ||||
| NEE | NextEra Energy, Inc. | ||||
| NEECH | NextEra Energy Capital Holdings, Inc. | ||||
| NEER | an operating segment comprised of NextEra Energy Resources and NEET | ||||
| NEET | NextEra Energy Transmission, LLC | ||||
| NEP | NextEra Energy Partners, LP | ||||
| NEP OpCo | NextEra Energy Operating Partners, LP, a subsidiary of NEP | ||||
| net generation | net ownership interest in plant(s) generation | ||||
| NextEra Energy Resources | NextEra Energy Resources, LLC | ||||
| Note __ | Note __ to condensed consolidated financial statements | ||||
| NRC | U.S. Nuclear Regulatory Commission | ||||
| O&M expenses | other operations and maintenance expenses in the condensed consolidated statements of income (loss) | ||||
| OCI | other comprehensive income | ||||
| OTC | over-the-counter | ||||
| OTTI | other than temporary impairment | ||||
| PTC | production tax credit | ||||
| regulatory ROE | return on common equity as determined for regulatory purposes | ||||
| Sabal Trail | Sabal Trail Transmission, LLC, an entity in which a NextEra Energy Resources' subsidiary has a 42.5% ownership interest | ||||
| Seabrook | Seabrook Station | ||||
| SEC | U.S. Securities and Exchange Commission | ||||
| U.S. | United States of America | ||||
NEE, FPL, NEECH, NextEra Energy Resources and NEET each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, NextEra Energy Transmission, NextEra, FPL Group, FPL Energy, FPLE, NEP and similar references. For convenience and simplicity, in this report the terms NEE, FPL, NEECH, NextEra Energy Resources, NEET and NEER are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.
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TABLE OF CONTENTS
| Page No. | ||||||||
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FORWARD-LOOKING STATEMENTS
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions, strategies, future events or performance (often, but not always, through the use of words or phrases such as may result, are expected to, will continue, is anticipated, believe, will, could, should, would, estimated, may, plan, potential, future, projection, goals, target, outlook, predict and intend or words of similar meaning) are not statements of historical facts and may be forward looking. Forward-looking statements involve estimates, assumptions and uncertainties. Accordingly, any such statements are qualified in their entirety by reference to, and are accompanied by, the following important factors (in addition to any assumptions and other factors referred to specifically in connection with such forward-looking statements) that could have a significant impact on NEE's and/or FPL's operations and financial results, and could cause NEE's and/or FPL's actual results to differ materially from those contained or implied in forward-looking statements made by or on behalf of NEE and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.
Regulatory, Legislative and Legal Risks
•NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected by the extensive regulation of their business.
•NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected if they are unable to recover in a timely manner any significant amount of costs, a return on certain assets or a reasonable return on invested capital through base rates, cost recovery clauses, other regulatory mechanisms or otherwise.
•Regulatory decisions that are important to NEE and FPL may be materially adversely affected by political, regulatory, operational and economic factors.
•FPL's use of derivative instruments could be subject to prudence challenges and, if found imprudent, could result in disallowances of cost recovery for such use by the FPSC.
•Any reductions or modifications to, or the elimination of, governmental incentives or policies that support utility scale renewable energy, including, but not limited to, tax laws, policies and incentives, renewable portfolio standards and feed-in tariffs, or the imposition of additional taxes, tariffs, duties or other assessments on renewable energy or the equipment necessary to generate or deliver it, could result in, among other items, the lack of a satisfactory market for the development and/or financing of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in renewable energy projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.
•NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected as a result of new or revised laws or regulations or interpretations of these laws and regulations.
•NEE and FPL are subject to numerous environmental laws, regulations and other standards that may result in capital expenditures, increased operating costs and various liabilities, and may require NEE and FPL to limit or eliminate certain operations.
•NEE's and FPL's business could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions.
•Extensive federal regulation of the operations and businesses of NEE and FPL exposes NEE and FPL to significant and increasing compliance costs and may also expose them to substantial monetary penalties and other sanctions for compliance failures.
•Changes in tax laws, guidance or policies, including but not limited to changes in corporate income tax rates, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.
•NEE's and FPL's business, financial condition, results of operations and prospects may be materially adversely affected due to adverse results of litigation.
Development and Operational Risks
•NEE's and FPL's business, financial condition, results of operations and prospects could suffer if NEE and FPL do not proceed with projects under development or are unable to complete the construction of, or capital improvements to, electric generation, transmission and distribution facilities, gas infrastructure facilities or other facilities on schedule or within budget.
•NEE and FPL face risks related to project siting, financing, construction, permitting, governmental approvals and the negotiation of project development agreements that may impede their development and operating activities.
•The operation and maintenance of NEE's and FPL's electric generation, transmission and distribution facilities, gas infrastructure facilities, retail gas distribution system in Florida and other facilities are subject to many operational risks, the consequences of which could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.
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•NEE's and FPL's business, financial condition, results of operations and prospects may be negatively affected by a lack of growth or slower growth in the number of customers or in customer usage.
•NEE's and FPL's business, financial condition, results of operations and prospects can be materially adversely affected by weather conditions, including, but not limited to, the impact of severe weather.
•Threats of terrorism and catastrophic events that could result from terrorism, cyberattacks, or individuals and/or groups attempting to disrupt NEE's and FPL's business, or the businesses of third parties, may materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects.
•The ability of NEE and FPL to obtain insurance and the terms of any available insurance coverage could be materially adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers. NEE's and FPL's insurance coverage does not provide protection against all significant losses.
•NEE invests in gas and oil producing and transmission assets through NEER’s gas infrastructure business. The gas infrastructure business is exposed to fluctuating market prices of natural gas, natural gas liquids, oil and other energy commodities. A prolonged period of low gas and oil prices could impact NEER’s gas infrastructure business and cause NEER to delay or cancel certain gas infrastructure projects and could result in certain projects becoming impaired, which could materially adversely affect NEE's results of operations.
•If supply costs necessary to provide NEER's full energy and capacity requirement services are not favorable, operating costs could increase and materially adversely affect NEE's business, financial condition, results of operations and prospects.
•Due to the potential for significant volatility in market prices for fuel, electricity and renewable and other energy commodities, NEER's inability or failure to manage properly or hedge effectively the commodity risks within its portfolios could materially adversely affect NEE's business, financial condition, results of operations and prospects.
•Reductions in the liquidity of energy markets may restrict the ability of NEE to manage its operational risks, which, in turn, could negatively affect NEE's results of operations.
•NEE's and FPL's hedging and trading procedures and associated risk management tools may not protect against significant losses.
•If price movements significantly or persistently deviate from historical behavior, NEE's and FPL's risk management tools associated with their hedging and trading procedures may not protect against significant losses.
•If power transmission or natural gas, nuclear fuel or other commodity transportation facilities are unavailable or disrupted, the ability for subsidiaries of NEE, including FPL, to sell and deliver power or natural gas may be limited.
•NEE and FPL are subject to credit and performance risk from customers, hedging counterparties and vendors.
•NEE and FPL could recognize financial losses or a reduction in operating cash flows if a counterparty fails to perform or make payments in accordance with the terms of derivative contracts or if NEE or FPL is required to post margin cash collateral under derivative contracts.
•NEE and FPL are highly dependent on sensitive and complex information technology systems, and any failure or breach of those systems could have a material adverse effect on their business, financial condition, results of operations and prospects.
•NEE's and FPL's retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in a material adverse impact to their reputation and/or have a material adverse effect on the business, financial condition, results of operations and prospects of NEE and FPL.
•NEE and FPL could recognize financial losses as a result of volatility in the market values of derivative instruments and limited liquidity in OTC markets.
•NEE and FPL may be materially adversely affected by negative publicity.
•NEE's and FPL's business, financial condition, results of operations and prospects may be adversely affected if FPL is unable to maintain, negotiate or renegotiate franchise agreements on acceptable terms with municipalities and counties in Florida.
•NEE's and FPL's business, financial condition, results of operations and prospects could be materially adversely affected by work strikes or stoppages and increasing personnel costs.
•NEE's ability to successfully identify, complete and integrate acquisitions is subject to significant risks, including, but not limited to, the effect of increased competition for acquisitions resulting from the consolidation of the energy industry.
Nuclear Generation Risks
•The operation and maintenance of NEE's and FPL's nuclear generation facilities involve environmental, health and financial risks that could result in fines or the closure of the facilities and in increased costs and capital expenditures.
•In the event of an incident at any nuclear generation facility in the U.S. or at certain nuclear generation facilities in Europe, NEE and FPL could be assessed significant retrospective assessments and/or retrospective insurance premiums as a result of their participation in a secondary financial protection system and nuclear insurance mutual
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companies.
•NRC orders or new regulations related to increased security measures and any future safety requirements promulgated by the NRC could require NEE and FPL to incur substantial operating and capital expenditures at their nuclear generation facilities and/or result in reduced revenues.
•The inability to operate any of NEE's or FPL's nuclear generation units through the end of their respective operating licenses could have a material adverse effect on NEE's and FPL's business, financial condition, results of operations and prospects.
•NEE's and FPL's nuclear units are periodically removed from service to accommodate planned refueling and maintenance outages, and for other purposes. If planned outages last longer than anticipated or if there are unplanned outages, NEE's and FPL's results of operations and financial condition could be materially adversely affected.
Liquidity, Capital Requirements and Common Stock Risks
•Disruptions, uncertainty or volatility in the credit and capital markets, among other factors, may negatively affect NEE's and FPL's ability to fund their liquidity and capital needs and to meet their growth objectives, and can also materially adversely affect the results of operations and financial condition of NEE and FPL.
•NEE's, NEECH's and FPL's inability to maintain their current credit ratings may materially adversely affect NEE's and FPL's liquidity and results of operations, limit the ability of NEE and FPL to grow their business, and increase interest costs.
•NEE's and FPL's liquidity may be impaired if their credit providers are unable to fund their credit commitments to the companies or to maintain their current credit ratings.
•Poor market performance and other economic factors could affect NEE's defined benefit pension plan's funded status, which may materially adversely affect NEE's and FPL's business, financial condition, liquidity and results of operations and prospects.
•Poor market performance and other economic factors could adversely affect the asset values of NEE's and FPL's nuclear decommissioning funds, which may materially adversely affect NEE's and FPL's liquidity, financial condition and results of operations.
•Certain of NEE's investments are subject to changes in market value and other risks, which may materially adversely affect NEE's liquidity, financial condition and results of operations.
•NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if its subsidiaries are unable to pay upstream dividends or repay funds to NEE.
•NEE may be unable to meet its ongoing and future financial obligations and to pay dividends on its common stock if NEE is required to perform under guarantees of obligations of its subsidiaries.
•NEP may not be able to access sources of capital on commercially reasonable terms, which would have a material adverse effect on its ability to consummate future acquisitions and on the value of NEE’s limited partner interest in NEP OpCo.
•Disruptions, uncertainty or volatility in the credit and capital markets may exert downward pressure on the market price of NEE's common stock.
•Widespread public health crises and epidemics or pandemics may have material adverse impacts on NEE’s and FPL's business, financial condition, liquidity and results of operations.
These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in NEE's and FPL's Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K) and Part II, Item 1A. Risk Factors in this Form 10-Q, and investors should refer to those sections of the 2021 Form 10-K and this Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made, and NEE and FPL undertake no obligation to update any forward-looking statement to reflect events or circumstances, including, but not limited to, unanticipated events, after the date on which such statement is made, unless otherwise required by law. New factors emerge from time to time and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on the business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained or implied in any forward-looking statement.
Website Access to SEC Filings. NEE and FPL make their SEC filings, including the annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports, available free of charge on NEE's internet website, www.nexteraenergy.com, as soon as reasonably practicable after those documents are electronically filed with or furnished to the SEC. The information and materials available on NEE's website (or any of its subsidiaries' or affiliates' websites) are not incorporated by reference into this combined Form 10-Q.
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(millions, except per share amounts)
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| OPERATING REVENUES | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||
| Fuel, purchased power and interchange | ||||||||||||||
| Other operations and maintenance | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Taxes other than income taxes and other – net | ||||||||||||||
| Total operating expenses – net | ||||||||||||||
| GAINS ON DISPOSAL OF BUSINESSES/ASSETS – NET | ||||||||||||||
| OPERATING INCOME (LOSS) | ( | |||||||||||||
| OTHER INCOME (DEDUCTIONS) | ||||||||||||||
| Interest expense | ||||||||||||||
| Equity in earnings (losses) of equity method investees | ( | |||||||||||||
| Allowance for equity funds used during construction | ||||||||||||||
| Gains on disposal of investments and other property – net | ||||||||||||||
| Change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds – net | ( | |||||||||||||
| Other net periodic benefit income | ||||||||||||||
| Other – net | ||||||||||||||
| Total other income (deductions) – net | ( | |||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | |||||||||||||
| INCOME TAX EXPENSE (BENEFIT) | ( | |||||||||||||
| NET INCOME (LOSS) | ( | |||||||||||||
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | ||||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO NEE | $ | ( | $ | |||||||||||
| Earnings (loss) per share attributable to NEE: | ||||||||||||||
| Basic | $ | ( | $ | |||||||||||
| Assuming dilution | $ | ( | $ | |||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(millions)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| NET INCOME (LOSS) | $ | ( | $ | ||||||||
| OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX | |||||||||||
Reclassification of unrealized losses on cash flow hedges from accumulated other comprehensive income (loss) to net income (loss) (net of $ | |||||||||||
Net unrealized gains (losses) on available for sale securities: | |||||||||||
Net unrealized losses on securities still held (net of $ | ( | ( | |||||||||
Reclassification from accumulated other comprehensive income (loss) to net income (loss) (net of $ | ( | ||||||||||
Defined benefit pension and other benefits plans: | |||||||||||
Reclassification from accumulated other comprehensive income (loss) to net income (loss) (net of $ | |||||||||||
| Net unrealized gains on foreign currency translation | |||||||||||
| Total other comprehensive loss, net of tax | ( | ( | |||||||||
| COMPREHENSIVE INCOME (LOSS) | ( | ||||||||||
COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS | |||||||||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NEE | $ | ( | $ | ||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except par value)
(unaudited)
| March 31, 2022 | December 31, 2021 | |||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
Customer receivables, net of allowances of $ | ||||||||||||||
| Other receivables | ||||||||||||||
| Materials, supplies and fuel inventory | ||||||||||||||
| Regulatory assets | ||||||||||||||
| Derivatives | ||||||||||||||
| Other | ||||||||||||||
| Total current assets | ||||||||||||||
| Other assets: | ||||||||||||||
Property, plant and equipment – net ($ | ||||||||||||||
| Special use funds | ||||||||||||||
| Investment in equity method investees | ||||||||||||||
| Prepaid benefit costs | ||||||||||||||
| Regulatory assets | ||||||||||||||
| Derivatives | ||||||||||||||
| Goodwill | ||||||||||||||
| Other | ||||||||||||||
| Total other assets | ||||||||||||||
| TOTAL ASSETS | $ | $ | ||||||||||||
| LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Commercial paper | $ | $ | ||||||||||||
| Other short-term debt | ||||||||||||||
Current portion of long-term debt ($ | ||||||||||||||
Accounts payable ($ | ||||||||||||||
| Customer deposits | ||||||||||||||
| Accrued interest and taxes | ||||||||||||||
| Derivatives | ||||||||||||||
| Accrued construction-related expenditures | ||||||||||||||
| Regulatory liabilities | ||||||||||||||
| Other | ||||||||||||||
| Total current liabilities | ||||||||||||||
| Other liabilities and deferred credits: | ||||||||||||||
Long-term debt ($ | ||||||||||||||
| Asset retirement obligations | ||||||||||||||
| Deferred income taxes | ||||||||||||||
| Regulatory liabilities | ||||||||||||||
| Derivatives | ||||||||||||||
| Other | ||||||||||||||
| Total other liabilities and deferred credits | ||||||||||||||
| TOTAL LIABILITIES | ||||||||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||||||||
REDEEMABLE NONCONTROLLING INTERESTS – VIE | ||||||||||||||
| EQUITY | ||||||||||||||
Common stock ($ respectively) | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Retained earnings | ||||||||||||||
| Accumulated other comprehensive loss | ( | |||||||||||||
| Total common shareholders' equity | ||||||||||||||
Noncontrolling interests ($ | ||||||||||||||
| TOTAL EQUITY | ||||||||||||||
| TOTAL LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND EQUITY | $ | $ | ||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net income (loss) | $ | ( | $ | |||||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Nuclear fuel and other amortization | ||||||||||||||
| Unrealized losses (gains) on marked to market derivative contracts – net | ( | |||||||||||||
| Foreign currency transaction gains | ( | ( | ||||||||||||
| Deferred income taxes | ( | |||||||||||||
| Cost recovery clauses and franchise fees | ( | ( | ||||||||||||
| Equity in losses (earnings) of equity method investees | ( | |||||||||||||
| Distributions of earnings from equity method investees | ||||||||||||||
| Gains on disposal of businesses, assets and investments – net | ( | ( | ||||||||||||
| Other – net | ( | |||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Current assets | ( | ( | ||||||||||||
| Noncurrent assets | ( | ( | ||||||||||||
| Current liabilities | ( | |||||||||||||
| Noncurrent liabilities | ||||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Capital expenditures of FPL | ( | ( | ||||||||||||
| Independent power and other investments of NEER | ( | ( | ||||||||||||
| Nuclear fuel purchases | ( | ( | ||||||||||||
| Other capital expenditures | ( | |||||||||||||
| Proceeds from sale or maturity of securities in special use funds and other investments | ||||||||||||||
| Purchases of securities in special use funds and other investments | ( | ( | ||||||||||||
| Other – net | ||||||||||||||
| Net cash used in investing activities | ( | ( | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Issuances of long-term debt, including premiums and discounts | ||||||||||||||
| Retirements of long-term debt | ( | ( | ||||||||||||
| Net change in commercial paper | ||||||||||||||
| Proceeds from other short-term debt | ||||||||||||||
| Repayments of other short-term debt | ( | |||||||||||||
| Payments from related parties under a cash sweep and credit support agreement – net | ||||||||||||||
| Issuances of common stock/equity units – net | ||||||||||||||
| Dividends on common stock | ( | ( | ||||||||||||
| Other – net | ( | |||||||||||||
| Net cash provided by financing activities | ||||||||||||||
| Effects of currency translation on cash, cash equivalents and restricted cash | ||||||||||||||
| Net increase in cash, cash equivalents and restricted cash | ||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||||||||
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | ||||||||||||||
| Accrued property additions | $ | $ | ||||||||||||
| Decrease in construction work in progress and contract liability (See Note 11) | $ | $ | ||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
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NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(millions, except per share amounts)
(unaudited)
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Common Shareholders' Equity | Non- controlling Interests | Total Equity | Redeemable Non-controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | Shares | Aggregate Par Value | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payment activity | — | ( | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
Dividends on common stock(a) | — | — | — | — | ( | ( | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | ( | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Other differential membership interests activity | — | — | ( | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||||
| Other | — | — | ( | — | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||
———————————————
(a)Dividends per share were $0.425 for the three months ended March 31, 2022.
| Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total Common Shareholders' Equity | Non- controlling Interests | Total Equity | |||||||||||||||||||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | Shares | Aggregate Par Value | |||||||||||||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | ( | ||||||||||||||||||||||||||||||||||||||||||
| Share-based payment activity | — | ( | — | — | ( | — | |||||||||||||||||||||||||||||||||||||||||
Dividends on common stock(a) | — | — | — | — | ( | ( | — | ||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||||||||||||||
| Other differential membership interests activity | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| Other | ( | — | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
_______________________
(a)Dividends per share were $0.385 for the three months ended March 31, 2021.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
11
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions)
(unaudited)
| Three Months Ended March 31, | ||||||||||||||
| 2022 | 2021 | |||||||||||||
| OPERATING REVENUES | $ | $ | ||||||||||||
| OPERATING EXPENSES | ||||||||||||||
| Fuel, purchased power and interchange | ||||||||||||||
| Other operations and maintenance | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Taxes other than income taxes and other – net | ||||||||||||||
| Total operating expenses – net | ||||||||||||||
| OPERATING INCOME | ||||||||||||||
| OTHER INCOME (DEDUCTIONS) | ||||||||||||||
| Interest expense | ( | ( | ||||||||||||
| Allowance for equity funds used during construction | ||||||||||||||
| Total other deductions – net | ( | ( | ||||||||||||
| INCOME BEFORE INCOME TAXES | ||||||||||||||
| INCOME TAXES | ||||||||||||||
NET INCOME(a) | $ | $ | ||||||||||||
_______________________
(a)FPL's comprehensive income is the same as reported net income.
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
12
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions, except share amount)
(unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||||||||
| ASSETS | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | $ | |||||||||||||||
Customer receivables, net of allowances of $ | |||||||||||||||||
| Other receivables | |||||||||||||||||
| Materials, supplies and fuel inventory | |||||||||||||||||
| Regulatory assets | |||||||||||||||||
| Other | |||||||||||||||||
| Total current assets | |||||||||||||||||
| Other assets: | |||||||||||||||||
| Electric utility plant and other property – net | |||||||||||||||||
| Special use funds | |||||||||||||||||
| Prepaid benefit costs | |||||||||||||||||
| Regulatory assets | |||||||||||||||||
| Goodwill | |||||||||||||||||
| Other | |||||||||||||||||
| Total other assets | |||||||||||||||||
| TOTAL ASSETS | $ | $ | |||||||||||||||
| LIABILITIES AND EQUITY | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Commercial paper | $ | $ | |||||||||||||||
| Other short-term debt | |||||||||||||||||
| Current portion of long-term debt | |||||||||||||||||
| Accounts payable | |||||||||||||||||
| Customer deposits | |||||||||||||||||
| Accrued interest and taxes | |||||||||||||||||
| Accrued construction-related expenditures | |||||||||||||||||
| Regulatory liabilities | |||||||||||||||||
| Other | |||||||||||||||||
| Total current liabilities | |||||||||||||||||
| Other liabilities and deferred credits: | |||||||||||||||||
| Long-term debt | |||||||||||||||||
| Asset retirement obligations | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Regulatory liabilities | |||||||||||||||||
| Other | |||||||||||||||||
| Total other liabilities and deferred credits | |||||||||||||||||
| TOTAL LIABILITIES | |||||||||||||||||
| COMMITMENTS AND CONTINGENCIES | |||||||||||||||||
| EQUITY | |||||||||||||||||
Common stock ( | |||||||||||||||||
| Additional paid-in capital | |||||||||||||||||
| Retained earnings | |||||||||||||||||
| TOTAL EQUITY | |||||||||||||||||
| TOTAL LIABILITIES AND EQUITY | $ | $ | |||||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
13
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
| Three Months Ended March 31, | |||||||||||||||||
| 2022 | 2021 | ||||||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||||||||
| Net income | $ | $ | |||||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||||||||
| Depreciation and amortization | |||||||||||||||||
| Nuclear fuel and other amortization | |||||||||||||||||
| Deferred income taxes | |||||||||||||||||
| Cost recovery clauses and franchise fees | ( | ( | |||||||||||||||
| Other – net | ( | ( | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Current assets | ( | ||||||||||||||||
| Noncurrent assets | ( | ( | |||||||||||||||
| Current liabilities | |||||||||||||||||
| Noncurrent liabilities | ( | ||||||||||||||||
| Net cash provided by operating activities | |||||||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||||||||
| Capital expenditures | ( | ( | |||||||||||||||
| Nuclear fuel purchases | ( | ( | |||||||||||||||
| Proceeds from sale or maturity of securities in special use funds | |||||||||||||||||
| Purchases of securities in special use funds | ( | ( | |||||||||||||||
| Other – net | ( | ||||||||||||||||
| Net cash used in investing activities | ( | ( | |||||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||||||||
| Issuances of long-term debt, including discounts | |||||||||||||||||
| Net change in commercial paper | ( | ||||||||||||||||
| Capital contributions from NEE | |||||||||||||||||
| Dividends to NEE | ( | ||||||||||||||||
| Other – net | ( | ( | |||||||||||||||
| Net cash provided by financing activities | |||||||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | ( | ( | |||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | |||||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||||||||
| SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||||||||||||
| Accrued property additions | $ | $ | |||||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
14
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDER'S EQUITY
(millions)
(unaudited)
| Three Months Ended March 31, 2022 | Common Stock | Additional Paid-In Capital | Retained Earnings | Common Shareholder's Equity | |||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
| Dividends to NEE | — | — | ( | ||||||||||||||||||||
| Balances, March 31, 2022 | $ | $ | $ | $ | |||||||||||||||||||
| Three Months Ended March 31, 2021 | Common Stock | Additional Paid-In Capital | Retained Earnings | Common Shareholder's Equity | |||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | $ | |||||||||||||||||||
| Net income | — | — | |||||||||||||||||||||
| Capital contributions from NEE | — | — | |||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | $ | |||||||||||||||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2021 Form 10-K.
15
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The accompanying condensed consolidated financial statements should be read in conjunction with the 2021 Form 10-K. In the opinion of NEE and FPL management, all adjustments considered necessary for fair financial statement presentation have been made. All adjustments are normal and recurring unless otherwise noted. 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 (see Note 2) 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 $5.0 billion ($3.7 billion at FPL) and $4.0 billion ($3.0 billion at FPL) for the three months ended March 31, 2022 and 2021, 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. During the three months ended March 31, 2021, NEER did not recognize approximately $180 million of revenue related to reimbursable expenses from a counterparty that were deemed not probable of collection. These reimbursable expenses arose from the impacts of severe prolonged winter weather in Texas in February 2021 (February 2021 weather event). These determinations were made based on assessments of the counterparty's creditworthiness and NEER's ability to collect.
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, 2022 and December 31, 2021, FPL's unbilled revenues amounted to approximately $573 million and $583 million, respectively, and are included in customer receivables on NEE's and FPL's condensed consolidated balance sheets. Certain contracts with customers contain a fixed price which primarily relate to certain power purchase agreements with maturity dates through 2041. As of March 31, 2022, FPL expects to record approximately $385 million of revenues related to the fixed capacity price components of such contracts over the remaining terms of the related contracts as the capacity is provided. These contracts also contain a variable price component for energy usage which FPL recognizes as revenue as the energy is delivered based on rates stipulated in the respective contracts.
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 2022 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 2026, certain power purchase agreements with maturity dates through 2034 and capacity sales associated with natural gas transportation through 2062. At March 31, 2022, NEER expects to record approximately $1.3 billion of revenues related to the fixed price components of such contracts over the remaining terms of the related contracts as the capacity is provided.
16
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. Derivative Instruments
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 fuel 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 (loss). Settlement gains and losses are included within the line items in the condensed consolidated statements of income (loss) 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 (loss). 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 recognized in net cash provided by operating activities in NEE's and FPL's condensed consolidated statements of cash flows.
17
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Fair Value Measurements of Derivative Instruments – 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.
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.
18
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The tables below present NEE's and FPL's gross derivative positions at March 31, 2022 and December 31, 2021, 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, as well as the location of the net derivative position on the condensed consolidated balance sheets.
| March 31, 2022 | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | |||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Foreign currency contracts | $ | $ | $ | $ | ( | ( | |||||||||||||||||||||||
| Total derivative assets | $ | ||||||||||||||||||||||||||||
FPL – commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Foreign currency contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Total derivative liabilities | $ | ||||||||||||||||||||||||||||
FPL – commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Net fair value by NEE balance sheet line item: | |||||||||||||||||||||||||||||
Current derivative assets(b) | $ | ||||||||||||||||||||||||||||
Noncurrent derivative assets(c) | |||||||||||||||||||||||||||||
| Total derivative assets | $ | ||||||||||||||||||||||||||||
Current derivative liabilities(d) | $ | ||||||||||||||||||||||||||||
Noncurrent derivative liabilities(e) | |||||||||||||||||||||||||||||
| Total derivative liabilities | $ | ||||||||||||||||||||||||||||
| Net fair value by FPL balance sheet line item: | |||||||||||||||||||||||||||||
| Current other assets | $ | ||||||||||||||||||||||||||||
| Current other liabilities | $ | ||||||||||||||||||||||||||||
———————————————
(a)Includes the effect of the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral payments and receipts. NEE and FPL also have contract settlement receivable and payable balances that are subject to the master netting arrangements but are not offset within the condensed consolidated balance sheets and are recorded in customer receivables – net and accounts payable, respectively.
(b)Reflects the netting of approximately $573 million in margin cash collateral received from counterparties.
(c)Reflects the netting of approximately $74 million in margin cash collateral received from counterparties.
(d)Reflects the netting of approximately $87 million in margin cash collateral paid to counterparties.
(e)Reflects the netting of approximately $985 million in margin cash collateral paid to counterparties.
19
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| December 31, 2021 | |||||||||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Netting(a) | Total | |||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Foreign currency contracts | $ | $ | $ | $ | ( | ( | |||||||||||||||||||||||
| Total derivative assets | $ | ||||||||||||||||||||||||||||
FPL – commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Liabilities: | |||||||||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||||||||
| Commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Interest rate contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Foreign currency contracts | $ | $ | $ | $ | ( | ||||||||||||||||||||||||
| Total derivative liabilities | $ | ||||||||||||||||||||||||||||
FPL – commodity contracts | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||
| Net fair value by NEE balance sheet line item: | |||||||||||||||||||||||||||||
Current derivative assets(b) | $ | ||||||||||||||||||||||||||||
Noncurrent derivative assets(c) | |||||||||||||||||||||||||||||
| Total derivative assets | $ | ||||||||||||||||||||||||||||
Current derivative liabilities(d) | $ | ||||||||||||||||||||||||||||
Noncurrent derivative liabilities(e) | |||||||||||||||||||||||||||||
| Total derivative liabilities | $ | ||||||||||||||||||||||||||||
| Net fair value by FPL balance sheet line item: | |||||||||||||||||||||||||||||
| Current other assets | $ | ||||||||||||||||||||||||||||
| Current other liabilities | $ | ||||||||||||||||||||||||||||
| Noncurrent other liabilities | |||||||||||||||||||||||||||||
| Total derivative liabilities | $ | ||||||||||||||||||||||||||||
———————————————
(a)Includes the effect of the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral payments and receipts. NEE and FPL also have contract settlement receivable and payable balances that are subject to the master netting arrangements but are not offset within the condensed consolidated balance sheets and are recorded in customer receivables – net and accounts payable, respectively.
(b)Reflects the netting of approximately $150 million in margin cash collateral received from counterparties.
(c)Reflects the netting of approximately $56 million in margin cash collateral received from counterparties.
(d)Reflects the netting of approximately $6 million in margin cash collateral paid to counterparties.
(e)Reflects the netting of approximately $172 million in margin cash collateral paid to counterparties
At March 31, 2022 and December 31, 2021, NEE had approximately $47 million and $56 million (none 633 million and $673 million (none
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.
20
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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, 2022 are as follows:
| Fair Value at | Valuation | Significant | Weighted- | |||||||||||||||||||||||||||||||||||||||||
| Transaction Type | March 31, 2022 | Technique(s) | Unobservable Inputs | Range | average(a) | |||||||||||||||||||||||||||||||||||||||
| Assets | Liabilities | |||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
Forward contracts – power | $ | $ | ( | Discounted cash flow | Forward price (per MWh) | $( | — | $ | $ | |||||||||||||||||||||||||||||||||||
Forward contracts – gas | ( | Discounted cash flow | Forward price (per MMBtu) | $ | — | $ | $ | |||||||||||||||||||||||||||||||||||||
Forward contracts – congestion | ( | Discounted cash flow | Forward price (per MWh) | $( | — | $ | $ | |||||||||||||||||||||||||||||||||||||
Options – power | ( | Option models | Implied correlations | — | ||||||||||||||||||||||||||||||||||||||||
| Implied volatilities | — | |||||||||||||||||||||||||||||||||||||||||||
Options – primarily gas | ( | Option models | Implied correlations | — | ||||||||||||||||||||||||||||||||||||||||
| Implied volatilities | — | |||||||||||||||||||||||||||||||||||||||||||
Full requirements and unit contingent contracts | ( | Discounted cash flow | Forward price (per MWh) | $ | — | $ | $ | |||||||||||||||||||||||||||||||||||||
Customer migration rate(b) | — | |||||||||||||||||||||||||||||||||||||||||||
Forward contracts – other | ( | |||||||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | ( | |||||||||||||||||||||||||||||||||||||||||
———————————————
(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.
21
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, | |||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||
| NEE | FPL | NEE | FPL | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior period | $ | $ | $ | $ | ( | ||||||||||||||||||
| Realized and unrealized gains (losses): | |||||||||||||||||||||||
| Included in operating revenues | ( | ( | |||||||||||||||||||||
Included in regulatory assets and liabilities | ( | ( | ( | ( | |||||||||||||||||||
| Purchases | |||||||||||||||||||||||
| Settlements | ( | ||||||||||||||||||||||
| Issuances | ( | ( | |||||||||||||||||||||
Transfers out(a) | ( | ( | |||||||||||||||||||||
| Fair value of net derivatives based on significant unobservable inputs at March 31 | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Gains (losses) included in operating revenues attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date | $ | ( | $ | $ | ( | $ | |||||||||||||||||
———————————————
Income Statement Impact of Derivative Instruments – Gains (losses) related to NEE's derivatives are recorded in NEE's condensed consolidated statements of income (loss) as follows:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
Commodity contracts(a) – operating revenues | $ | ( | $ | ( | |||||||
Foreign currency contracts – interest expense | ( | ||||||||||
Interest rate contracts – interest expense | |||||||||||
| Losses reclassified from AOCI to interest expense: | |||||||||||
| Interest rate contracts | ( | ( | |||||||||
Foreign currency contracts | ( | ( | |||||||||
| Total | $ | ( | $ | ||||||||
———————————————
(a)For the three months ended March 31, 2022 and 2021, FPL recorded losses of approximately $12 million and $7 million, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets.
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 the related 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, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Commodity Type | NEE | FPL | NEE | FPL | ||||||||||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Power | ( | MWh | ( | MWh | ||||||||||||||||||||||||||||||||||||||||||||||
| Natural gas | ( | MMBtu | MMBtu | ( | MMBtu | MMBtu | ||||||||||||||||||||||||||||||||||||||||||||
| Oil | ( | barrels | ( | barrels | ||||||||||||||||||||||||||||||||||||||||||||||
At March 31, 2022 and December 31, 2021, NEE had interest rate contracts with a notional amount of approximately $11.2 billion and $11.2 billion, respectively, and foreign currency contracts with a notional amount of approximately $1.0 billion and $1.0 billion, respectively.
22
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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, 2022 and December 31, 2021, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $7.5 billion ($17 million for FPL) and $4.1 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 $1,240 million (none at FPL) at March 31, 2022 and $645 million (none at FPL) at December 31, 2021. 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 $3.9 billion ($20 million at FPL) at March 31, 2022 and $2.7 billion ($35 million at FPL) at December 31, 2021. 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 $1.1 billion ($135 million at FPL) at March 31, 2022 and $1.0 billion ($145 million at FPL) at December 31, 2021.
Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business. At March 31, 2022 and December 31, 2021, applicable NEE subsidiaries have posted approximately $99 million (none at FPL) and $84 million (none at FPL), respectively, in cash, and $1.2 billion (none at FPL) and $1.1 billion (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.
3. Non-Derivative Fair Value Measurements
Non-derivative fair value measurements consist of NEE’s and FPL’s cash equivalents and restricted cash equivalents, special use funds and other investments. The fair value of these financial assets is determined by using the valuation techniques and inputs as described in Note 2 – Fair Value Measurements of Derivative Instruments as well as below.
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.
23
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Recurring Non-Derivative Fair Value Measurements – NEE's and FPL's financial assets and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:
| March 31, 2022 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Cash equivalents and restricted cash equivalents:(a) | |||||||||||||||||||||||
NEE – equity securities | $ | $ | $ | $ | |||||||||||||||||||
FPL – equity securities | $ | $ | $ | $ | |||||||||||||||||||
Special use funds:(b) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
| Equity securities | $ | $ | (c) | $ | $ | ||||||||||||||||||
| U.S. Government and municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Asset-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Other debt securities | $ | $ | $ | $ | |||||||||||||||||||
| FPL: | |||||||||||||||||||||||
| Equity securities | $ | $ | (c) | $ | $ | ||||||||||||||||||
| U.S. Government and municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Asset-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Other debt securities | $ | $ | $ | $ | |||||||||||||||||||
Other investments:(d) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
| Debt securities | $ | $ | $ | $ | |||||||||||||||||||
FPL – equity securities | $ | $ | $ | $ | |||||||||||||||||||
———————————————
(a)Includes restricted cash equivalents of approximately $52 million ($44 million for FPL) in current other assets on the condensed consolidated balance sheets.
(b)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.
(c)Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.
(d)Included in noncurrent other assets on NEE's and FPL's condensed consolidated balance sheets.
24
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Assets: | |||||||||||||||||||||||
Cash equivalents and restricted cash equivalents:(a) | |||||||||||||||||||||||
NEE – equity securities | $ | $ | $ | $ | |||||||||||||||||||
FPL – equity securities | $ | $ | $ | $ | |||||||||||||||||||
Special use funds:(b) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
| Equity securities | $ | $ | (c) | $ | $ | ||||||||||||||||||
| U.S. Government and municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Asset-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Other debt securities | $ | $ | $ | $ | |||||||||||||||||||
| FPL: | |||||||||||||||||||||||
| Equity securities | $ | $ | (c) | $ | $ | ||||||||||||||||||
| U.S. Government and municipal bonds | $ | $ | $ | $ | |||||||||||||||||||
| Corporate debt securities | $ | $ | $ | $ | |||||||||||||||||||
| Asset-backed securities | $ | $ | $ | $ | |||||||||||||||||||
| Other debt securities | $ | $ | $ | $ | |||||||||||||||||||
Other investments:(d) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
| Equity securities | $ | $ | $ | $ | |||||||||||||||||||
| Debt securities | $ | $ | $ | $ | |||||||||||||||||||
FPL – equity securities | $ | $ | $ | $ | |||||||||||||||||||
———————————————
(a)Includes restricted cash equivalents of approximately $56 million ($53 million for FPL) in current other assets on the condensed consolidated balance sheets.
(b)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.
(c)Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.
(d)Included in noncurrent other assets on NEE's and FPL's condensed consolidated balance sheets.
Contingent Consideration – At March 31, 2022, NEER had approximately $245 million of contingent consideration liabilities which are included in noncurrent other liabilities on NEE's condensed consolidated balance sheet. The liabilities relate to contingent consideration for the completion of capital expenditures for future development projects in connection with the acquisition of GridLiance Holdco, LP and GridLiance GP, LLC (GridLiance) (see Note 5 – GridLiance). NEECH guarantees the contingent consideration obligations under the GridLiance acquisition agreements. Significant inputs and assumptions used in the fair value measurement, some of which are Level 3 and require judgement, include the projected timing and amount of future cash flows, estimated probability of completing future development projects as well as discount rates.
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value | Carrying Amount | Estimated Fair Value | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| NEE: | ||||||||||||||||||||||||||
Special use funds(a) | $ | $ | $ | $ | ||||||||||||||||||||||
Other investments(b) | $ | $ | $ | $ | ||||||||||||||||||||||
| Long-term debt, including current portion | $ | $ | (c) | $ | $ | (c) | ||||||||||||||||||||
| FPL: | ||||||||||||||||||||||||||
Special use funds(a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Long-term debt, including current portion | $ | $ | (c) | $ | $ | (c) | ||||||||||||||||||||
———————————————
(a)Primarily represents investments accounted for under the equity method and loans not measured at fair value on a recurring basis (Level 2).
(b)Included in noncurrent other assets on NEE's condensed consolidated balance sheets.
(c)At March 31, 2022 and December 31, 2021, substantially all is Level 2 for NEE and FPL.
25
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Special Use Funds and Other Investments – The special use funds noted above and those carried at fair value (see Recurring Non-Derivative Fair Value Measurements above) consist of NEE's nuclear decommissioning fund assets of approximately $8,417 million ($5,803 million for FPL) and $8,846 million ($6,082 million for FPL) at March 31, 2022 and December 31, 2021, respectively, and FPL's storm fund assets of $75 76 2,695 million ($1,840 million for FPL) and $2,438 million ($1,877 million for FPL) at March 31, 2022 and December 31, 2021, respectively. Debt securities included in the nuclear decommissioning funds have a weighted-average maturity at March 31, 2022 of approximately eight years two years four years . The cost of securities sold is determined using the specific identification method.
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 (loss). Changes in fair value of equity securities are primarily 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 (loss).
Unrealized gains (losses) recognized on equity securities held at March 31, 2022 and 2021 are as follows:
| NEE | FPL | ||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Unrealized gains (losses) | $ | ( | $ | $ | ( | $ | |||||||||||||||||
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Realized gains | $ | $ | $ | $ | |||||||||||||||||||
| Realized losses | $ | $ | $ | $ | |||||||||||||||||||
| Proceeds from sale or maturity of securities | $ | $ | $ | $ | |||||||||||||||||||
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, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Unrealized gains | $ | $ | $ | $ | |||||||||||||||||||
Unrealized losses(a) | $ | $ | $ | $ | |||||||||||||||||||
| Fair value | $ | $ | $ | $ | |||||||||||||||||||
———————————————
(a) Unrealized losses on available for sale debt securities in an unrealized loss position for greater than twelve months at March 31, 2022 and December 31, 2021 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.
26
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
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.
Nonrecurring Fair Value Measurements – NEE tests its equity method investments for impairment whenever events or changes in circumstances indicate that the investment may be impaired. On February 2, 2022, the U.S. Court of Appeals for the Fourth Circuit (the 4th Circuit) vacated and remanded Mountain Valley Pipeline, LLC’s (Mountain Valley Pipeline) Biological Opinion issued by the U.S. Fish and Wildlife Service. While NextEra Energy Resources continues to evaluate options and next steps with its joint venture partners, this event along with the 4th Circuit vacatur and remand of the U.S. Forest Service right-of-way grant on January 25, 2022 caused NextEra Energy Resources to re-evaluate its investment in Mountain Valley Pipeline for further other-than-temporary impairment, which evaluation coincided with the preparation of NEE's December 31, 2021 financial statements. As a result of this evaluation, it was determined that the continued legal and regulatory challenges have resulted in a very low probability of pipeline completion. Accordingly, NextEra Energy Resources performed a fair value analysis based on the market approach to determine the amount of the impairment. The challenges to complete construction and the resulting economic outlook for the pipeline were considered in determining the magnitude of the other-than-temporary impairment. Based on this fair value analysis, NextEra Energy Resources recorded an impairment charge of approximately $0.8 billion ($0.6 billion after tax), which is recorded in equity in earnings (losses) of equity method investees in NEE’s condensed consolidated statements of income (loss) for the three months ended March 31, 2022. This impairment charge resulted in the complete write off of NextEra Energy Resources’ equity method investment carrying amount of approximately $0.6 billion, as well as the recording of a liability of approximately $0.2 billion which reflects NextEra Energy Resources’ share of estimated future dismantlement costs.
The fair value estimate was based on a probability-weighted earnings before interest, taxes, depreciation and amortization (EBITDA) multiple valuation technique using a market participant view of the potential different outcomes for the investment. As part of the valuation, NextEra Energy Resources used observable inputs where available, including the EBITDA multiples of recent pipeline transactions. Significant unobservable inputs (Level 3), including the probabilities assigned to the different potential outcomes, the forecasts of operating revenues and costs, and the projected capital expenditures to complete the project, were also used in the estimation of fair value. An increase in the revenue forecasts, a decrease in the projected operating or capital expenditures or an increase in the probability assigned to the full pipeline being completed would result in an increased fair market value. Changes in the opposite direction of those unobservable inputs would result in a decreased fair market value.
4. Income Taxes
NEE's effective income tax rate for the three months ended March 31, 2022 and 2021 was approximately 34.1 % and 14.3 %, respectively. NEE's effective income tax rate is based on the composition of pretax income or loss, and, for the three months ended March 31, 2022, primarily reflects the impact of unfavorable changes in the fair value of commodity and equity securities held in NEER's nuclear decommissioning funds, as well as the impairment charge related to the investment in Mountain Valley Pipeline (see Note 3 – Nonrecurring Fair Value Measurements). State income taxes for the three months ended March 31, 2021 reflect state tax benefits associated with the financial impacts from the February 2021 weather event.
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, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Statutory federal income tax rate | % | % | % | % | |||||||||||||||||||
| Increases (reductions) resulting from: | |||||||||||||||||||||||
State income taxes – net of federal income tax benefit | |||||||||||||||||||||||
Taxes attributable to noncontrolling interests | ( | ||||||||||||||||||||||
PTCs and ITCs – NEER | ( | ||||||||||||||||||||||
| Amortization of deferred regulatory credit | ( | ( | ( | ||||||||||||||||||||
Other – net | ( | ( | ( | ||||||||||||||||||||
| Effective income tax rate | % | % | % | % | |||||||||||||||||||
27
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
5. Acquisitions
Merger of FPL and Gulf Power Company – On January 1, 2021, FPL and Gulf Power Company merged, with FPL as the surviving entity. As a result of the merger, FPL acquired assets of approximately $6.7 billion, primarily relating to property, plant and equipment, net of approximately $4.9 billion and regulatory assets of $1.2 billion, and assumed liabilities of approximately $3.9 billion, including $1.8 billion of debt, primarily long-term debt, $729 million of deferred income taxes and $566 million of regulatory liabilities. Additionally, goodwill of approximately $2.7 billion and purchase accounting adjustments associated with the 2019 Gulf Power Company acquisition by NEE were transferred to FPL from Corporate and Other and, for impairment testing, the goodwill is included in the FPL reporting unit. The assets acquired and liabilities assumed by FPL were at carrying amounts as the merger was between entities under common control.
GridLiance – On March 31, 2021, a wholly owned subsidiary of NEET acquired GridLiance, which owns and operates three FERC-regulated transmission utilities with approximately 700 miles of high-voltage transmission lines across six states, five in the Midwest and Nevada. The purchase price included approximately $502 million in cash consideration, and the assumption of approximately $175 million of debt, excluding post-closing adjustments.
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 GridLiance’s rates, which is intended to allow GridLiance to collect total revenues equal to GridLiance's costs for the development, financing, construction, operation and maintenance of GridLiance, including a reasonable rate of return on invested capital, is considered a fundamental input in measuring the fair value of GridLiance'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 $384 million, primarily relating to property, plant and equipment, and assumed liabilities of approximately $210 million, primarily relating to long-term debt. The acquisition agreements are subject to earn-out provisions for additional payments, valued at approximately $264 million at March 31, 2021, to be made upon the completion of capital expenditures for future development projects (see Note 3 – Contingent Consideration). The excess of the purchase price over the fair value of assets acquired and liabilities assumed resulted in approximately $592 million of goodwill which has been recognized on NEE's condensed consolidated balance sheets, of which approximately $586 million is expected to be deductible for tax purposes. Goodwill associated with the GridLiance 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.
6. NEP
28
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
7. Variable Interest Entities (VIEs)
NEER – At March 31, 2022, NEE consolidates a number of 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.
NEE consolidates a NEET VIE that constructed an approximately 280 -mile electric transmission line that went into service during the first quarter of 2022. A NEET subsidiary is the primary beneficiary and controls the most significant activities of the VIE. NEET is entitled to receive 50 % of the profits and losses of the entity. The assets and liabilities of the VIE totaled approximately $649 million and $61 million, respectively, at March 31, 2022, and $614 million and $64 million, respectively, at December 31, 2021. At March 31, 2022 and December 31, 2021, the assets and liabilities of this VIE consisted primarily of property, plant and equipment and accounts payable.
NextEra Energy Resources consolidates a VIE which has a 10 % direct ownership interest in wind generation facilities and solar facilities which have the capability of producing approximately 400 MW and 599 MW, respectively. These entities sell their electric output under power sales contracts to third parties with expiration dates ranging from 2025 through 2040. These entities are also considered a VIE because the holders of differential membership interests in these entities do not have substantive rights over the significant activities of these entities. The assets and liabilities of the VIE were approximately $1,513 million and $77 million, respectively, at March 31, 2022, and $1,518 million and $79 million, respectively, at December 31, 2021. At March 31, 2022 and December 31, 2021, the assets and liabilities of this VIE consisted primarily of property, plant and equipment and accounts payable.
NextEra Energy Resources consolidates 33 VIEs that primarily relate to certain subsidiaries which have sold differential membership interests in entities which own and operate wind generation as well as solar and solar plus battery storage facilities with the capability of producing a total of approximately 10,626 MW and 1,069 MW, respectively, and own wind generation as well as solar and solar plus battery storage facilities that, upon completion of construction, which is anticipated in the second quarter of 2022, are expected to have a total capacity of approximately 200 MW and 50 MW, respectively. These entities sell, or will sell, their electric output either under power sales contracts to third parties with expiration dates ranging from 2024 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. NextEra Energy Resources has financing obligations with respect to these entities, including 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 $17,054 million and $1,257 million, respectively, at March 31, 2022 and $17,419 million and $1,480 million, respectively, at December 31, 2021. At March 31, 2022 and December 31, 2021, the assets and liabilities of these VIEs consisted primarily of property, plant and equipment and accounts payable. At March 31, 2022, subsidiaries of NEE had guarantees related to certain obligations of one of these consolidated VIEs.
Other – At March 31, 2022 and December 31, 2021, several NEE subsidiaries had investments totaling approximately $4,368 million ($3,641 million at FPL) and $4,559 million ($3,799 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 asset-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 (see Note 6). 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 $4,438 million and $4,214 million at March 31, 2022 and December 31, 2021, respectively. At March 31, 2022 and December 31, 2021, subsidiaries of NEE had guarantees related to certain obligations of one of these entities, as well as commitments to invest
29
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
8. 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 cost (income) for the plans are as follows:
| Pension Benefits | Postretirement Benefits | ||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||||||||
| Interest cost | |||||||||||||||||||||||
| Expected return on plan assets | ( | ( | |||||||||||||||||||||
| Amortization of actuarial loss | |||||||||||||||||||||||
| Amortization of prior service benefit | ( | ( | |||||||||||||||||||||
| Net periodic cost (income) at NEE | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
| Net periodic cost (income) allocated to FPL | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||
30
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. Debt
Significant long-term debt issuances and borrowings during the three months ended March 31, 2022 were as follows:
| Principal Amount | Interest Rate | Maturity Date | |||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
| FPL: | |||||||||||||||||||||||||||||
| First mortgage bonds | $ | % | 2032 | ||||||||||||||||||||||||||
| Senior unsecured notes | $ | (a) | 2024 | ||||||||||||||||||||||||||
| NEECH: | |||||||||||||||||||||||||||||
| Debentures | $ | % | – | % | 2024 | – | 2062 | ||||||||||||||||||||||
| Debentures | $ | (a) | 2024 | ||||||||||||||||||||||||||
———————————————
(a)Variable rate is based on an underlying index plus a specified margin
10. Equity
Earnings (Loss) Per Share – The reconciliation of NEE's basic and diluted earnings (loss) per share attributable to NEE is as follows:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions, except per share amounts) | |||||||||||
Numerator – net income (loss) attributable to NEE | $ | ( | $ | ||||||||
| Denominator: | |||||||||||
Weighted-average number of common shares outstanding – basic | |||||||||||
Equity units, stock options, performance share awards and restricted stock(a) | |||||||||||
Weighted-average number of common shares outstanding – assuming dilution | |||||||||||
| Earnings (loss) per share attributable to NEE: | |||||||||||
| Basic | $ | ( | $ | ||||||||
| Assuming dilution | $ | ( | $ | ||||||||
———————————————
(a)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 equity units, stock options and/or performance share awards, as well as restricted stock which were not included in the denominator above due to their antidilutive effect were approximately 58.5 million and 58.4 million for the three months ended March 31, 2022 and 2021, respectively.
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, 2022 | |||||||||||||||||||||||||||||||||||
| Balances, December 31, 2021 | $ | $ | $ | $ | ( | $ | $ | ||||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | (a) | ||||||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Less other comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||||||||||||||
| Balances, March 31, 2022 | $ | $ | ( | $ | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Attributable to noncontrolling interests | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
———————————————
(a)Reclassified to interest expense in NEE's condensed consolidated statements of income (loss). See Note 2 – Income Statement Impact of Derivative Instruments.
31
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
| 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, 2021 | |||||||||||||||||||||||||||||||||||
| Balances, December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||||||||||||||||||||
| Amounts reclassified from AOCI | (a) | ( | (b) | (c) | |||||||||||||||||||||||||||||||
| Net other comprehensive income (loss) | ( | ( | |||||||||||||||||||||||||||||||||
| Less other comprehensive income (loss) attributable to noncontrolling interests | ( | ( | |||||||||||||||||||||||||||||||||
| Balances, March 31, 2021 | $ | $ | $ | ( | $ | ( | $ | $ | ( | ||||||||||||||||||||||||||
| Attributable to noncontrolling interests | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(a)Reclassified to interest expense in NEE's condensed consolidated statements of income (loss). See Note 2 – 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 (loss).
(c)Reclassified to other net periodic benefit income in NEE's condensed consolidated statements of income (loss).
11. Summary of Significant Accounting and Reporting Policies
Credit Losses – NEE's credit department monitors current and forward credit exposure to counterparties and their affiliates. Prospective and existing customers are reviewed for creditworthiness based on established standards and credit quality indicators. Credit quality indicators and standards that are closely monitored include credit ratings, certain financial ratios and delinquency trends which are based off the latest available information. Customers not meeting minimum standards provide various credit enhancements or secured payment terms, such as letters of credit, the posting of margin cash collateral or use of master netting arrangements.
For the three months ended March 31, 2022 and 2021, NEE recorded approximately $37 million and $152 million of bad debt expense, including credit losses, respectively, which are included in O&M expenses in NEE’s condensed consolidated statements of income (loss). The amounts primarily relate to credit losses at NEER driven by the operational and energy market impacts of the February 2021 weather event. The estimate for credit losses related to the impacts of the February 2021 weather
32
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Property Plant and Equipment – Property, plant and equipment consists of the following:
| NEE | FPL | |||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Electric plant in service and other property | $ | $ | $ | $ | ||||||||||||||||||||||
| Nuclear fuel | ||||||||||||||||||||||||||
| Construction work in progress | ||||||||||||||||||||||||||
| Property, plant and equipment, gross | ||||||||||||||||||||||||||
| Accumulated depreciation and amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Property, plant and equipment – net | $ | $ | $ | $ | ||||||||||||||||||||||
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 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 development, construction and maintenance of its competitive energy businesses. Also see Note 3 – Contingent Consideration.
At March 31, 2022, estimated capital expenditures, on an accrual basis, for the remainder of 2022 through 2026 were as follows:
| Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Total | ||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||
| FPL: | |||||||||||||||||||||||||||||||||||
Generation:(a) | |||||||||||||||||||||||||||||||||||
New(b) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Existing | |||||||||||||||||||||||||||||||||||
Transmission and distribution(c) | |||||||||||||||||||||||||||||||||||
| Nuclear fuel | |||||||||||||||||||||||||||||||||||
| General and other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
NEER:(d) | |||||||||||||||||||||||||||||||||||
Wind(e) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
Solar(f) | |||||||||||||||||||||||||||||||||||
Battery storage | |||||||||||||||||||||||||||||||||||
Nuclear, including nuclear fuel | |||||||||||||||||||||||||||||||||||
Rate-regulated transmission | |||||||||||||||||||||||||||||||||||
Other | |||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(a)Includes AFUDC of approximately $50 million, $75 million, $45 million, $25 million and $25 million for the remainder of 2022 through 2026, respectively.
(b)Includes land, generation structures, transmission interconnection and integration and licensing.
(c)Includes AFUDC of approximately $35 million, $45 million, $50 million, $30 million and $60 million for the remainder of 2022 through 2026, respectively.
(d)Represents capital expenditures for which applicable internal approvals and also, if required, regulatory approvals have been received.
(e)Consists of capital expenditures for new wind projects and repowering of existing wind projects totaling approximately 3,464 MW, and related transmission.
The above estimates are subject to continuing review and adjustment and actual capital expenditures may vary significantly from these estimates. For example, the timing and ultimate cost associated with solar and battery storage capital expenditures may vary due to the U.S. Department of Commerce's investigation into an antidumping and countervailing duties circumvention claim on solar cells and panels supplied from Malaysia, Vietnam, Thailand and Cambodia.
In addition to guarantees noted in Note 6 with regards to NEP, NEECH has guaranteed or provided indemnifications or letters of
33
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
credit related to third parties, including certain obligations of investments in joint ventures accounted for under the equity method, totaling approximately $484 million at March 31, 2022. These obligations primarily related to guaranteeing the residual value of certain financing leases. Payment guarantees and related contracts with respect to unconsolidated entities for which NEE or one of its subsidiaries are the guarantor are recorded at fair value and are included in noncurrent other liabilities on NEE’s condensed consolidated balance sheets. Management believes that the exposure associated with these guarantees is not material.
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 with expiration dates through 2042.
At March 31, 2022, NEER has entered into contracts with expiration dates 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. Approximately $5.0 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 through 2040.
The required capacity and/or minimum payments under contracts, including those discussed above, at March 31, 2022 were estimated as follows:
| Remainder of 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | ||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||
FPL(a) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
NEER(b)(c)(d) | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(a)Includes approximately $310 million, $410 million, $410 million, $405 million, $400 million and $5,960 million for the remainder of 2022 through 2026 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 $102 million and $103 million for the three months ended March 31, 2022 and 2021, respectively, of which $26 million and $26 million, respectively, were eliminated in consolidation at NEE.
(b)Excludes commitments related to equity contributions and a 20-year natural gas transportation agreement (approximately $70 million per year) with a joint venture, in which NEER has a 31.9 % equity investment, that is constructing a natural gas pipeline. These commitments are subject to the completion of construction of the pipeline which has a very low probability of completion. See Note 3 – Nonrecurring Fair Value Measurements.
(c)Includes approximately $310 million of commitments to invest in technology and other investments through 2031. See Note 7 – Other.
(d)Includes approximately $1,040 million, $225 million, $5 million, $5 million, $0 million and $5 million for the remainder of 2022 through 2026 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, except at Duane Arnold which obtained an exemption from the NRC and maintains a $100 million private liability insurance limit. Each site, except Duane Arnold, participates in a secondary financial protection system, which provides up to $13.1 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 $963 million ($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 $143 million ($82 million for FPL) per incident per year. NextEra Energy Resources and FPL are contractually entitled to recover a proportionate share of such assessments from the owners of minority interests in Seabrook and St. Lucie Unit No. 2, which approximates $16 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 limit of $50 million for property damage, decontamination risks and non-nuclear perils. NEE participates in co-insurance of 10 % of the first $400 million of losses per site per occurrence, except at Duane Arnold. 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 $158 million ($101 million for FPL), plus any applicable taxes, in retrospective premiums in a policy year. NextEra Energy Resources 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, $2 million and $4 million, plus any applicable taxes, respectively.
34
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Concluded)
(unaudited)
13. Segment Information
The tables below present information for NEE's two reportable segments, FPL, a rate-regulated utility business, and NEER, which is comprised of competitive energy and rate-regulated transmission businesses. Corporate and Other represents other business activities, includes eliminating entries, and may include the net effect of rounding. Effective January 1, 2022, FPL became regulated as one ratemaking entity with new unified rates and tariffs, and became one reportable segment at NEE. As a result, the previous segments known as the FPL segment and Gulf Power are no longer separate reportable segments. Prior year period amounts for FPL and Corporate and Other were retrospectively adjusted to reflect this segment change.
NEE's segment information is as follows:
| Three Months Ended March 31, | |||||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| FPL | NEER(a) | Corporate and Other | NEE Consoli- dated | FPL | NEER(a) | Corporate and Other | NEE Consoli- dated | ||||||||||||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating revenues | $ | $ | ( | $ | ( | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
Operating expenses – net | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Gains (losses) on disposal of businesses/assets – net | $ | $ | $ | ( | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||||
| Net loss attributable to noncontrolling interests | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to NEE | $ | $ | ( | (b) | $ | $ | ( | $ | $ | (b) | $ | $ | |||||||||||||||||||||||||||||||||||
———————————————
(a)Interest expense allocated from NEECH to NextEra Energy Resources' subsidiaries 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 4 for a discussion of NEER's tax benefits related to PTCs.
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||
| FPL | NEER | Corporate and Other | NEE Consoli- dated | FPL | NEER | Corporate and Other | NEE Consoli- dated | ||||||||||||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
35
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
OVERVIEW
NEE’s operating performance is driven primarily by the operations of its two principal businesses, FPL, which serves more than 5.7 million customer accounts in Florida and is one of the largest electric utilities in the U.S., and NEER, which together with affiliated entities is the world's largest generator of renewable energy from the wind and sun based on 2021 MWh produced on a net generation basis. The table below presents net income (loss) attributable to NEE and earnings (loss) per share attributable to NEE, assuming dilution, by reportable segment, FPL and NEER. Corporate and Other is primarily comprised of the operating results of other business activities, as well as other income and expense items, including interest expense, and eliminating entries, and may include the net effect of rounding. See Note 13 for additional segment information, including a discussion of a change in segment reporting. The following discussions should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 2021 Form 10-K. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussions, all comparisons are with the corresponding items in the prior year period.
| Net Income (Loss) Attributable to NEE | Earnings (Loss) Per Share Attributable to NEE, Assuming Dilution | ||||||||||||||||||||||
| Three Months Ended March 31, | Three Months Ended March 31, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
FPL(a) | $ | 875 | $ | 777 | $ | 0.44 | $ | 0.39 | |||||||||||||||
NEER(b) | (1,499) | 491 | (0.76) | 0.25 | |||||||||||||||||||
Corporate and Other(a) | 173 | 398 | 0.09 | 0.20 | |||||||||||||||||||
| NEE | $ | (451) | $ | 1,666 | $ | (0.23) | $ | 0.84 | |||||||||||||||
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(a) FPL's and Corporate and Other's results for 2021 were retrospectively adjusted to reflect a segment change. See Note 13.
(b) NEER’s results reflect an allocation of interest expense from NEECH to NextEra Energy Resources' subsidiaries based on a deemed capital structure of 70% debt and differential membership interests sold by NextEra Energy Resources' subsidiaries.
Adjusted Earnings
NEE prepares its financial statements under GAAP. However, management uses earnings adjusted for certain items (adjusted earnings), a non-GAAP financial measure, internally for financial planning, analysis of performance, reporting of results to the Board of Directors and as an input in determining performance-based compensation under NEE’s employee incentive compensation plans. NEE also uses adjusted earnings when communicating its financial results and earnings outlook to analysts and investors. NEE’s management believes that adjusted earnings provide a more meaningful representation of NEE's fundamental earnings power. Although these amounts are properly reflected in the determination of net income (loss) under GAAP, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing. Adjusted earnings do not represent a substitute for net income (loss), as prepared under GAAP.
The following table provides details of the after-tax adjustments to net income (loss) considered in computing NEE's adjusted earnings (loss) discussed above.
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
Net gains (losses) associated with non-qualifying hedge activity(a) | $ | (1,131) | $ | 367 | |||||||
| Differential membership interests-related – NEER | $ | (21) | $ | (23) | |||||||
| NEP investment gains, net – NEER | $ | (51) | $ | (51) | |||||||
| Change in unrealized gains (losses) on NEER's nuclear decommissioning funds and OTTI, net – NEER | $ | (96) | $ | 43 | |||||||
Impairment charge related to investment in Mountain Valley Pipeline – NEER(b) | $ | (607) | $ | — | |||||||
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(a) For the three months ended March 31, 2022 and 2021, $1,352 million and $76 million of losses, respectively, are included in NEER's net income (loss); the balance is included in Corporate and Other. The change in non-qualifying hedge activity is primarily attributable to changes in forward power and natural gas prices, interest rates and foreign currency exchange rates, as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized.
(b) See Note 3 – Nonrecurring Fair Value Measurements for a discussion of the impairment charge related to the investment in Mountain Valley Pipeline.
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NEE segregates into two categories unrealized mark-to-market gains and losses and timing impacts related to derivative transactions. The first category, referred to as non-qualifying hedges, represents certain energy derivative, interest rate derivative and foreign currency transactions entered into as economic hedges, which do not meet the requirements for hedge accounting or for which hedge accounting treatment is not elected or has been discontinued. Changes in the fair value of those transactions are marked to market and reported in the condensed consolidated statements of income (loss), resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market. As a consequence, NEE's net income (loss) reflects only the movement in one part of economically-linked transactions. For example, a gain (loss) in the non-qualifying hedge category for certain energy derivatives is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under GAAP. For this reason, NEE's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance. The second category, referred to as trading activities, which is included in adjusted earnings, represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities. At FPL, substantially all changes in the fair value of energy derivative transactions 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. See Note 2.
RESULTS OF OPERATIONS
Summary
Net income (loss) attributable to NEE decreased by $2,117 million for the three months ended March 31, 2022 reflecting lower results at NEER and Corporate and Other, partly offset by higher results at FPL.
FPL's increase in net income for the three months ended March 31, 2022 was primarily driven by continued investments in plant in service and other property.
NEER's results decreased for the three months ended March 31, 2022 primarily reflecting unfavorable non-qualifying hedge activity compared to 2021, an impairment charge on the Mountain Valley Pipeline investment and unfavorable changes in the fair value of equity securities in NEER's nuclear decommissioning funds.
Corporate and Other's results decreased for the three months ended March 31, 2022 primarily due to less favorable non-qualifying hedge activity.
NEE's effective income tax rates for the three months ended March 31, 2022 and 2021 were approximately 34% and 14%, respectively. See Note 4 for a discussion of NEE's and FPL's effective income tax rates.
NEE, including FPL, is monitoring the U.S. Department of Commerce's investigation into an antidumping and countervailing duties circumvention claim on solar cells and panels supplied from Malaysia, Vietnam, Thailand and Cambodia. While the investigation is expected to disrupt the solar panel supply chain in the near-term, NEE, including FPL, is taking steps intended to mitigate potential risks to their solar project development and construction activities, including working with their suppliers and/or customers to assess the potential impacts of the investigation. Additionally, certain suppliers could be blocked from importing solar panels to the U.S. under the Uyghur Forced Labor Prevention Act (UFLPA). UFLPA seeks to block the import of products made with forced labor in certain areas of China. An inter-agency task force was established to produce a report by June 21, 2022 which, among other things, will include a list of entities that are believed to be using or benefiting from forced labor. NEE, including FPL, is monitoring whether UFLPA will affect any of its solar module suppliers. To date, there has been no material impact on NEE's or FPL's operations or financial performance as a result of these activities; however, the ultimate severity or duration of the expected solar panel supply chain disruption or its effects on NEE's and FPL's solar project development and construction activities is uncertain.
FPL: Results of Operations
Investments in plant in service and other property grew FPL's average retail rate base for the three months ended March 31, 2022 by approximately $4.1 billion, when compared to the same period in the prior year, reflecting, among other things, solar generation additions and ongoing transmission and distribution additions.
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The use of reserve amortization for the three months ended March 31, 2022 is permitted by a December 2021 FPSC final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2021 rate agreement) and, for the prior year period, a December 2016 FPSC final order approving a stipulation and settlement between FPL and several intervenors in a prior base rate proceeding (2016 rate agreement). In order to earn a targeted regulatory ROE, subject to limitations associated with the 2021 and 2016 rate agreements, reserve amortization is calculated using a trailing thirteen-month average of retail rate base and capital structure in conjunction with the trailing twelve months regulatory retail base net operating income, which primarily includes the retail base portion of base and other revenues, net of O&M, depreciation and amortization, interest and tax expenses. In general, the net impact of these income statement line items must be adjusted, in part, by reserve amortization to earn the targeted regulatory ROE. In certain periods, reserve amortization is reversed so as not to exceed the targeted regulatory ROE. The drivers of FPL's net income not reflected in the reserve amortization calculation typically include wholesale and transmission service revenues and expenses, cost recovery clause revenues and expenses, AFUDC – equity and revenue and costs not recoverable from retail customers. During the three months ended March 31, 2022 and 2021, FPL recorded total reserve amortization of approximately $238 million, including a one-time reserve amortization adjustment of $114 million discussed below, and reserve amortization of $316 million, respectively. During both 2022 and 2021, FPL earned an approximately 11.60% regulatory ROE on its retail rate base, based on a trailing thirteen-month average retail rate base as of March 31, 2022 and March 31, 2021.
Operating Revenues
During the three months ended March 31, 2022, operating revenues increased $742 million. The increase for the three months ended March 31, 2022 primarily reflects higher fuel revenues of approximately $385 million, primarily related to higher fuel and energy prices. Retail base revenues increased $194 million during the three months ended March 31, 2022 as compared to the prior year period. The increase in retail base revenues reflects additional revenues of approximately $132 million related to new retail base rates under the 2021 rate agreement. Retail base revenues during the three months ended March 31, 2022 were also impacted by an increase of 1.0% in the average usage per retail customer, primarily related to favorable weather when compared to the prior year period, and an increase of 1.6% in the average number of customer accounts. The increase in operating revenues for the three months ended March 31, 2022 also reflects higher other revenues of approximately $163 million, primarily related to increases in storm protection plan and environmental cost recovery clause revenues.
Fuel, Purchased Power and Interchange Expense
Fuel, purchased power and interchange expense increased $428 million for the three months ended March 31, 2022, primarily reflecting higher fuel and energy prices.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $124 million during the three months ended March 31, 2022 primarily reflecting higher plant in service balances, as well as the impact of reserve amortization. During the three months ended March 31, 2022 and 2021, FPL recorded reserve amortization of approximately $124 million and $316 million, respectively. Reserve amortization, or reversal of such amortization, reflects adjustments to accrued asset removal costs provided under the 2021 and 2016 rate agreements in order to achieve the targeted regulatory ROE. Reserve amortization is recorded as either an increase or decrease to accrued asset removal costs which is reflected in noncurrent regulatory assets on the condensed consolidated balance sheets. FPL is limited to the amortization of $200 million of depreciation reserve surplus during the first year of the 2021 rate agreement. At March 31, 2022, approximately $76 million of reserve amortization remains relative to the $200 million cap for 2022 and approximately $1,326 million overall for the term of the 2021 rate agreement. In addition, during the three months ended March 31, 2022, FPL recorded a one-time reserve amortization adjustment of $114 million as required under the 2021 rate agreement, 50% of which was used to reduce the capital recovery regulatory asset balance and the other 50% to increase the storm reserve regulatory liability.
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NEER: Results of Operations
NEER’s net income (loss) less net loss attributable to noncontrolling interests decreased $1,990 million for the three months ended March 31, 2022. The primary drivers, on an after-tax basis, of the changes are in the following table.
| Increase (Decrease) From Prior Year Period | |||||
| Three Months Ended March 31, 2022 | |||||
| (millions) | |||||
Existing generation and storage assets(a) | $ | 106 | |||
Gas infrastructure(a) | (40) | ||||
Customer supply and proprietary power and gas trading(b) | (38) | ||||
NEET(b) | 25 | ||||
| Other | (21) | ||||
Change in non-qualifying hedge activity(c) | (1,276) | ||||
Change in unrealized gains/losses on equity securities held in nuclear decommissioning funds and OTTI, net(c) | (139) | ||||
Impairment charge related to investment in Mountain Valley Pipeline(c)(d) | (607) | ||||
| Change in net income (loss) less net loss attributable to noncontrolling interests | $ | (1,990) | |||
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(a) Reflects after-tax project contributions, including the net effect of deferred income taxes and other benefits associated with PTCs and ITCs for wind, solar, and storage projects, as applicable, but excludes allocation of interest expense or corporate general and administrative expenses. Results from projects and pipelines are included in new investments during the first twelve months of operation or ownership. Project results, including repowered wind projects, are included in existing generation and storage assets and pipeline results are included in gas infrastructure beginning with the thirteenth month of operation or ownership.
(b) Excludes allocation of interest expense and corporate general and administrative expenses.
(c) See Overview – Adjusted Earnings for additional information.
(d) See Note 3 – Nonrecurring Fair Value Measurements for a discussion of the impairment charge in 2022 related to the investment in Mountain Valley Pipeline.
Existing Generation and Storage Assets
Results from existing generation and storage assets for the three months ended March 31, 2022 increased primarily due to the absence of the unfavorable results driven by the operational and energy market impacts of the February 2021 weather event.
Other Factors
Supplemental to the primary drivers of the changes in NEER's net income (loss) less net loss attributable to noncontrolling interests discussed above, the discussion below describes changes in certain line items set forth in NEE's condensed consolidated statements of income (loss) as they relate to NEER.
Operating Revenues
Operating revenues for the three months ended March 31, 2022 decreased $1,581 million primarily due to:
•the impact of non-qualifying commodity hedges due primarily to changes in energy prices (approximately $2,150 million of losses for the three months ended March 31, 2022 compared to $571 million of losses for the comparable period in 2021), and
•net decreases in revenues of $190 million from the customer supply, proprietary power and gas trading, and gas infrastructure businesses primarily due to the absence of revenues related to the February 2021 weather event,
partly offset by,
•higher revenues from existing generation and storage assets of $140 million primarily due to higher wind revenues as compared to the prior year period which was impacted by the February 2021 weather event, and
•other increases in revenues of approximately $48 million primarily related to NEET's acquisition of GridLiance.
Operating Expenses – net
Operating expenses – net for the three months ended March 31, 2022 decreased $4 million primarily due to a decrease of $51 million in O&M expenses primarily related to lower bad debt expense associated with the February 2021 weather event (see Note 11 – Credit Losses), partly offset by higher corporate operating expenses. Additionally, fuel expense increased approximately $35 million and depreciation expense increased $9 million.
Equity in Earnings (Losses) of Equity Method Investees
NEER recognized $453 million of equity in losses of equity method investees for the three months ended March 31, 2022 compared to $440 million of equity in earnings of equity method investees for the prior year period. The change for the three months ended March 31, 2022 primarily reflects an impairment charge related to the investment in Mountain Valley Pipeline of approximately $0.8 billion (see Note 3 – Nonrecurring Fair Value Measurements) and a decrease in equity in earnings of NEP recorded in 2022 primarily due to less favorable impacts related to changes in the fair value of interest rate derivative instruments.
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Change in Unrealized Gains (Losses) on Equity Securities Held in NEER's Nuclear Decommissioning Funds – net
For the three months ended March 31, 2022, changes in the fair value of equity securities in NEER's nuclear decommissioning funds related to unfavorable market conditions in 2022 compared to favorable market conditions in 2021.
Tax Credits, Benefits and Expenses
PTCs from wind projects and ITCs from solar and certain wind projects are included in NEER’s earnings. PTCs are recognized as wind energy is generated and sold based on a per kWh rate prescribed in applicable federal and state statutes. A portion of the PTCs and ITCs have been allocated to investors in connection with sales of differential membership interests. Also see Note 4 for a discussion of other income tax impacts.
GridLiance Acquisition
On March 31, 2021, a wholly owned subsidiary of NEET acquired GridLiance, which owns and operates three FERC-regulated transmission utilities with high-voltage transmission lines across six states, five in the Midwest and Nevada. See Note 5 – GridLiance.
Corporate and Other: Results of Operations
Corporate and Other at NEE is primarily comprised of the operating results of other business activities, as well as corporate interest income and expenses. Corporate and Other allocates a portion of NEECH's corporate interest expense to NextEra Energy Resources. Interest expense is allocated based on a deemed capital structure of 70% debt and differential membership interests sold by NextEra Energy Resources' subsidiaries.
Corporate and Other's results decreased $225 million during the three months ended March 31, 2022. The decrease for the three months ended March 31, 2022 primarily reflects less favorable after-tax impacts of approximately $222 million, as compared to the prior year period, related to non-qualifying hedge activity as a result of changes in the fair value of interest rate derivative instruments.
LIQUIDITY AND CAPITAL RESOURCES
NEE and its subsidiaries require funds to support and grow their businesses. These funds are used for, among other things, working capital, capital expenditures (see Note 12 – Commitments), investments in or acquisitions of assets and businesses (see Note 5), payment of maturing debt and related derivative obligations (see Note 2) and, from time to time, redemption or repurchase of outstanding debt or equity securities. It is anticipated that these requirements will be satisfied through a combination of cash flows from operations, short- and long-term borrowings, the issuance of short- and long-term debt and, from time to time, equity securities, proceeds from differential membership investors and sales of assets to NEP or third parties, consistent with NEE’s and FPL’s objective of maintaining, on a long-term basis, a capital structure that will support a strong investment grade credit rating. NEE, FPL and NEECH rely on access to credit and capital markets as significant sources of liquidity for capital requirements and other operations that are not satisfied by operating cash flows. The inability of NEE, FPL and NEECH to maintain their current credit ratings could affect their ability to raise short- and long-term capital, their cost of capital and the execution of their respective financing strategies, and could require the posting of additional collateral under certain agreements.
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Cash Flows
NEE's sources and uses of cash for the three months ended March 31, 2022 and 2021 were as follows:
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
Sources of cash: | |||||||||||
Cash flows from operating activities | $ | 1,962 | $ | 1,292 | |||||||
Issuances of long-term debt, including premiums and discounts | 4,309 | 4,616 | |||||||||
| Payments from related parties under the CSCS agreement – net | 78 | 74 | |||||||||
Issuances of common stock – net | 1 | 4 | |||||||||
Net increase in commercial paper and other short-term debt | 1,073 | 258 | |||||||||
Other sources – net | 349 | 238 | |||||||||
Total sources of cash | 7,772 | 6,482 | |||||||||
Uses of cash: | |||||||||||
| Capital expenditures, independent power and other investments and nuclear fuel purchases | (4,893) | (4,575) | |||||||||
Retirements of long-term debt | (493) | (432) | |||||||||
Dividends | (836) | (755) | |||||||||
Other uses – net | (128) | (105) | |||||||||
Total uses of cash | (6,350) | (5,867) | |||||||||
Effects of currency translation on cash, cash equivalents and restricted cash | — | 4 | |||||||||
| Net increase in cash, cash equivalents and restricted cash | $ | 1,422 | $ | 619 | |||||||
NEE's primary capital requirements are for expanding and enhancing FPL's electric system and generation facilities to continue to provide reliable service to meet customer electricity demands and for funding NEER's investments in independent power and other projects. See Note 12 – Commitments for estimated capital expenditures for the remainder of 2022 through 2026.
The following table provides a summary of capital investments for the three months ended March 31, 2022 and 2021.
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| (millions) | |||||||||||
| FPL: | |||||||||||
| Generation: | |||||||||||
New | $ | 290 | $ | 200 | |||||||
Existing | 390 | 295 | |||||||||
| Transmission and distribution | 1,095 | 1,065 | |||||||||
| Nuclear fuel | 5 | 30 | |||||||||
| General and other | 80 | 115 | |||||||||
Other, primarily change in accrued property additions and the exclusion of AFUDC – equity | 312 | (160) | |||||||||
Total | 2,172 | 1,545 | |||||||||
| NEER: | |||||||||||
| Wind | 1,046 | 1,572 | |||||||||
| Solar (includes solar plus battery storage projects) | 642 | 659 | |||||||||
| Battery storage | 204 | 64 | |||||||||
| Nuclear, including nuclear fuel | 48 | 66 | |||||||||
| Natural gas pipelines | 62 | 20 | |||||||||
| Other gas infrastructure | 356 | 64 | |||||||||
Rate-regulated transmission (2021 includes the acquisition of GridLiance, see Note 5 – GridLiance) | 108 | 560 | |||||||||
Other | 142 | 26 | |||||||||
Total | 2,608 | 3,031 | |||||||||
| Corporate and Other | 113 | (1) | |||||||||
| Total capital expenditures, independent power and other investments and nuclear fuel purchases | $ | 4,893 | $ | 4,575 | |||||||
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Liquidity
At March 31, 2022, NEE's total net available liquidity was approximately $10.3 billion. The table below provides the components of FPL's and NEECH's net available liquidity at March 31, 2022.
| Maturity Date | |||||||||||||||||||||||||||||
| FPL | NEECH | Total | FPL | NEECH | |||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
Syndicated revolving credit facilities(a) | $ | 3,798 | $ | 5,257 | $ | 9,055 | 2022 – 2027 | 2022 – 2027 | |||||||||||||||||||||
| Issued letters of credit | (3) | (1,345) | (1,348) | ||||||||||||||||||||||||||
| 3,795 | 3,912 | 7,707 | |||||||||||||||||||||||||||
Bilateral revolving credit facilities(b) | 780 | 3,125 | 3,905 | 2022 – 2024 | 2022 – 2023 | ||||||||||||||||||||||||
| Borrowings | — | — | — | ||||||||||||||||||||||||||
| 780 | 3,125 | 3,905 | |||||||||||||||||||||||||||
Letter of credit facilities(c) | — | 2,300 | 2,300 | 2022 – 2024 | |||||||||||||||||||||||||
| Issued letters of credit | — | (1,815) | (1,815) | ||||||||||||||||||||||||||
| — | 485 | 485 | |||||||||||||||||||||||||||
Subtotal | 4,575 | 7,522 | 12,097 | ||||||||||||||||||||||||||
| Cash and cash equivalents | 52 | 1,423 | 1,475 | ||||||||||||||||||||||||||
Commercial paper and other short-term borrowings outstanding | (1,780) | (1,375) | (3,155) | ||||||||||||||||||||||||||
| Amounts due to related parties under the CSCS agreement (see Note 6) | — | (135) | (135) | ||||||||||||||||||||||||||
| Net available liquidity | $ | 2,847 | $ | 7,435 | $ | 10,282 | |||||||||||||||||||||||
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(a) Provide for the funding of loans up to the amount of the credit facility and the issuance of letters of credit up to $3,275 million ($650 million for FPL and $2,625 million for NEECH). The entire amount of the credit facilities is available for general corporate purposes and to provide additional liquidity in the event of a loss to the companies’ or their subsidiaries’ operating facilities (including, in the case of FPL, a transmission and distribution property loss). FPL’s syndicated revolving credit facilities are also available to support the purchase of $1,375 million of pollution control, solid waste disposal and industrial development revenue bonds in the event they are tendered by individual bondholders and not remarketed prior to maturity, as well as the repayment of approximately $882 million of floating rate notes in the event an individual noteholder requires repayment at specified dates prior to maturity. Approximately $3,130 million of FPL's and $3,844 million of NEECH's syndicated revolving credit facilities expire in 2027.
(b) Approximately $150 million of NEECH's bilateral revolving credit facilities is available for costs incurred in connection with the development, construction and operations of wind and solar power generation facilities.
(c) Only available for the issuance of letters of credit.
Capital Support
Guarantees, Letters of Credit, Surety Bonds and Indemnifications (Guarantee Arrangements)
Certain subsidiaries of NEE issue guarantees and obtain letters of credit and surety bonds, as well as provide indemnities, to facilitate commercial transactions with third parties and financings. Substantially all of the guarantee arrangements are on behalf of NEE’s consolidated subsidiaries, as discussed in more detail below. See Note 6 regarding guarantees of obligations on behalf of NEP subsidiaries. NEE is not required to recognize liabilities associated with guarantee arrangements issued on behalf of its consolidated subsidiaries unless it becomes probable that they will be required to perform. At March 31, 2022, NEE believes that there is no material exposure related to these guarantee arrangements.
NEE subsidiaries issue guarantees related to equity contribution agreements associated with the development, construction and financing of certain power generation facilities, engineering, procurement and construction agreements and equity contributions associated with a natural gas pipeline project under construction and a related natural gas transportation agreement. Commitments associated with these activities are included and/or disclosed in the contracts table in Note 12.
In addition, at March 31, 2022, NEE subsidiaries had approximately $5.2 billion in guarantees related to obligations under purchased power agreements, nuclear-related activities, payment obligations related to PTCs, as well as other types of contractual obligations (see Note 3 – Contingent Consideration and Note 12 – Commitments).
In some instances, subsidiaries of NEE elect to issue guarantees instead of posting other forms of collateral required under certain financing arrangements, as well as for other project-level cash management activities. At March 31, 2022, these guarantees totaled approximately $561 million and support, among other things, cash management activities, including those related to debt service and operations and maintenance service agreements, as well as other specific project financing requirements.
Subsidiaries of NEE also issue guarantees to support customer supply and proprietary power and gas trading activities, including the buying and selling of wholesale and retail energy commodities. At March 31, 2022, the estimated mark-to-market exposure (the total amount that these subsidiaries of NEE could be required to fund based on energy commodity market prices at
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March 31, 2022) plus contract settlement net payables, net of collateral posted for obligations under these guarantees, totaled approximately $3.7 billion.
At March 31, 2022, subsidiaries of NEE also had approximately $4.1 billion of standby letters of credit and approximately $918 million of surety bonds to support certain of the commercial activities discussed above. FPL's and NEECH's credit facilities are available to support the amount of the standby letters of credit.
In addition, as part of contract negotiations in the normal course of business, certain subsidiaries of NEE have agreed and in the future may agree to make payments to compensate or indemnify other parties, including those associated with asset divestitures, for possible unfavorable financial consequences resulting from specified events. The specified events may include, but are not limited to, an adverse judgment in a lawsuit, or the imposition of additional taxes due to a change in tax law or interpretations of the tax law. NEE is unable to estimate the maximum potential amount of future payments by its subsidiaries under some of these contracts because events that would obligate them to make payments have not yet occurred or, if any such event has occurred, they have not been notified of its occurrence.
NEECH, a 100% owned subsidiary of NEE, provides funding for, and holds ownership interests in, NEE's operating subsidiaries other than FPL. NEE has fully and unconditionally guaranteed certain payment obligations of NEECH, including most of its debt and all of its debentures registered pursuant to the Securities Act of 1933 and commercial paper issuances, as well as most of its payment guarantees and indemnifications, and NEECH has guaranteed certain debt and other obligations of subsidiaries within the NEER segment. Certain guarantee arrangements described above contain requirements for NEECH and FPL to maintain a specified credit rating.
NEE fully and unconditionally guarantees NEECH debentures pursuant to a guarantee agreement, dated as of June 1, 1999 (1999 guarantee) and NEECH junior subordinated debentures pursuant to an indenture, dated as of September 1, 2006 (2006 guarantee). The 1999 guarantee is an unsecured obligation of NEE and ranks equally and ratably with all other unsecured and unsubordinated indebtedness of NEE. The 2006 guarantee is unsecured and subordinate and junior in right of payment to NEE senior indebtedness (as defined therein). No payment on those junior subordinated debentures may be made under the 2006 guarantee until all NEE senior indebtedness has been paid in full in certain circumstances. NEE’s and NEECH’s ability to meet their financial obligations are primarily dependent on their subsidiaries’ net income, cash flows and their ability to pay upstream dividends or to repay funds to NEE and NEECH. The dividend-paying ability of some of the subsidiaries is limited by contractual restrictions which are contained in outstanding financing agreements.
Summarized financial information of NEE and NEECH is as follows:
| Three Months Ended March 31, 2022 | Year Ended December 31, 2021 | |||||||||||||||||||||||||||||||||||||
Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
| Operating revenues | $ | (6) | $ | (778) | $ | 2,890 | $ | (1) | $ | 3,139 | $ | 17,069 | ||||||||||||||||||||||||||
| Operating income (loss) | $ | (88) | $ | (1,942) | $ | (775) | $ | (352) | $ | (1,317) | $ | 2,913 | ||||||||||||||||||||||||||
| Net income (loss) | $ | 166 | $ | (1,574) | $ | (693) | $ | (275) | $ | (395) | $ | 2,827 | ||||||||||||||||||||||||||
| Net income (loss) attributable to NEE/NEECH | $ | 166 | $ | (1,332) | $ | (451) | $ | (275) | $ | 351 | $ | 3,573 | ||||||||||||||||||||||||||
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
| Total current assets | $ | 850 | $ | 7,221 | $ | 10,988 | $ | 48 | $ | 5,662 | $ | 9,288 | ||||||||||||||||||||||||||
| Total noncurrent assets | $ | 2,506 | $ | 58,828 | $ | 133,957 | $ | 2,308 | $ | 57,620 | $ | 131,624 | ||||||||||||||||||||||||||
| Total current liabilities | $ | 6,550 | $ | 16,448 | $ | 22,423 | $ | 1,553 | $ | 11,560 | $ | 17,437 | ||||||||||||||||||||||||||
| Total noncurrent liabilities | $ | 25,283 | $ | 38,750 | $ | 78,270 | $ | 27,956 | $ | 40,289 | $ | 77,806 | ||||||||||||||||||||||||||
| Redeemable noncontrolling interests | $ | — | $ | 203 | $ | 203 | $ | — | $ | 245 | $ | 245 | ||||||||||||||||||||||||||
| Noncontrolling interests | $ | — | $ | 8,162 | $ | 8,162 | $ | — | $ | 8,222 | $ | 8,222 | ||||||||||||||||||||||||||
| ———————————— | |||||
| (a) | Excludes intercompany transactions, and investments in, and equity in earnings of, subsidiaries. | ||||
| (b) | Information has been prepared on the same basis of accounting as NEE's condensed consolidated financial statements. | ||||
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ENERGY MARKETING AND TRADING AND MARKET RISK SENSITIVITY
NEE and FPL are exposed to risks associated with adverse changes in commodity prices, interest rates and equity prices. Financial instruments and positions affecting the financial statements of NEE and FPL described below are held primarily for purposes other than trading. Market risk is measured as the potential loss in fair value resulting from hypothetical reasonably possible changes in commodity prices, interest rates or equity prices over the next year. Management has established risk management policies to monitor and manage such market risks, as well as credit risks.
Commodity Price Risk
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. In addition, NEE, through NEER, uses derivatives to optimize the value of its power generation and gas infrastructure assets and engages in power and fuel marketing and trading activities to take advantage of expected future favorable price movements. See Note 2.
The changes in the fair value of NEE's consolidated subsidiaries' energy contract derivative instruments for the three months ended March 31, 2022 were as follows:
| Hedges on Owned Assets | |||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Three months ended March 31, 2022 | |||||||||||||||||||||||
| Fair value of contracts outstanding at December 31, 2021 | $ | 978 | $ | (1,392) | $ | 1 | $ | (413) | |||||||||||||||
| Reclassification to realized at settlement of contracts | (41) | 224 | 2 | 185 | |||||||||||||||||||
| Value of contracts acquired | 1 | 2 | — | 3 | |||||||||||||||||||
| Net option premium purchases (issuances) | 75 | 8 | — | 83 | |||||||||||||||||||
| Changes in fair value excluding reclassification to realized | (4) | (2,386) | (11) | (2,401) | |||||||||||||||||||
| Fair value of contracts outstanding at March 31, 2022 | 1,009 | (3,544) | (8) | (2,543) | |||||||||||||||||||
| Net margin cash collateral paid (received) | 425 | ||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at March 31, 2022 | $ | 1,009 | $ | (3,544) | $ | (8) | $ | (2,118) | |||||||||||||||
NEE's total mark-to-market energy contract net assets (liabilities) at March 31, 2022 shown above are included on the condensed consolidated balance sheets as follows:
| March 31, 2022 | |||||
| (millions) | |||||
| Current derivative assets | $ | 1,386 | |||
| Noncurrent derivative assets | 1,371 | ||||
| Current derivative liabilities | (2,824) | ||||
| Noncurrent derivative liabilities | (2,051) | ||||
| NEE's total mark-to-market energy contract net liabilities | $ | (2,118) | |||
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The sources of fair value estimates and maturity of energy contract derivative instruments at March 31, 2022 were as follows:
| Maturity | ||||||||||||||||||||||||||||||||||||||||||||
| 2022 | 2023 | 2024 | 2025 | 2026 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Trading: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | $ | (155) | $ | (485) | $ | (367) | $ | (263) | $ | (170) | $ | (7) | $ | (1,447) | ||||||||||||||||||||||||||||||
| Significant other observable inputs | 875 | 1,039 | 497 | 402 | 288 | 254 | 3,355 | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | (505) | (380) | (40) | (5) | 3 | 28 | (899) | |||||||||||||||||||||||||||||||||||||
| Total | 215 | 174 | 90 | 134 | 121 | 275 | 1,009 | |||||||||||||||||||||||||||||||||||||
Owned Assets – Non-Qualifying: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | (64) | (62) | (10) | (6) | (10) | — | (152) | |||||||||||||||||||||||||||||||||||||
| Significant other observable inputs | (730) | (842) | (544) | (377) | (270) | (466) | (3,229) | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | 16 | 1 | 4 | 11 | 11 | (206) | (163) | |||||||||||||||||||||||||||||||||||||
| Total | (778) | (903) | (550) | (372) | (269) | (672) | (3,544) | |||||||||||||||||||||||||||||||||||||
Owned Assets – FPL Cost Recovery Clauses: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Significant other observable inputs | 2 | — | — | — | — | — | 2 | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | (7) | (3) | — | — | — | — | (10) | |||||||||||||||||||||||||||||||||||||
| Total | (5) | (3) | — | — | — | — | (8) | |||||||||||||||||||||||||||||||||||||
| Total sources of fair value | $ | (568) | $ | (732) | $ | (460) | $ | (238) | $ | (148) | $ | (397) | $ | (2,543) | ||||||||||||||||||||||||||||||
The changes in the fair value of NEE's consolidated subsidiaries' energy contract derivative instruments for the three months ended March 31, 2021 were as follows:
| Hedges on Owned Assets | |||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Three months ended March 31, 2021 | |||||||||||||||||||||||
| Fair value of contracts outstanding at December 31, 2020 | $ | 706 | $ | 996 | $ | — | $ | 1,702 | |||||||||||||||
| Reclassification to realized at settlement of contracts | 85 | 19 | 1 | 105 | |||||||||||||||||||
| Value of contracts acquired | 11 | 1 | — | 12 | |||||||||||||||||||
| Net option premium purchases (issuances) | 6 | — | — | 6 | |||||||||||||||||||
| Changes in fair value excluding reclassification to realized | (12) | (478) | (7) | (497) | |||||||||||||||||||
| Fair value of contracts outstanding at March 31, 2021 | 796 | 538 | (6) | 1,328 | |||||||||||||||||||
| Net margin cash collateral paid (received) | (21) | ||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at March 31, 2021 | $ | 796 | $ | 538 | $ | (6) | $ | 1,307 | |||||||||||||||
With respect to commodities, NEE's Exposure Management Committee (EMC), which is comprised of certain members of senior management, and NEE's chief executive officer are responsible for the overall approval of market risk management policies and the delegation of approval and authorization levels. The EMC and NEE's chief executive officer receive periodic updates on market positions and related exposures, credit exposures and overall risk management activities.
NEE uses a value-at-risk (VaR) model to measure commodity price market risk in its trading and mark-to-market portfolios. The VaR is the estimated loss of market value based on a one-day holding period at a 95% confidence level using historical simulation methodology. The VaR figures are as follows:
Trading(a) | Non-Qualifying Hedges and Hedges in FPL Cost Recovery Clauses(b) | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
| FPL | NEER | NEE | FPL | NEER | NEE | FPL | NEER | NEE | |||||||||||||||||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| December 31, 2021 | $ | — | $ | 17 | $ | 17 | $ | 1 | $ | 148 | $ | 148 | $ | 1 | $ | 149 | $ | 149 | |||||||||||||||||||||||||||||||||||
| March 31, 2022 | $ | — | $ | 12 | $ | 12 | $ | 2 | $ | 267 | $ | 268 | $ | 2 | $ | 252 | $ | 256 | |||||||||||||||||||||||||||||||||||
| Average for the three months ended March 31, 2022 | $ | — | $ | 11 | $ | 11 | $ | 1 | $ | 194 | $ | 195 | $ | 1 | $ | 187 | $ | 189 | |||||||||||||||||||||||||||||||||||
———————————————
(a) The VaR figures for the trading portfolio include positions that are marked to market. Taking into consideration offsetting unmarked non-derivative positions, such as physical inventory, the trading VaR figures were approximately $5 million and $9 million at March 31, 2022 and December 31, 2021, respectively.
(b) Non-qualifying hedges are employed to reduce the market risk exposure to physical assets or contracts which are not marked to market. The VaR figures for the non-qualifying hedges and hedges in FPL cost recovery clauses category do not represent the economic exposure to commodity price movements.
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Interest Rate Risk
NEE's and FPL's financial results are exposed to risk resulting from changes in interest rates as a result of their respective outstanding and expected future issuances of debt, investments in special use funds and other investments. NEE and FPL manage their respective interest rate exposure by monitoring current interest rates, entering into interest rate contracts and using a combination of fixed rate and variable rate debt. Interest rate contracts are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements.
The following are estimates of the fair value of NEE's and FPL's financial instruments that are exposed to interest rate risk:
| March 31, 2022 | December 31, 2021 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value(a) | Carrying Amount | Estimated Fair Value(a) | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
Fixed income securities: | |||||||||||||||||||||||
| Special use funds | $ | 2,314 | $ | 2,314 | $ | 2,505 | $ | 2,505 | |||||||||||||||
| Other investments, primarily debt securities | $ | 508 | $ | 508 | $ | 311 | $ | 311 | |||||||||||||||
| Long-term debt, including current portion | $ | 56,538 | $ | 57,304 | $ | 52,745 | $ | 57,290 | |||||||||||||||
Interest rate contracts – net unrealized losses | $ | (144) | $ | (144) | $ | (633) | $ | (633) | |||||||||||||||
| FPL: | |||||||||||||||||||||||
Fixed income securities – special use funds | $ | 1,785 | $ | 1,785 | $ | 1,934 | $ | 1,934 | |||||||||||||||
| Long-term debt, including current portion | $ | 20,993 | $ | 22,061 | $ | 18,510 | $ | 21,379 | |||||||||||||||
———————————————
(a)See Notes 2 and 3.
The special use funds of NEE and FPL consist of restricted funds set aside to cover the cost of storm damage for FPL and for the decommissioning of NEE's and FPL's nuclear power plants. A portion of these funds is invested in fixed income debt securities primarily carried at estimated fair value. At FPL, changes in fair value, including any credit losses, result in a corresponding adjustment to the related regulatory asset or liability accounts based on current regulatory treatment. The changes in fair value for NEE's non-rate regulated operations result in a corresponding adjustment to OCI, except for credit losses and unrealized losses on available for sale securities intended or required to be sold prior to recovery of the amortized cost basis, which are reported in current period earnings. Because the funds set aside by FPL for storm damage could be needed at any time, the related investments are generally more liquid and, therefore, are less sensitive to changes in interest rates. The nuclear decommissioning funds, in contrast, are generally invested in longer-term securities.
At March 31, 2022, NEE had interest rate contracts with a notional amount of approximately $11.2 billion to manage exposure to the variability of cash flows associated with expected future and outstanding debt issuances at NEECH and NEER. See Note 2.
Based upon a hypothetical 10% decrease in interest rates, the fair value of NEE's net liabilities would increase by approximately $1,624 million ($735 million for FPL) at March 31, 2022.
Equity Price Risk
NEE and FPL are exposed to risk resulting from changes in prices for equity securities. For example, NEE’s nuclear decommissioning reserve funds include marketable equity securities carried at their market value of approximately $5,284 million and $5,511 million ($3,435 million and $3,552 million for FPL) at March 31, 2022 and December 31, 2021, respectively. NEE's and FPL’s investment strategy for equity securities in their nuclear decommissioning reserve funds emphasizes marketable securities which are broadly diversified. At March 31, 2022, a hypothetical 10% decrease in the prices quoted on stock exchanges would result in an approximately $488 million ($317 million for FPL) reduction in fair value. For FPL, a corresponding adjustment would be made to the related regulatory asset or liability accounts based on current regulatory treatment, and for NEE’s non-rate regulated operations, a corresponding amount would be 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 (loss).
Credit Risk
NEE and its subsidiaries, including FPL, are also exposed to credit risk through their energy marketing and trading operations. Credit risk is the risk that a financial loss will be incurred if a counterparty to a transaction does not fulfill its financial obligation. NEE manages counterparty credit risk for its subsidiaries with energy marketing and trading operations through established policies, including counterparty credit limits, and in some cases credit enhancements, such as cash prepayments, letters of credit, cash and other collateral and guarantees.
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Credit risk is also managed through the use of master netting agreements. NEE’s credit department monitors current and forward credit exposure to counterparties and their affiliates, both on an individual and an aggregate basis. For all derivative and contractual transactions, NEE’s energy marketing and trading operations, which include FPL’s energy marketing and trading division, are exposed to losses in the event of nonperformance by counterparties to these transactions. Some relevant considerations when assessing NEE’s energy marketing and trading operations’ credit risk exposure include the following:
•Operations are primarily concentrated in the energy industry.
•Trade receivables and other financial instruments are predominately with energy, utility and financial services related companies, as well as municipalities, cooperatives and other trading companies in the U.S.
•Overall credit risk is managed through established credit policies and is overseen by the EMC.
•Prospective and existing customers are reviewed for creditworthiness based upon established standards, with customers not meeting minimum standards providing various credit enhancements or secured payment terms, such as letters of credit or the posting of margin cash collateral.
•Master netting agreements are used to offset cash and noncash gains and losses arising from derivative instruments with the same counterparty. NEE’s policy is to have master netting agreements in place with significant counterparties.
Based on NEE’s policies and risk exposures related to credit, NEE and FPL do not anticipate a material adverse effect on their financial statements as a result of counterparty nonperformance. At March 31, 2022, NEE's credit risk exposure associated with its energy marketing and trading counterparties, taking into account collateral and contractual netting rights, totaled $2.8 billion ($60 million for FPL), of which approximately 62% (100% for FPL) was with companies that have investment grade credit ratings. With regard to credit risk exposure to counterparties with below investment grade credit ratings, NEE has first lien security positions with respect to approximately 70% of such exposure. For the remaining unsecured positions with counterparties that have below investment grade credit ratings, no one counterparty makes up more than 4% of NEE’s total exposure to below investment grade counterparties. See Notes 1, 2 and 11 – Credit Losses.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Management's Discussion – Energy Marketing and Trading and Market Risk Sensitivity.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of March 31, 2022, each of NEE and FPL had performed an evaluation, under the supervision and with the participation of its management, including NEE's and FPL's chief executive officer and chief financial officer, of the effectiveness of the design and operation of each company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, the chief executive officer and the chief financial officer of each of NEE and FPL concluded that the company's disclosure controls and procedures were effective as of March 31, 2022.
(b) Changes in Internal Control Over Financial Reporting
NEE and FPL are continuously seeking to improve the efficiency and effectiveness of their operations and of their internal controls. This results in refinements to processes throughout NEE and FPL. However, there has been no change in NEE's or FPL's internal control over financial reporting (as defined in the Securities Exchange Act of 1934 Rules 13a-15(f) and 15d-15(f)) that occurred during NEE's and FPL's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, NEE's or FPL's internal control over financial reporting.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
With regard to environmental proceedings to which a governmental authority is a party, NEE's and FPL's policy is to disclose any such proceeding if it is reasonably expected to result in monetary sanctions of greater than or equal to $1 million.
On April 1, 2022, ESI Energy, LLC, (ESI Energy), a subsidiary of NextEra Energy Resources, voluntarily entered into an agreement with the U.S. Department of Justice (DOJ) related to the accidental fatalities of eagles at certain wind facilities operated by NextEra Energy Resources. Terms of the agreement include a plea by ESI Energy to three misdemeanors of the Migratory Bird Treaty Act associated with accidental eagle fatalities at two wind facilities in Wyoming and one wind facility in New Mexico, payment of approximately $6 million in fines and restitution, five years’ probation, implementation by ESI Energy of an eagle management plan and pursuit of applications for eagle “take” permits under the Bald and Golden Eagle Protection Act for 50 existing or in development wind facilities which NextEra Energy Resources operates or will operate. Under the agreement, the DOJ will not prosecute NextEra Energy Resources or its affiliates for any eagle fatalities that have previously occurred, or may occur, at wind facilities operated by NextEra Energy Resources nationwide prior to the earlier of the date such facility obtains a permit or the date that is up to ten years following court approval of the agreement, provided that ESI Energy remains in compliance with its commitments under the agreement. The agreement has been filed with, and approved by, the U.S. District Court of the District of Wyoming. NextEra Energy Resources voluntarily undertakes adaptive management practices designed to avoid and minimize eagle impacts and, notwithstanding the agreement, continues to believe that the criminal liability provisions of these laws were intended only to apply to hunting, poaching and other intentional activities, and do not apply to accidental collisions with wind turbines or other manufactured items, such as airplanes, locomotives, automobiles and buildings. NEE does not believe ESI Energy’s compliance with the agreement will have a material adverse impact on NEE’s business, financial condition, results of operations or prospects.
Item 1A. Risk Factors
There have been no material changes from the risk factors disclosed in the 2021 Form 10-K except as updated in the following:
Any reductions or modifications to, or the elimination of, governmental incentives or policies that support utility scale renewable energy, including, but not limited to, tax laws, policies and incentives, renewable portfolio standards (RPS) and feed-in-tariffs, or the imposition of additional taxes, tariffs, duties or other assessments on renewable energy or the equipment necessary to generate or deliver it, could result in, among other items, the lack of a satisfactory market for the development and/or financing of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in renewable energy projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.
NEER depends heavily on government policies that support utility scale renewable energy and enhance the economic feasibility of developing and operating wind and solar energy projects in regions in which NEER operates or plans to develop and operate renewable energy facilities. The federal government, a majority of state governments in the U.S. and portions of Canada provide incentives, such as tax incentives, RPS or feed-in-tariffs, that support or are designed to support the sale of energy from utility scale renewable energy facilities, such as wind and solar energy facilities. At the same time, the U.S. government generally has not taken action to materially burden the international supply chain that has been important to the development of renewable energy facilities at acceptable prices. As a result of budgetary constraints, political factors or otherwise, governments from time to time may review their laws and policies that support, or do not overly burden, the development and operation of renewable energy facilities and, instead, consider actions that would make the laws and policies less conducive to the development and operation of renewable energy facilities. Any reductions or modifications to, or the elimination of, governmental incentives or policies that support renewable energy or the imposition of additional taxes, tariffs, duties or other assessments on renewable energy or the equipment necessary to generate or deliver it, such as antidumping and countervailing duty rates that could be put in place as a result of the U.S. Department of Commerce's investigation into an antidumping and countervailing duties circumvention claim on solar cells and panels supplied from Malaysia, Vietnam, Thailand and Cambodia, could result in, among other items, the lack of a satisfactory market for the development and/or financing of new renewable energy projects, NEER abandoning the development of renewable energy projects, a loss of NEER's investments in the projects and reduced project returns, any of which could have a material adverse effect on NEE's business, financial condition, results of operations and prospects.
NEE and FPL are subject to numerous environmental laws, regulations and other standards that may result in capital expenditures, increased operating costs and various liabilities, and may require NEE and FPL to limit or eliminate certain operations.
NEE and FPL are subject to domestic environmental laws, regulations and other standards, including, but not limited to, extensive federal, state and local environmental statutes, rules and regulations relating to air quality, water quality and usage, soil quality, climate change, emissions of greenhouse gases, waste management, hazardous wastes, marine, avian and other wildlife mortality and habitat protection, historical artifact preservation, natural resources, health (including, but not limited to, electric and magnetic fields from power lines and substations), safety and RPS, that could, among other things, prevent or delay the development of power generation, power or natural gas transmission, or other infrastructure projects, restrict or enjoin the output of some existing facilities, limit the availability and use of some fuels required for the production of electricity, require
48
additional pollution control equipment, and otherwise increase costs, increase capital expenditures and limit or eliminate certain operations. Certain subsidiaries of NEE are also subject to foreign environmental laws, regulations and other standards and, as such, are subject to similar risks.
There are significant capital, operating and other costs associated with compliance with these environmental statutes, rules and regulations, and those costs could be even more significant in the future as a result of new requirements and stricter or more expansive application of existing environmental laws and regulations.
Violations of current or future laws, rules, regulations or other standards could expose NEE and FPL to regulatory and legal proceedings, disputes with, and legal challenges by, governmental entities and third parties, and potentially significant civil fines, criminal penalties and other sanctions, such as restrictions on how NextEra Energy Resources develops, sites and operates wind facilities. These violations could result in, without limitation, litigation regarding property damage, personal injury, common law nuisance and enforcement by citizens or governmental authorities of environmental requirements. For example, one of NextEra Energy Resources' subsidiaries is currently on probation as a result of accidental collisions of eagles into wind turbines at a number of NextEra Energy Resources' wind facilities. If NextEra Energy Resources' subsidiary violates the terms of the probation, or fails to obtain eagle “take” permits under the Bald and Golden Eagle Protection Act for certain of its wind facilities and additional eagles perish in collisions with facility turbines, NextEra Energy Resources or its subsidiaries may face criminal prosecution under these laws.
The factors discussed in Part I, Item 1A. Risk Factors in the 2021 Form 10-K, as well as other information set forth in this report, which could materially adversely affect NEE's and FPL's business, financial condition, results of operations and prospects should be carefully considered. The risks described above and in the 2021 Form 10-K are not the only risks facing NEE and FPL. Additional risks and uncertainties not currently known to NEE or FPL, or that are currently deemed to be immaterial, also may materially adversely affect NEE's or FPL's business, financial condition, results of operations and prospects.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Information regarding purchases made by NEE of its common stock during the three months ended March 31, 2022 is as follows:
| Period | Total Number of Shares Purchased(a) | Average Price Paid Per Share | Total Number of Shares Purchased as Part of a Publicly Announced Program | Maximum Number of Shares that May Yet be Purchased Under the Program(b) | ||||||||||||||||||||||
1/1/22 – 1/31/22 | — | — | — | 180,000,000 | ||||||||||||||||||||||
2/1/22 – 2/28/22 | 222,996 | $ | 75.38 | — | 180,000,000 | |||||||||||||||||||||
3/1/22 – 3/31/22 | 1,618 | $ | 81.22 | — | 180,000,000 | |||||||||||||||||||||
| Total | 224,614 | $ | 75.42 | — | ||||||||||||||||||||||
(a)Includes: (1) in February 2022, shares of common stock withheld from employees to pay certain withholding taxes upon the vesting of stock awards granted to such employees under the NextEra Energy, Inc. Amended and Restated 2011 Long Term Incentive Plan; and (2) in March 2022, shares of common stock purchased as a reinvestment of dividends by the trustee of a grantor trust in connection with NEE's obligation under a February 2006 grant under the NextEra Energy, Inc. Amended and Restated Long-Term Incentive Plan to an executive officer of deferred retirement share awards.
(b)In May 2017, NEE's Board of Directors authorized repurchases of up to 45 million shares of common stock (180 million shares after giving effect to the 2020 stock split) over an unspecified period.
Item 5. Other Information
(c) In late February 2022, the NRC reversed a previous decision in FPL’s Turkey Point subsequent license renewal (SLR) case and concluded that its generic environmental impact statement (EIS) for license renewal does not apply to SLR applications. While the NRC left Turkey Point’s renewed operating licenses in effect, it directed the NRC staff to amend those licenses by removing the 20-year term of licensed operation added by the SLR, thereby restoring the previous operating license expiration dates of 2032 and 2033 for Turkey Point Units Nos. 3 and 4, respectively. This decision, together with an associated decision by the NRC that applies to all SLR applications nationwide, including St. Lucie and Point Beach nuclear power plants, provide that SLR applicants, instead of using an existing generic EIS, may satisfy the environmental review requirements of the National Environmental Policy Act only by requesting the NRC staff to proceed with an entirely site-specific EIS or by using a new generic EIS to be issued by the NRC that will apply specifically to SLR applications, which the NRC has directed the NRC staff to initiate. The ultimate resolution of this matter is not expected to have a material effect on NEE's and FPL's operations or financial statements.
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Item 6. Exhibits
`
| Exhibit Number | Description | NEE | FPL | |||||||||||||||||
| *4(a) | x | |||||||||||||||||||
| *4(b) | x | |||||||||||||||||||
| *4(c) | x | |||||||||||||||||||
| *10(a) | x | |||||||||||||||||||
| 10(b) | x | x | ||||||||||||||||||
| 22 | x | |||||||||||||||||||
| 31(a) | x | |||||||||||||||||||
| 31(b) | x | |||||||||||||||||||
| 31(c) | x | |||||||||||||||||||
| 31(d) | x | |||||||||||||||||||
| 32(a) | x | |||||||||||||||||||
| 32(b) | x | |||||||||||||||||||
| 101.INS | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | x | x | |||||||||||||||||
| 101.SCH | Inline XBRL Schema Document | x | x | |||||||||||||||||
| 101.PRE | Inline XBRL Presentation Linkbase Document | x | x | |||||||||||||||||
| 101.CAL | Inline XBRL Calculation Linkbase Document | x | x | |||||||||||||||||
| 101.LAB | Inline XBRL Label Linkbase Document | x | x | |||||||||||||||||
| 101.DEF | Inline XBRL Definition Linkbase Document | x | x | |||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | x | x | |||||||||||||||||
_________________________
* Incorporated herein by reference
NEE and FPL agree to furnish to the SEC upon request any instrument with respect to long-term debt that NEE and FPL have not filed as an exhibit pursuant to the exemption provided by Item 601(b)(4)(iii)(A) of Regulation S-K.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
Date: April 22, 2022
| NEXTERA ENERGY, INC. (Registrant) | ||
| JAMES M. MAY | ||
| James M. May Vice President, Controller and Chief Accounting Officer (Principal Accounting Officer) | ||
| FLORIDA POWER & LIGHT COMPANY (Registrant) | ||
| KEITH FERGUSON | ||
| Keith Ferguson Controller (Principal Accounting Officer) | ||
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