 |  | |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
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 | ||
1-8841 | NEXTERA ENERGY, INC. | 59-2449419 | ||
2-27612 | FLORIDA POWER & LIGHT COMPANY | 59-0247775 | ||
700 Universe Boulevard Juno Beach, Florida 33408 (561) 694-4000 | ||||
State or other jurisdiction of incorporation or organization: Florida
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 þ No o Florida Power & Light Company Yes þ No o |
Indicate by check mark whether the registrants have submitted electronically and posted on their corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrants were required to submit and post such files).
NextEra Energy, Inc. Yes þ No o Florida Power & Light Company Yes þ No o |
Indicate by check mark whether the registrants are a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934.
NextEra Energy, Inc. | Large Accelerated Filer þ | Accelerated Filer ¨ | Non-Accelerated Filer ¨ | Smaller Reporting Company ¨ |
Florida Power & Light Company | Large Accelerated Filer ¨ | Accelerated Filer ¨ | Non-Accelerated Filer þ | Smaller Reporting Company ¨ |
Indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨ No þ
The number of shares outstanding of NextEra Energy, Inc. common stock, as of the latest practicable date: Common Stock, $0.01 par value, outstanding as of September 30, 2011: 422,536,194 shares.
As of September 30, 2011, there were issued and outstanding 1,000 shares of Florida Power & Light Company common stock, without par value, all of which were held, beneficially and of record, by NextEra Energy, Inc.
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.
TABLE OF CONTENTS
Page No. | ||
PART I - FINANCIAL INFORMATION | ||
PART II - OTHER INFORMATION | ||
NextEra Energy, Inc., Florida Power & Light Company, NextEra Energy Capital Holdings, Inc. and NextEra Energy Resources, LLC each has subsidiaries and affiliates with names that may include NextEra Energy, FPL, NextEra Energy Resources, FPL Group Capital, FPL Energy, FPLE and similar references. For convenience and simplicity, in this report the terms NextEra Energy, FPL, Capital Holdings and NextEra Energy Resources are sometimes used as abbreviated references to specific subsidiaries, affiliates or groups of subsidiaries or affiliates. The precise meaning depends on the context.
2
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 will, will likely result, are expected to, will continue, is anticipated, aim, believe, could, should, would, estimated, may, plan, potential, 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 NextEra Energy, Inc.'s (NextEra Energy) and/or Florida Power & Light Company's (FPL) operations and financial results, and could cause NextEra Energy'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 NextEra Energy and/or FPL in this combined Form 10-Q, in presentations, on their respective websites, in response to questions or otherwise.
• | NextEra Energy’s and FPL’s financial results may be adversely affected by the extensive regulation of their businesses. |
• | NextEra Energy’s and FPL’s financial results could be negatively affected if they or their rate-regulated businesses are unable to recover, in a timely manner, certain costs, a return on certain assets or an appropriate return on capital from customers through regulated rates and, in the case of FPL, cost recovery clauses. |
• | NextEra Energy and FPL are subject to federal regulatory compliance and proceedings which have significant compliance costs and expose them to substantial monetary penalties and other sanctions. |
• | NextEra Energy and FPL may be adversely affected by increased governmental and regulatory scrutiny or negative publicity. |
• | NextEra Energy’s and FPL’s businesses are subject to risks associated with legislative and regulatory initiatives. |
• | NextEra Energy and FPL are subject to numerous environmental laws and regulations that require capital expenditures, increase their cost of operations and may expose them to liabilities. |
• | NextEra Energy’s and FPL’s businesses could be negatively affected by federal or state laws or regulations mandating new or additional limits on the production of greenhouse gas emissions. |
• | The construction, operation and maintenance of nuclear generation facilities involve risks that could result in fines or the closure of nuclear generation facilities owned by NextEra Energy or FPL and in increased costs and capital expenditures. |
• | NextEra Energy’s and FPL’s operating results could suffer if they do not proceed with projects under development or are unable to complete the construction of, or capital improvements to, generation, transmission, distribution or other facilities on schedule or within budget. |
• | The operation and maintenance of power generation, transmission and distribution facilities involve significant risks that could adversely affect the financial results of NextEra Energy and FPL. |
• | NextEra Energy and FPL are subject to operating risks associated with their natural gas and oil storage and pipeline infrastructure, and the use of such fuels in their generation facilities. |
• | NextEra Energy’s competitive energy business is subject to development and operating risks that could limit the revenue growth of this business and have other negative effects on NextEra Energy’s financial results. |
• | NextEra Energy’s competitive energy business is dependent on continued public policy support and governmental support for renewable energy, particularly wind and solar projects. |
• | NextEra Energy and FPL are subject to credit and performance risk from customers, counterparties and vendors. |
• | NextEra Energy’s and FPL’s financial results may continue to be negatively affected by slower customer growth and customer usage. |
• | NextEra Energy’s and FPL’s financial results are subject to risks associated with weather conditions, such as the impact of severe weather. |
• | Disruptions, uncertainty or volatility in the credit and capital markets may negatively affect NextEra Energy’s and FPL’s ability to fund their liquidity and capital needs and to meet their growth objectives, and can also adversely affect the results of operations and financial condition of NextEra Energy and FPL and exert downward pressure on the market price of NextEra Energy’s common stock. |
3
• | NextEra Energy’s, NextEra Energy Capital Holdings, Inc.'s (Capital Holdings) and FPL’s inability to maintain their current credit ratings may adversely affect NextEra Energy’s and FPL’s liquidity, limit the ability of NextEra Energy and FPL to grow their businesses, and increase interest costs, while the liquidity of the companies also could be impaired by the inability of their credit providers to maintain their current credit ratings or to fund their credit commitments. |
• | The use of derivative contracts by NextEra Energy and FPL in the normal course of business could result in financial losses or the payment of margin cash collateral that could adversely affect their financial results and liquidity. |
• | NextEra Energy’s and FPL’s financial results and liquidity could be materially adversely affected if the rules implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) broaden the scope of its provisions regarding the regulation of over-the-counter (OTC) financial derivatives and make them applicable to NextEra Energy and FPL. |
• | NextEra Energy’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 power industry. |
• | NextEra Energy 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 NextEra Energy or if NextEra Energy is required to perform under guarantees of obligations of its subsidiaries. |
• | Changes in tax laws, as well as judgments and estimates used in the determination of tax-related asset and liability amounts, could adversely affect NextEra Energy’s and FPL’s financial results, financial condition and liquidity. |
• | NextEra Energy’s and FPL’s retail businesses are subject to the risk that sensitive customer data may be compromised, which could result in an adverse impact to their reputation and/or the financial results of the retail businesses. |
• | A failure in NextEra Energy’s and FPL’s operational systems or infrastructure, or those of third parties, could impair their liquidity, disrupt their businesses, result in the disclosure of confidential information and adversely affect their financial results. |
• | Threats of terrorism and catastrophic events that could result from terrorism, cyber attacks, or individuals and/or groups attempting to disrupt NextEra Energy’s and FPL’s businesses, or the businesses of third parties, may impact the operations of NextEra Energy and FPL in unpredictable ways and could adversely affect NextEra Energy’s and FPL’s financial results and liquidity. |
• | The ability of NextEra Energy and FPL to obtain insurance and the terms of any available insurance coverage could be adversely affected by international, national, state or local events and company-specific events, as well as the financial condition of insurers. NextEra Energy’s and FPL’s insurance coverage may not provide protection against all significant losses. |
• | The businesses and financial results of NextEra Energy and FPL could be negatively affected by the lack of a qualified workforce, work strikes or stoppages and increasing personnel costs. |
• | Certain of NextEra Energy’s and FPL’s investments are subject to changes in market value and other risks, which may adversely affect NextEra Energy’s and FPL’s liquidity and financial results. |
• | Increasing costs associated with health care plans may adversely affect NextEra Energy's and FPL's financial results. |
These factors should be read together with the risk factors included in Part I, Item 1A. Risk Factors in NextEra Energy's and FPL's Annual Report on Form 10-K for the year ended December 31, 2010 (2010 Form 10-K) and Part II, Item 1A. Risk Factors in NextEra Energy's and FPL's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011 (March 2011 Form 10-Q) and Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011 (June 2011 Form 10-Q), and investors should refer to those sections of the 2010 Form 10-K, the March 2011 Form 10-Q and the June 2011 Form 10-Q. Any forward-looking statement speaks only as of the date on which such statement is made, and NextEra Energy 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 U.S. Securities and Exchange Commission (SEC) Filings. NextEra Energy 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 NextEra Energy's internet website, www.nexteraenergy.com, as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. Information on NextEra Energy's website (or any of its subsidiaries' websites) is not incorporated by reference in this combined Form 10-Q. The SEC maintains an internet website at www.sec.gov that contains reports, proxy statements and other information about NextEra Energy and FPL filed electronically with the SEC.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions, except per share amounts)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
OPERATING REVENUES | $ | 4,382 | $ | 4,691 | $ | 11,476 | $ | 11,904 | |||||||
OPERATING EXPENSES | |||||||||||||||
Fuel, purchased power and interchange | 1,911 | 1,991 | 4,872 | 4,795 | |||||||||||
Other operations and maintenance | 748 | 712 | 2,212 | 2,123 | |||||||||||
Impairment charges | — | — | 51 | — | |||||||||||
Depreciation and amortization | 496 | 531 | 1,236 | 1,330 | |||||||||||
Taxes other than income taxes and other | 316 | 332 | 859 | 883 | |||||||||||
Total operating expenses | 3,471 | 3,566 | 9,230 | 9,131 | |||||||||||
OPERATING INCOME | 911 | 1,125 | 2,246 | 2,773 | |||||||||||
OTHER INCOME (DEDUCTIONS) | |||||||||||||||
Interest expense | (265 | ) | (247 | ) | (775 | ) | (732 | ) | |||||||
Loss on assets held for sale | (148 | ) | — | (148 | ) | — | |||||||||
Equity in earnings of equity method investees | 28 | 33 | 57 | 56 | |||||||||||
Allowance for equity funds used during construction | 7 | 10 | 28 | 25 | |||||||||||
Interest income | 21 | 22 | 58 | 69 | |||||||||||
Gains on disposal of assets - net | 37 | 13 | 79 | 61 | |||||||||||
Other than temporary impairment losses on securities held in nuclear decommissioning funds | (30 | ) | (1 | ) | (34 | ) | (16 | ) | |||||||
Other - net | 4 | 5 | 18 | (10 | ) | ||||||||||
Total other deductions - net | (346 | ) | (165 | ) | (717 | ) | (547 | ) | |||||||
INCOME BEFORE INCOME TAXES | 565 | 960 | 1,529 | 2,226 | |||||||||||
INCOME TAXES | 158 | 240 | 273 | 532 | |||||||||||
NET INCOME | $ | 407 | $ | 720 | $ | 1,256 | $ | 1,694 | |||||||
Earnings per share of common stock: | |||||||||||||||
Basic | $ | 0.98 | $ | 1.75 | $ | 3.01 | $ | 4.14 | |||||||
Assuming dilution | $ | 0.97 | $ | 1.74 | $ | 3.00 | $ | 4.11 | |||||||
Dividends per share of common stock | $ | 0.55 | $ | 0.50 | $ | 1.65 | $ | 1.50 | |||||||
Weighted-average number of common shares outstanding: | |||||||||||||||
Basic | 417.4 | 410.9 | 416.7 | 409.1 | |||||||||||
Assuming dilution | 419.8 | 413.7 | 419.1 | 411.6 | |||||||||||
This report should be read in conjunction with the Notes to Condensed Consolidated Financial Statements (Notes) herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
5
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(unaudited)
September 30, 2011 | December 31, 2010 | ||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||
Electric utility plant in service and other property | $ | 49,929 | $ | 48,841 | |||
Nuclear fuel | 1,707 | 1,539 | |||||
Construction work in progress | 4,587 | 3,841 | |||||
Less accumulated depreciation and amortization | (15,106 | ) | (15,146 | ) | |||
Total property, plant and equipment - net ($2,731 and $2,398 related to VIEs, respectively) | 41,117 | 39,075 | |||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | 640 | 302 | |||||
Customer receivables, net of allowances of $13 and $20, respectively | 1,689 | 1,509 | |||||
Other receivables | 548 | 1,073 | |||||
Materials, supplies and fossil fuel inventory | 1,045 | 857 | |||||
Regulatory assets: | |||||||
Deferred clause and franchise expenses | 267 | 368 | |||||
Derivatives | 263 | 236 | |||||
Other | 86 | 82 | |||||
Derivatives | 327 | 506 | |||||
Assets held for sale ($759 related to VIEs) | 1,092 | — | |||||
Other | 295 | 325 | |||||
Total current assets | 6,252 | 5,258 | |||||
OTHER ASSETS | |||||||
Special use funds | 3,668 | 3,742 | |||||
Other investments | 931 | 971 | |||||
Prepaid benefit costs | 1,317 | 1,259 | |||||
Regulatory assets: | |||||||
Securitized storm-recovery costs ($325 and $356 related to a VIE, respectively) | 530 | 581 | |||||
Other | 408 | 329 | |||||
Derivatives | 499 | 589 | |||||
Other | 1,863 | 1,190 | |||||
Total other assets | 9,216 | 8,661 | |||||
TOTAL ASSETS | $ | 56,585 | $ | 52,994 | |||
CAPITALIZATION | |||||||
Common stock | $ | 4 | $ | 4 | |||
Additional paid-in capital | 5,558 | 5,418 | |||||
Retained earnings | 9,439 | 8,873 | |||||
Accumulated other comprehensive (loss) income | (114 | ) | 166 | ||||
Total common shareholders' equity | 14,887 | 14,461 | |||||
Long-term debt ($1,403 and $1,338 related to VIEs, respectively) | 20,039 | 18,013 | |||||
Total capitalization | 34,926 | 32,474 | |||||
CURRENT LIABILITIES | |||||||
Commercial paper | 1,835 | 889 | |||||
Current maturities of long-term debt | 597 | 1,920 | |||||
Accounts payable | 1,336 | 1,124 | |||||
Customer deposits | 639 | 634 | |||||
Accrued interest and taxes | 683 | 462 | |||||
Derivatives | 571 | 536 | |||||
Accrued construction-related expenditures | 422 | 371 | |||||
Liabilities associated with assets held for sale ($387 related to VIEs) | 596 | — | |||||
Other | 740 | 968 | |||||
Total current liabilities | 7,419 | 6,904 | |||||
OTHER LIABILITIES AND DEFERRED CREDITS | |||||||
Asset retirement obligations | 1,608 | 1,639 | |||||
Accumulated deferred income taxes | 5,357 | 5,109 | |||||
Regulatory liabilities: | |||||||
Accrued asset removal costs | 2,211 | 2,244 | |||||
Asset retirement obligation regulatory expense difference | 1,531 | 1,592 | |||||
Other | 537 | 423 | |||||
Derivatives | 454 | 243 | |||||
Deferral related to differential membership interests - VIEs | 1,100 | 949 | |||||
Other | 1,442 | 1,417 | |||||
Total other liabilities and deferred credits | 14,240 | 13,616 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 56,585 | $ | 52,994 | |||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
6
NEXTERA ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
Nine Months Ended September 30, | |||||||
2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 1,256 | $ | 1,694 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 1,236 | 1,330 | |||||
Nuclear fuel amortization | 210 | 214 | |||||
Loss on assets held for sale | 148 | — | |||||
Impairment charges | 51 | — | |||||
Unrealized (gains) losses on marked to market energy contracts | 182 | (499 | ) | ||||
Deferred income taxes | 274 | 336 | |||||
Cost recovery clauses and franchise fees | 71 | (679 | ) | ||||
Changes in prepaid option premiums and derivative settlements | 23 | 10 | |||||
Equity in earnings of equity method investees | (57 | ) | (56 | ) | |||
Distributions of earnings from equity method investees | 67 | 32 | |||||
Allowance for equity funds used during construction | (28 | ) | (25 | ) | |||
Gains on disposal of assets - net | (79 | ) | (61 | ) | |||
Other than temporary impairment losses on securities held in nuclear decommissioning funds | 34 | 16 | |||||
Changes in operating assets and liabilities: | |||||||
Customer receivables | (228 | ) | (157 | ) | |||
Other receivables | 56 | (133 | ) | ||||
Materials, supplies and fossil fuel inventory | (269 | ) | (17 | ) | |||
Other current assets | (27 | ) | (50 | ) | |||
Other assets | (83 | ) | 114 | ||||
Accounts payable | 30 | 102 | |||||
Margin cash collateral | (28 | ) | 136 | ||||
Income taxes | 106 | 117 | |||||
Interest and other taxes | 259 | 233 | |||||
Other current liabilities | (83 | ) | (5 | ) | |||
Other liabilities | (130 | ) | (21 | ) | |||
Other - net | 126 | 138 | |||||
Net cash provided by operating activities | 3,117 | 2,769 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Capital expenditures of FPL | (2,128 | ) | (2,044 | ) | |||
Independent power and other investments of NextEra Energy Resources | (1,654 | ) | (1,837 | ) | |||
Cash grants under the American Recovery and Reinvestment Act of 2009 | 503 | 556 | |||||
Funds received from a spent fuel settlement | — | 44 | |||||
Nuclear fuel purchases | (331 | ) | (157 | ) | |||
Other capital expenditures | (204 | ) | (51 | ) | |||
Sale of independent power investments | — | 16 | |||||
Loan proceeds restricted for construction | (596 | ) | — | ||||
Proceeds from sale or maturity of securities in special use funds | 3,567 | 5,350 | |||||
Purchases of securities in special use funds | (3,638 | ) | (5,435 | ) | |||
Proceeds from sale or maturity of other securities | 399 | 580 | |||||
Purchases of other securities | (431 | ) | (578 | ) | |||
Other - net | 91 | — | |||||
Net cash used in investing activities | (4,422 | ) | (3,556 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Issuances of long-term debt | 2,917 | 3,018 | |||||
Retirements of long-term debt | (1,688 | ) | (571 | ) | |||
Proceeds from sale of differential membership interests | 210 | 261 | |||||
Net change in short-term debt | 946 | (935 | ) | ||||
Issuances of common stock - net | 39 | 184 | |||||
Dividends on common stock | (689 | ) | (616 | ) | |||
Other - net | (92 | ) | (1 | ) | |||
Net cash provided by financing activities | 1,643 | 1,340 | |||||
Net increase in cash and cash equivalents | 338 | 553 | |||||
Cash and cash equivalents at beginning of period | 302 | 238 | |||||
Cash and cash equivalents at end of period | $ | 640 | $ | 791 | |||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||
Accrued property additions | $ | 851 | $ | 610 | |||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
7
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(millions)
(unaudited)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
OPERATING REVENUES | $ | 3,152 | $ | 3,116 | $ | 8,200 | $ | 8,024 | |||||||
OPERATING EXPENSES | |||||||||||||||
Fuel, purchased power and interchange | 1,479 | 1,504 | 3,854 | 3,816 | |||||||||||
Other operations and maintenance | 429 | 399 | 1,237 | 1,196 | |||||||||||
Depreciation and amortization | 299 | 333 | 653 | 754 | |||||||||||
Taxes other than income taxes and other | 289 | 296 | 822 | 780 | |||||||||||
Total operating expenses | 2,496 | 2,532 | 6,566 | 6,546 | |||||||||||
OPERATING INCOME | 656 | 584 | 1,634 | 1,478 | |||||||||||
OTHER INCOME (DEDUCTIONS) | |||||||||||||||
Interest expense | (101 | ) | (91 | ) | (287 | ) | (270 | ) | |||||||
Allowance for equity funds used during construction | 6 | 10 | 26 | 25 | |||||||||||
Other - net | 1 | (1 | ) | (2 | ) | (1 | ) | ||||||||
Total other deductions - net | (94 | ) | (82 | ) | (263 | ) | (246 | ) | |||||||
INCOME BEFORE INCOME TAXES | 562 | 502 | 1,371 | 1,232 | |||||||||||
INCOME TAXES | 215 | 194 | 519 | 468 | |||||||||||
NET INCOME | $ | 347 | $ | 308 | $ | 852 | $ | 764 | |||||||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
8
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(millions)
(unaudited)
September 30, 2011 | December 31, 2010 | ||||||
ELECTRIC UTILITY PLANT | |||||||
Plant in service | $ | 31,274 | $ | 29,519 | |||
Nuclear fuel | 944 | 729 | |||||
Construction work in progress | 2,064 | 2,175 | |||||
Less accumulated depreciation and amortization | (10,979 | ) | (10,871 | ) | |||
Electric utility plant - net | 23,303 | 21,552 | |||||
CURRENT ASSETS | |||||||
Cash and cash equivalents | 30 | 20 | |||||
Customer receivables, net of allowances of $11 and $17, respectively | 996 | 710 | |||||
Other receivables | 291 | 395 | |||||
Materials, supplies and fossil fuel inventory | 724 | 505 | |||||
Regulatory assets: | |||||||
Deferred clause and franchise expenses | 267 | 368 | |||||
Derivatives | 263 | 236 | |||||
Other | 79 | 76 | |||||
Other | 158 | 145 | |||||
Total current assets | 2,808 | 2,455 | |||||
OTHER ASSETS | |||||||
Special use funds | 2,611 | 2,637 | |||||
Prepaid benefit costs | 1,075 | 1,035 | |||||
Regulatory assets: | |||||||
Securitized storm-recovery costs ($325 and $356 related to a VIE, respectively) | 530 | 581 | |||||
Other | 375 | 293 | |||||
Other | 168 | 145 | |||||
Total other assets | 4,759 | 4,691 | |||||
TOTAL ASSETS | $ | 30,870 | $ | 28,698 | |||
CAPITALIZATION | |||||||
Common stock | $ | 1,373 | $ | 1,373 | |||
Additional paid-in capital | 5,363 | 5,054 | |||||
Retained earnings | 3,798 | 3,364 | |||||
Total common shareholder's equity | 10,534 | 9,791 | |||||
Long-term debt ($437 and $486 related to a VIE, respectively) | 6,885 | 6,682 | |||||
Total capitalization | 17,419 | 16,473 | |||||
CURRENT LIABILITIES | |||||||
Commercial paper | 408 | 101 | |||||
Current maturities of long-term debt | 49 | 45 | |||||
Accounts payable | 732 | 554 | |||||
Customer deposits | 633 | 628 | |||||
Accrued interest and taxes | 492 | 311 | |||||
Derivatives | 269 | 245 | |||||
Accrued construction-related expenditures | 200 | 183 | |||||
Other | 389 | 441 | |||||
Total current liabilities | 3,172 | 2,508 | |||||
OTHER LIABILITIES AND DEFERRED CREDITS | |||||||
Asset retirement obligations | 1,126 | 1,083 | |||||
Accumulated deferred income taxes | 4,334 | 3,835 | |||||
Regulatory liabilities: | |||||||
Accrued asset removal costs | 2,211 | 2,244 | |||||
Asset retirement obligation regulatory expense difference | 1,531 | 1,592 | |||||
Other | 500 | 377 | |||||
Other | 577 | 586 | |||||
Total other liabilities and deferred credits | 10,279 | 9,717 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
TOTAL CAPITALIZATION AND LIABILITIES | $ | 30,870 | $ | 28,698 | |||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
9
FLORIDA POWER & LIGHT COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions)
(unaudited)
Nine Months Ended September 30, | |||||||
2011 | 2010 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 852 | $ | 764 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||
Depreciation and amortization | 653 | 754 | |||||
Nuclear fuel amortization | 111 | 102 | |||||
Deferred income taxes | 439 | 242 | |||||
Cost recovery clauses and franchise fees | 71 | (679 | ) | ||||
Allowance for equity funds used during construction | (26 | ) | (25 | ) | |||
Changes in operating assets and liabilities: | |||||||
Customer receivables | (286 | ) | (83 | ) | |||
Other receivables | 14 | (70 | ) | ||||
Materials, supplies and fossil fuel inventory | (219 | ) | (13 | ) | |||
Other current assets | (33 | ) | (35 | ) | |||
Other assets | (48 | ) | 19 | ||||
Accounts payable | 69 | 130 | |||||
Income taxes | (67 | ) | 162 | ||||
Interest and other taxes | 228 | 232 | |||||
Other current liabilities | 1 | 30 | |||||
Other liabilities | (36 | ) | 9 | ||||
Other - net | 25 | 73 | |||||
Net cash provided by operating activities | 1,748 | 1,612 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Capital expenditures | (2,128 | ) | (2,044 | ) | |||
Cash grants under the American Recovery and Reinvestment Act of 2009 | 202 | 131 | |||||
Funds received from a spent fuel settlement | — | 32 | |||||
Nuclear fuel purchases | (223 | ) | (62 | ) | |||
Proceeds from sale or maturity of securities in special use funds | 2,483 | 4,088 | |||||
Purchases of securities in special use funds | (2,534 | ) | (4,151 | ) | |||
Other - net | 32 | 31 | |||||
Net cash used in investing activities | (2,168 | ) | (1,975 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Issuances of long-term debt | 248 | 523 | |||||
Retirements of long-term debt | (45 | ) | (42 | ) | |||
Net change in short-term debt | 307 | (578 | ) | ||||
Capital contribution from NextEra Energy | 310 | 660 | |||||
Dividends | (400 | ) | (250 | ) | |||
Other - net | 10 | 4 | |||||
Net cash provided by financing activities | 430 | 317 | |||||
Net increase (decrease) in cash and cash equivalents | 10 | (46 | ) | ||||
Cash and cash equivalents at beginning of period | 20 | 83 | |||||
Cash and cash equivalents at end of period | $ | 30 | $ | 37 | |||
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES | |||||||
Accrued property additions | $ | 420 | $ | 237 | |||
This report should be read in conjunction with the Notes herein and the Notes to Consolidated Financial Statements appearing in the 2010 Form 10-K for NextEra Energy and FPL.
10
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 2010 Form 10-K for NextEra Energy and FPL. In the opinion of NextEra Energy and FPL management, all adjustments (consisting of normal recurring accruals) considered necessary for fair financial statement presentation have been made. Certain amounts included in the prior year's condensed consolidated financial statements have been reclassified to conform to the current year's presentation. The results of operations for an interim period generally will not give a true indication of results for the year.
1. Employee Retirement Benefits
NextEra Energy sponsors a qualified noncontributory defined benefit pension plan for substantially all employees of NextEra Energy and its subsidiaries and has a supplemental executive retirement plan, which includes a non-qualified supplemental defined benefit pension component that provides benefits to a select group of management and highly compensated employees (collectively, pension benefits). In addition to pension benefits, NextEra Energy sponsors a contributory postretirement plan for health care and life insurance benefits (other benefits) for retirees of NextEra Energy and its subsidiaries meeting certain eligibility requirements.
The components of net periodic benefit (income) cost for the plans are as follows:
Pension Benefits | Other Benefits | Pension Benefits | Other Benefits | |||||||||||||||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||||||
Service cost | $ | 16 | $ | 15 | $ | 2 | $ | 1 | $ | 48 | $ | 45 | $ | 5 | $ | 4 | ||||||||||||||||
Interest cost | 25 | 25 | 5 | 6 | 74 | 76 | 16 | 17 | ||||||||||||||||||||||||
Expected return on plan assets | (60 | ) | (60 | ) | (1 | ) | (1 | ) | (179 | ) | (180 | ) | (2 | ) | (2 | ) | ||||||||||||||||
Amortization of transition obligation | — | — | 1 | 1 | — | — | 2 | 3 | ||||||||||||||||||||||||
Amortization of prior service benefit | (1 | ) | (1 | ) | — | — | (2 | ) | (3 | ) | — | — | ||||||||||||||||||||
Net periodic benefit (income) cost at NextEra Energy | $ | (20 | ) | $ | (21 | ) | $ | 7 | $ | 7 | $ | (59 | ) | $ | (62 | ) | $ | 21 | $ | 22 | ||||||||||||
Net periodic benefit (income) cost at FPL | $ | (13 | ) | $ | (14 | ) | $ | 5 | $ | 6 | $ | (39 | ) | $ | (41 | ) | $ | 16 | $ | 17 | ||||||||||||
2. Derivative Instruments
NextEra Energy and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the commodity price risk inherent in the purchase and sale of fuel and electricity, as well as interest rate and foreign currency exchange rate risk associated with outstanding and forecasted debt issuances, and to optimize the value of NextEra Energy Resources, LLC's (NextEra Energy Resources) power generation assets.
With respect to commodities related to NextEra Energy's competitive energy business, NextEra Energy Resources employs risk management procedures to conduct its activities related to optimizing the value of its power generation assets, providing full energy and capacity requirements services primarily to distribution utilities, and engaging in power and gas marketing and trading activities to take advantage of expected future favorable price movements and changes in the expected volatility of prices in the energy markets. These risk management activities involve the use of derivative instruments executed within prescribed limits to manage the risk associated with fluctuating commodity prices. Transactions in derivative instruments are executed on recognized exchanges or via the OTC markets, depending on the most favorable credit terms and market execution factors. For NextEra Energy Resources' power generation assets, derivative instruments are used to hedge the commodity price risk associated with the fuel requirements of the assets, where applicable, as well as to hedge all or a portion of the expected energy output of these assets. These hedges protect NextEra Energy Resources against adverse changes in the wholesale forward commodity markets associated with its generation assets. With regard to full energy and capacity requirements services, NextEra Energy Resources is required to vary the quantity of energy and related services based on the load demands of the customer served by the distribution utility. For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and protect against unfavorable changes in the forward energy markets. Additionally, NextEra Energy Resources takes positions in the energy markets based on differences between actual forward market levels and management's view of fundamental market conditions. NextEra Energy Resources uses derivative instruments to realize value from these market dislocations, subject to strict risk management limits around market, operational and credit exposure.
11
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Derivative instruments, when required to be marked to market, are recorded on NextEra Energy'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 and purchased power cost recovery clause (fuel clause) or the capacity cost recovery clause (capacity clause). For NextEra Energy's non-rate regulated operations, predominantly NextEra Energy Resources, unless hedge accounting is applied, essentially all changes in the derivatives' fair value for power purchases and sales and trading activities are recognized on a net basis in operating revenues; fuel purchases and sales are recognized on a net basis in fuel, purchased power and interchange expense; and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NextEra Energy's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate. Settlements related to derivative instruments are primarily recognized in net cash provided by operating activities in NextEra Energy's and FPL's condensed consolidated statements of cash flows.
While most of NextEra Energy's derivatives are entered into for the purpose of managing commodity price risk, reducing the impact of volatility in interest rates on outstanding and forecasted debt issuances and managing foreign currency risk, hedge accounting is only applied where specific criteria are met and it is practicable to do so. In order to apply hedge accounting, the transaction must be designated as a hedge and it must be highly effective in offsetting the hedged risk. Additionally, for hedges of forecasted transactions, the forecasted transactions must be probable. For commodity derivatives, NextEra Energy Resources 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. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income. For interest rate swaps and foreign currency derivative instruments, generally NextEra Energy assesses a hedging instrument's effectiveness by using nonstatistical methods including dollar value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item. Hedge effectiveness is tested at the inception of the hedge and on at least a quarterly basis throughout its life. The effective portion of the gain or loss on a derivative instrument designated as a cash flow hedge is reported as a component of other comprehensive income (OCI) and is reclassified into earnings in the period(s) during which the transaction being hedged affects earnings or when it becomes probable that a forecasted transaction being hedged would not occur. See Note 6. The ineffective portion of net unrealized gains (losses) on these hedges is reported in earnings in the current period. At September 30, 2011, NextEra Energy's accumulated other comprehensive income (AOCI) included amounts related to discontinued commodity cash flow hedges with expiration dates through December 2012; interest rate cash flow hedges with expiration dates through December 2030; and foreign currency cash flow hedges with expiration dates through September 2030.
In September 2011, a subsidiary of NextEra Energy Resources entered into an agreement to sell its ownership interest in four natural gas-fired generating plants. See Note 3 - Nonrecurring Fair Value Measurements. Certain of the plants had hedged their exposure to interest rate and commodity price fluctuations by entering into derivative contracts. Because the plants are being sold to a third party, it became no longer probable that the future hedged transactions would occur. Therefore, NextEra Energy was required to reclassify any gains or losses in AOCI related to those hedges to earnings. During the three and nine months ended September 30, 2011, NextEra Energy reclassified approximately $21 million of net losses to earnings, $30 million of losses were recorded in loss on assets held for sale and $9 million of gains were recorded in other - net.
12
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
The net fair values of NextEra Energy's and FPL's mark-to-market derivative instrument assets (liabilities) are included in the condensed consolidated balance sheets as follows:
NextEra Energy | FPL | ||||||||||||||||
September 30, 2011 | December 31, 2010 | September 30, 2011 | December 31, 2010 | ||||||||||||||
(millions) | |||||||||||||||||
Current derivative assets(a) | $ | 327 | $ | 506 | $ | 6 | (b) | $ | 8 | (b) | |||||||
Noncurrent derivative assets(c) | 499 | 589 | 2 | (d) | 1 | (d) | |||||||||||
Current derivative liabilities(e) | (571 | ) | (536 | ) | (269 | ) | (245 | ) | |||||||||
Noncurrent derivative liabilities(f) | (454 | ) | (243 | ) | (27 | ) | (g) | — | |||||||||
Total mark-to-market derivative instrument assets (liabilities) | $ | (199 | ) | $ | 316 | $ | (288 | ) | $ | (236 | ) | ||||||
————————————
(a) | At September 30, 2011 and December 31, 2010, NextEra Energy's balances reflect the netting of approximately $43 million and $23 million (none at FPL), respectively, in margin cash collateral received from counterparties. |
(b) | Included in current other assets on FPL's condensed consolidated balance sheets. |
(c) | At September 30, 2011 and December 31, 2010, NextEra Energy's balances reflect the netting of approximately $54 million and $43 million (none at FPL), respectively, in margin cash collateral received from counterparties. |
(d) | Included in noncurrent other assets on FPL's condensed consolidated balance sheets. |
(e) | At September 30, 2011 and December 31, 2010, NextEra Energy's balances reflect the netting of approximately $88 million and $23 million (none at FPL), respectively, in margin cash collateral provided to counterparties. |
(f) | At September 30, 2011 and December 31, 2010, NextEra Energy's balances reflect the netting of approximately $99 million and $72 million (none at FPL), respectively, in margin cash collateral provided to counterparties. |
(g) | Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets. |
At September 30, 2011 and December 31, 2010, NextEra Energy had approximately $24 million and $7 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets. These amounts are included in current other liabilities in NextEra Energy's condensed consolidated balance sheets. Additionally, at September 30, 2011 and December 31, 2010, NextEra Energy had approximately $46 million and $58 million (none at FPL), respectively, in margin cash collateral provided to counterparties that was not offset against derivative liabilities. These amounts are included in current other assets in NextEra Energy's condensed consolidated balance sheets.
As discussed above, NextEra Energy uses derivative instruments to, among other things, manage its commodity price risk, interest rate risk and foreign currency exchange rate risk. The table above presents NextEra Energy's and FPL's net derivative positions at September 30, 2011 and December 31, 2010, 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. However, disclosure rules require that the following tables be presented on a gross basis.
The fair values of NextEra Energy's derivatives designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules.
September 30, 2011 | December 31, 2010 | |||||||||||||||
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||
(millions) | ||||||||||||||||
Interest rate swaps: | ||||||||||||||||
Current derivative assets | $ | 19 | $ | — | $ | 16 | $ | — | ||||||||
Current derivative liabilities | — | 58 | — | 64 | ||||||||||||
Noncurrent derivative assets | 12 | — | 91 | — | ||||||||||||
Noncurrent derivative liabilities | — | 249 | — | 59 | ||||||||||||
Foreign currency swaps: | ||||||||||||||||
Current derivative assets | — | — | 24 | — | ||||||||||||
Current derivative liabilities | — | 2 | — | 4 | ||||||||||||
Noncurrent derivative assets | — | — | 11 | — | ||||||||||||
Noncurrent derivative liabilities | — | 6 | — | — | ||||||||||||
Total | $ | 31 | $ | 315 | $ | 142 | $ | 127 | ||||||||
13
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Gains (losses) related to NextEra Energy's cash flow hedges are recorded on NextEra Energy's condensed consolidated financial statements (none at FPL) as follows:
Three Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||||||||||||
Commodity Contracts | Interest Rate Swaps | Foreign Currency Swaps | Total | Commodity Contracts | Interest Rate Swaps | Foreign Currency Swaps | Total | ||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||
Gains (losses) recognized in OCI | $ | — | $ | (236 | ) | $ | (14 | ) | $ | (250 | ) | $ | — | $ | (76 | ) | $ | 5 | $ | (71 | ) | ||||||||||
Gains (losses) reclassified from AOCI to net income | $ | 11 | (a) | $ | (21 | ) | (b) | $ | 5 | (c) | $ | (5 | ) | $ | 25 | (a) | $ | (23 | ) | (b) | $ | 8 | (c) | $ | 10 | ||||||
(a) | Included in operating revenues. |
(b) | Included in interest expense. |
(c) | Loss of approximately $1 million is included in interest expense and the balance is included in other - net. |
Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||||||||||||
Commodity Contracts | Interest Rate Swaps | Foreign Currency Swaps | Total | Commodity Contracts | Interest Rate Swaps | Foreign Currency Swaps | Total | ||||||||||||||||||||||||
(millions) | |||||||||||||||||||||||||||||||
Gains (losses) recognized in OCI | $ | — | $ | (353 | ) | $ | (20 | ) | $ | (373 | ) | $ | 19 | $ | (181 | ) | $ | 9 | $ | (153 | ) | ||||||||||
Gains (losses) reclassified from AOCI to net income | $ | 30 | (a) | $ | (64 | ) | (b) | $ | 1 | (c) | $ | (33 | ) | $ | 93 | (a) | $ | (50 | ) | (b) | $ | 14 | (d) | $ | 57 | ||||||
Gains (losses) recognized in income(e) | $ | — | $ | — | $ | — | $ | — | $ | 1 | (a) | $ | — | $ | — | $ | 1 | ||||||||||||||
(a) | Included in operating revenues. |
(b) | Included in interest expense. |
(c) | Loss of approximately $4 million is included in interest expense and the balance is included in other - net. |
(d) | Loss of approximately $2 million is included in interest expense and the balance is included in other - net. |
(e) | Represents the ineffective portion of the hedging instrument. |
For the three and nine months ended September 30, 2011, NextEra Energy recorded a gain of approximately $16 million and $19 million, respectively, on six fair value hedges which is reflected in interest expense in the condensed consolidated statements of income and resulted in a corresponding increase in the related debt. For the three and nine months ended September 30, 2010, NextEra Energy recorded a gain of approximately $4 million and $8 million, respectively, on three fair value hedges which is reflected in interest expense in the condensed consolidated statements of income and resulted in a corresponding increase in the related debt.
The fair values of NextEra Energy's and FPL's derivatives not designated as hedging instruments for accounting purposes are presented below as gross asset and liability values, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting arrangements and would not be contractually settled on a gross basis.
14
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
September 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||||||||
NextEra Energy | FPL | NextEra Energy | FPL | |||||||||||||||||||||||||||||
Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | Derivative Assets | Derivative Liabilities | |||||||||||||||||||||||||
(millions) | ||||||||||||||||||||||||||||||||
Commodity contracts: | ||||||||||||||||||||||||||||||||
Current derivative assets | $ | 667 | $ | 316 | $ | 6 | (a) | $ | — | $ | 754 | $ | 278 | $ | 9 | (a) | $ | 1 | (a) | |||||||||||||
Current derivative liabilities | 1,815 | 2,412 | 4 | 273 | 1,848 | 2,339 | 12 | 257 | ||||||||||||||||||||||||
Noncurrent derivative assets | 651 | 133 | 2 | (b) | — | 687 | 157 | 1 | (b) | — | ||||||||||||||||||||||
Noncurrent derivative liabilities | 747 | 1,045 | — | 27 | (c) | 828 | 1,084 | — | — | |||||||||||||||||||||||
Foreign currency swap: | ||||||||||||||||||||||||||||||||
Current derivative assets | — | — | — | — | 13 | — | — | — | ||||||||||||||||||||||||
Current derivative liabilities | — | 2 | — | — | — | — | — | — | ||||||||||||||||||||||||
Noncurrent derivative assets | 23 | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Total | $ | 3,903 | $ | 3,908 | $ | 12 | $ | 300 | $ | 4,130 | $ | 3,858 | $ | 22 | $ | 258 | ||||||||||||||||
(a) | Included in current other assets on FPL's condensed consolidated balance sheets. |
(b) | Included in noncurrent other assets on FPL's condensed consolidated balance sheets. |
(c) | Included in noncurrent other liabilities on FPL's condensed consolidated balance sheets. |
Gains (losses) related to NextEra Energy's derivatives not designated as hedging instruments are recorded on NextEra Energy's condensed consolidated statements of income (none at FPL) as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(millions) | ||||||||||||||||
Commodity contracts: | ||||||||||||||||
Operating revenues | $ | (50 | ) | (a) | $ | 354 | (a) | $ | (48 | ) | (a) | $ | 615 | (a) | ||
Fuel, purchased power and interchange | 10 | (104 | ) | 8 | (10 | ) | ||||||||||
Foreign currency swap - Other - net | 23 | 8 | 20 | 13 | ||||||||||||
Interest rate contracts - Other - net | (16 | ) | — | (11 | ) | — | ||||||||||
Total | $ | (33 | ) | $ | 258 | $ | (31 | ) | $ | 618 | ||||||
(a) | In addition, for the three and nine months ended September 30, 2011, FPL recorded approximately $232 million and $300 million of losses, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets. For the three and nine months ended September 30, 2010, FPL recorded approximately $306 million and $698 million of losses, respectively, related to commodity contracts as regulatory assets on its condensed consolidated balance sheets. |
The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in NextEra Energy'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. The table does not present a complete picture of NextEra Energy's and FPL's overall net economic exposure because NextEra Energy and FPL do not use derivative instruments to hedge all of their commodity exposures. At September 30, 2011, NextEra Energy and FPL had derivative commodity contracts for the following net notional volumes:
Commodity Type | NextEra Energy | FPL | ||||||||
(millions) | ||||||||||
Power | (115 | ) | mwh(a) | — | ||||||
Natural gas | 1,183 | mmbtu(b) | 855 | mmbtu(b) | ||||||
Oil | (2 | ) | barrels | — | ||||||
————————————
(a) | Megawatt-hours |
(b) | One million British thermal units |
15
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
At September 30, 2011, NextEra Energy had 28 interest rate swaps with a notional amount totaling approximately $6.6 billion and two foreign currency swaps with a notional amount totaling approximately $544 million.
Certain of NextEra Energy's and FPL's 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 September 30, 2011, the aggregate fair value of NextEra Energy's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $1.7 billion ($0.3 billion for FPL).
If the credit-risk-related contingent features underlying these agreements and other commodity-related contracts were triggered, NextEra Energy or FPL could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions. Certain 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 Capital Holdings' credit ratings were downgraded to BBB/Baa2 (a two level downgrade for FPL and a one level downgrade for Capital Holdings from the current lowest applicable rating), NextEra Energy would be required to post collateral such that the total posted collateral would be approximately $350 million ($100 million at FPL). If FPL's and Capital Holdings' credit ratings were downgraded to below investment grade, NextEra Energy would be required to post additional collateral such that the total posted collateral would be approximately $2.3 billion ($0.8 billion at FPL). Some contracts at NextEra Energy, including some FPL 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, NextEra Energy could be required to post additional collateral of up to approximately $600 million ($150 million at FPL).
Collateral may be posted in the form of cash or credit support. At September 30, 2011, NextEra Energy had posted approximately $140 million (none at FPL) in the form of letters of credit, related to derivatives, in the normal course of business which could be applied toward the collateral requirements described above. FPL and Capital Holdings have bank revolving line of credit facilities in excess of the collateral requirements described above that would be available to support, among other things, derivative activities. Under the terms of the bank revolving line of 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 where a counterparty may demand additional collateral based on subjective events and/or conditions. Due to the subjective nature of these provisions, NextEra Energy 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. Fair Value Measurements
NextEra Energy 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. NextEra Energy's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect their placement within the fair value hierarchy levels. Non-performance risk is also considered in the determination of fair value for all assets and liabilities measured at fair value, including the consideration of a credit valuation adjustment.
Cash Equivalents - Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. NextEra Energy and FPL primarily hold investments in money market funds. The fair value of these funds is calculated using current market prices.
Special Use Funds and Other Investments - NextEra Energy and FPL hold primarily debt and equity securities directly, as well as indirectly through commingled funds. Substantially all directly held equity securities are valued at their quoted market prices. For directly held debt securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations. A primary price source is identified based on asset type, class or issue of each security. Commingled funds, which are similar to mutual funds, are maintained by banks or investment companies and hold certain investments in accordance with a stated set of objectives. The fair value of commingled funds is primarily derived from the quoted prices in active markets of the underlying securities. Because the fund shares are offered to a limited group of investors, they are not considered to be traded in an active market.
Derivative Instruments - NextEra Energy and FPL measure the fair value of commodity contracts on a daily basis using 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.
16
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Exchange-traded derivative assets and liabilities are valued directly using unadjusted quoted prices. For exchange-traded derivative assets and liabilities where the principal market is deemed to be inactive based on average daily volumes and open interest, the measurement is established using settlement prices from the exchanges, and therefore considered to be valued using significant other observable inputs.
NextEra Energy and FPL also enter 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. In instances where the reference exchange markets are deemed to be inactive or do not have a similar contract that trades on an exchange, 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.
NextEra Energy, through NextEra Energy Resources, also enters into full requirements contracts, which, in many cases, meet the definition of derivatives and are measured at fair value. These contracts typically have one or more inputs that are not observable and are significant to the valuation of the contract. In addition, certain exchange and non-exchange traded derivative options at NextEra Energy have one or more significant inputs that are not observable, and are valued using industry-standard option models.
In all cases where NextEra Energy and FPL use significant unobservable inputs for the valuation of a commodity contract, consideration is given to the assumptions that market participants would use in valuing the asset or liability. This includes, but is not limited to, assumptions about market liquidity, volatility and contract duration.
NextEra Energy uses interest rate and foreign currency swaps to mitigate and adjust interest rate and foreign currency exposure related to certain outstanding and forecasted debt issuances and borrowings. NextEra Energy estimates the fair value of these derivatives using a discounted cash flows valuation technique based on the net amount of estimated future cash inflows and outflows related to the swap agreements.
Recurring Fair Value Measurements - NextEra Energy's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:
17
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
September 30, 2011 | ||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Netting(a) | Total | ||||||||||||||||
(millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||
NextEra Energy - equity securities | $ | 409 | $ | — | $ | — | $ | — | $ | 409 | ||||||||||
FPL - equity securities | $ | 3 | $ | — | $ | — | $ | — | $ | 3 | ||||||||||
Special use funds: | ||||||||||||||||||||
NextEra Energy: | ||||||||||||||||||||
Equity securities | $ | 638 | $ | 1,086 | (b) | $ | — | $ | — | $ | 1,724 | |||||||||
U.S. Government and municipal bonds | $ | 545 | $ | 138 | $ | — | $ | — | $ | 683 | ||||||||||
Corporate debt securities | $ | — | $ | 488 | $ | — | $ | — | $ | 488 | ||||||||||
Mortgage-backed securities | $ | — | $ | 519 | $ | — | $ | — | $ | 519 | ||||||||||
Other debt securities | $ | — | $ | 64 | $ | — | $ | — | $ | 64 | ||||||||||
FPL: | ||||||||||||||||||||
Equity securities | $ | 121 | $ | 949 | (b) | $ | — | $ | — | $ | 1,070 | |||||||||
U.S. Government and municipal bonds | $ | 478 | $ | 114 | $ | — | $ | — | $ | 592 | ||||||||||
Corporate debt securities | $ | — | $ | 338 | $ | — | $ | — | $ | 338 | ||||||||||
Mortgage-backed securities | $ | — | $ | 437 | $ | — | $ | — | $ | 437 | ||||||||||
Other debt securities | $ | — | $ | 44 | $ | — | $ | — | $ | 44 | ||||||||||
Other investments: | ||||||||||||||||||||
NextEra Energy: | ||||||||||||||||||||
Equity securities | $ | 4 | $ | — | $ | — | $ | — | $ | 4 | ||||||||||
U.S. Government and municipal bonds | $ | 18 | $ | — | $ | — | $ | — | $ | 18 | ||||||||||
Corporate debt securities | $ | — | $ | 29 | $ | — | $ | — | $ | 29 | ||||||||||
Mortgage-backed securities | $ | — | $ | 36 | $ | — | $ | — | $ | 36 | ||||||||||
Other | $ | 5 | $ | 10 | $ | — | $ | — | $ | 15 | ||||||||||
Derivatives: | ||||||||||||||||||||
NextEra Energy: | ||||||||||||||||||||
Commodity contracts | $ | 1,596 | $ | 1,623 | $ | 661 | $ | (3,108 | ) | $ | 772 | (c) | ||||||||
Interest rate swaps | $ | — | $ | 31 | $ | — | $ | — | $ | 31 | (c) | |||||||||
Foreign currency swaps | $ | — | $ | 23 | $ | — | $ | — | $ | 23 | (c) | |||||||||
FPL - commodity contracts | $ | — | $ | 6 | $ | 6 | $ | (4 | ) | $ | 8 | (c) | ||||||||
Liabilities: | ||||||||||||||||||||
Derivatives: | ||||||||||||||||||||
NextEra Energy: | ||||||||||||||||||||
Commodity contracts | $ | 1,693 | $ | 1,673 | $ | 540 | $ | (3,198 | ) | $ | 708 | (c) | ||||||||
Interest rate swaps | $ | — | $ | 307 | $ | — | $ | — | $ | 307 | (c) | |||||||||
Foreign currency swaps | $ | — | $ | 10 | $ | — | $ | — | $ | 10 | (c) | |||||||||
FPL - commodity contracts | $ | — | $ | 298 | $ | 2 | $ | (4 | ) | $ | 296 | (c) | ||||||||
(a) | Includes the effect of the contractual ability to settle contracts under master netting arrangements and margin cash collateral payments and receipts. |
(b) | At NextEra Energy, approximately $970 million ($875 million at FPL) are invested in commingled funds whose underlying investments would be Level 1 if those investments were held directly by NextEra Energy or FPL. |
(c) | See Note 2 for a reconciliation of net derivatives to NextEra Energy's and FPL's condensed consolidated balance sheets. |
18
NEXTERA ENERGY, INC. AND FLORIDA POWER & LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
December 31, 2010 | ||||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Netting(a) | Total | ||||||||||||||||
(millions) | ||||||||||||||||||||
Assets: | ||||||||||||||||||||
Cash equivalents: | ||||||||||||||||||||
NextEra Energy - equity securities | $ | — | $ | 122 | $ | — | $ | — | $ | 122 | ||||||||||
FPL - equity securities | $ | — | $ | 7 | $ | — | $ | — | $ | 7 | ||||||||||
Special use funds: | ||||||||||||||||||||
NextEra Energy: | ||||||||||||||||||||
Equity securities | $ | 741 | $ | 1,245 | (b) | $ | — | $ | — | $ | 1,986 | |||||||||
U.S. Government and municipal bonds | $ | 495 | $ | 127 | $ | — | $ | — | $ | 622 | ||||||||||
Corporate debt securities | $ | — | $ | 486 | $ | — | $ | — | $ | 486 | ||||||||||
Mortgage-backed securities | $ | — | $ | 447 | $ | — | $ | — | $ | 447 | ||||||||||
Other debt securities | $ | — | $ | 108 | $ | — | ||||||||||||||