filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
77K characters. Original on sec.gov · Markdown
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 approximately 5.9 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 2023 MWh produced on a net generation basis, as well as a world leader in battery storage. 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. 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 2023 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 periods.
| Net Income (Loss) Attributable to NEE | Earnings (Loss) Per Share Attributable to NEE, Assuming Dilution | Net Income (Loss) Attributable to NEE | Earnings (Loss) Per Share Attributable to NEE, Assuming Dilution | ||||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended September 30, | Three Months Ended September 30, | Nine Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||||||
| (millions) | (millions) | ||||||||||||||||||||||||||||||||||||||||||||||
| FPL | $ | 1,293 | $ | 1,183 | $ | 0.63 | $ | 0.58 | $ | 3,698 | $ | 3,406 | $ | 1.80 | $ | 1.68 | |||||||||||||||||||||||||||||||
| NEER(a) | 1,223 | (230) | 0.59 | (0.11) | 2,741 | 2,672 | 1.33 | 1.32 | |||||||||||||||||||||||||||||||||||||||
| Corporate and Other | (664) | 266 | (0.32) | 0.13 | (696) | 22 | (0.34) | 0.02 | |||||||||||||||||||||||||||||||||||||||
| NEE | $ | 1,852 | $ | 1,219 | $ | 0.90 | $ | 0.60 | $ | 5,743 | $ | 6,100 | $ | 2.79 | $ | 3.02 |
———————————————
(a) 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 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, as prepared under GAAP.
The following table provides details of the after-tax adjustments to net income considered in computing NEE's adjusted earnings discussed above.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Net gains (losses) associated with non-qualifying hedge activity(a) | $ | (328) | $ | 284 | $ | (250) | $ | 1,746 | |||||||||||||||
| Differential membership interests-related – NEER | $ | — | $ | (11) | $ | (5) | $ | (38) | |||||||||||||||
| NEP investment gains, net – NEER(b) | $ | (24) | $ | (908) | $ | (71) | $ | (937) | |||||||||||||||
| Change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds and OTTI, net – NEER | $ | 77 | $ | (66) | $ | 101 | $ | (6) | |||||||||||||||
| Impairment charges related to investment in Mountain Valley Pipeline – NEER | $ | — | $ | — | $ | — | $ | (39) |
———————————————
(a) For the three months ended September 30, 2024 and 2023, approximately $191 million of gains and $127 million of losses, respectively, and for the nine months ended September 30, 2024 and 2023, $44 million and $1,297 million of gains, 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) For the three and nine months ended September 30, 2023, includes an impairment charge related to the investment in NEP. See Note 3 – Nonrecurring Fair Value Measurements.
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, 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 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 attributable to NEE increased by $633 million for the three months ended September 30, 2024 reflecting higher results at NEER and FPL, partly offset by lower results at Corporate and Other. Net income attributable to NEE decreased by $357 million for the nine months ended September 30, 2024 reflecting lower results at Corporate and Other, partly offset by higher results at FPL and NEER.
FPL's increase in net income for the three and nine months ended September 30, 2024 was primarily driven by continued investments in plant in service and other property.
NEER's results increased for the three months ended September 30, 2024 primarily reflecting the absence of an impairment charge related to the investment in NEP recorded in 2023, favorable non-qualifying hedge activity compared to 2023 and higher earnings from new investments. NEER's results increased for the nine months ended September 30, 2024 primarily reflecting the absence of an impairment charge related to the investment in NEP recorded in 2023 and higher earnings from new investments, partly offset by less favorable non-qualifying hedge activity compared to 2023.
Corporate and Other's results decreased for the three and nine months ended September 30, 2024 primarily due to unfavorable non-qualifying hedge activity compared to 2023.
NEE's effective income tax rates for the three months ended September 30, 2024 and 2023 were approximately 0% and (5)%, respectively. NEE's effective income tax rates for the nine months ended September 30, 2024 and 2023 were approximately 3% and 14%, respectively. See Note 4 for a discussion of NEE's and FPL's effective income tax rates.
FPL: Results of Operations
Investments in plant in service and other property grew FPL's average rate base by approximately $6.0 billion and $6.4 billion for the three and nine months ended September 30, 2024, respectively, when compared to the same periods in the prior year, reflecting, among other things, solar generation additions and ongoing transmission and distribution additions.
The use of reserve amortization is permitted by FPL's 2021 rate agreement. In order to earn a targeted regulatory ROE, subject to limitations associated with the 2021 rate agreement, 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 and nine months ended September 30, 2024, FPL recorded the reversal of reserve amortization of approximately $231 million and reserve amortization of $406 million, respectively. During the three and nine months ended September 30, 2023, FPL recorded the reversal of reserve amortization of approximately $245 million and reserve amortization of $206 million, respectively. See Depreciation and Amortization Expense below. During all periods presented, FPL earned an approximately 11.80% regulatory ROE on its retail rate base, based on a trailing thirteen-month average retail rate base as of September 30, 2024 and September 30, 2023. In July 2024, FPL reduced the targeted regulatory ROE for the full-year 2024 to 11.40%.
FPL completed a twelve-month interim storm restoration charge that began in April 2023 for eligible storm restoration costs of approximately $1.3 billion, primarily related to surcharges for Hurricanes Ian and Nicole which impacted FPL's service area in 2022.
In the third quarter of 2024, FPL's service territory was impacted by Hurricanes Debby and Helene and FPL incurred recoverable storm restoration costs of approximately $0.3 billion. In October 2024, FPL's service territory was impacted by Hurricane Milton and FPL incurred recoverable storm restoration costs of approximately $0.8 billion. See Note 11 – Storm Reserve Deficit.
In March 2024, the FPSC issued a supplemental final order regarding FPL’s 2021 rate agreement. An April 2024 appeal of the order filed with the Florida Supreme Court by certain intervenors remains pending. See Note 11 – Rate Regulation. In September 2024, the license renewals for Turkey Point Unit No. 3 and Turkey Point Unit No. 4 were approved, extending the operating licenses to 2053 and 2054, respectively. Subsequently, an appeal of the decision dismissing all of the proposed contentions against the subsequent license renewal was filed with the NRC and that appeal is pending.
Operating Revenues
During the three and nine months ended September 30, 2024, operating revenues decreased $536 million and $1,006 million, respectively, primarily reflecting decreases in storm cost recovery revenues of approximately $486 million and $745 million, respectively, primarily associated with the completion of surcharges for Hurricanes Ian and Nicole, as discussed above. Additionally, fuel revenues decreased approximately $110 million and $384 million during the three and nine months ended September 30, 2024, respectively, primarily relating to lower fuel prices. The decreases in operating revenues for the three and nine months ended September 30, 2024 were partly offset by increases in retail base revenues of approximately $71 million and $184 million, respectively. During the three and nine months ended September 30, 2024, the increase in retail base revenues was primarily related to an increase of approximately 2.1% and 1.9%, respectively, in the average number of customer accounts, partly offset by a decrease of 1.1% and 0.6%, respectively, in the average usage per retail customer driven by unfavorable weather when compared to the prior year periods.
Fuel, Purchased Power and Interchange Expense
Fuel, purchased power and interchange expense decreased $131 million and $442 million for the three and nine months ended September 30, 2024, respectively, primarily reflecting lower fuel prices.
Depreciation and Amortization Expense
Depreciation and amortization expense decreased $450 million and $772 million during the three and nine months ended September 30, 2024, respectively. The decrease for the three months ended September 30, 2024 primarily reflects approximately $486 million of lower amortization of deferred storm cost expenses primarily associated with Hurricanes Ian and Nicole, as discussed above, partly offset by increased depreciation related to higher plant in service balances. The decrease for the nine months ended September 30, 2024 primarily reflects approximately $745 million of lower amortization of deferred storm cost expenses primarily associated with Hurricanes Ian and Nicole, as discussed above, and the impact of reserve amortization, partly offset by increased depreciation related to higher plant in service balances. During the three months ended September 30, 2024 and 2023, FPL recorded the reversal of reserve amortization of approximately $231 million and $245 million, respectively. During the nine months ended September 30, 2024 and 2023, FPL recorded reserve amortization of approximately $406 million and $206 million, respectively. Reserve amortization, or reversal of such amortization, reflects adjustments to accrued asset removal costs provided under the 2021 rate agreement 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. At September 30, 2024, approximately $817 million of reserve amortization remains available under the 2021 rate agreement.
NEER**: Results of Operations**
NEER’s results increased $1,453 million and $69 million for the three and nine months ended September 30, 2024, respectively. 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 September 30, 2024 | Nine Months Ended September 30, 2024 | ||||||||||
| (millions) | |||||||||||
| New investments(a) | $ | 303 | $ | 858 | |||||||
| Existing clean energy(a) | (5) | 68 | |||||||||
| Gas infrastructure(a) | 26 | (121) | |||||||||
| Customer supply(b) | (206) | (192) | |||||||||
| NEET(a) | 10 | 15 | |||||||||
| Other, including interest expense, corporate general and administrative expenses and other investment income | (20) | (318) | |||||||||
| Change in non-qualifying hedge activity(c) | 318 | (1,253) | |||||||||
| Change in unrealized gains/losses on equity securities held in nuclear decommissioning funds and OTTI, net(c) | 143 | 107 | |||||||||
| NEP investment gains, net(c) | 884 | 866 | |||||||||
| Impairment charges related to investment in Mountain Valley Pipeline(c) | — | 39 | |||||||||
| Change in net income less net loss attributable to noncontrolling interests | $ | 1,453 | $ | 69 |
———————————————
(a) Reflects after-tax project contributions, including the net effect of deferred income taxes and other benefits associated with renewable energy tax credits for wind, solar and storage projects, as applicable, but excludes allocation of interest expense and corporate general and administrative expenses except for an allocated credit support charge related to guarantees issued to conduct business activities. Results from projects, pipelines and rate-regulated transmission facilities and transmission lines are included in new investments during the first twelve months of operation or ownership. Project results, including repowered wind projects, are included in existing clean energy, pipeline results are included in gas infrastructure and rate-regulated transmission facilities and transmission lines are included in NEET beginning with the thirteenth month of operation or ownership.
(b) Excludes allocation of interest expense and corporate general and administrative expenses except for an allocated credit support charge related to guarantees issued to conduct business activities.
(c) See Overview – Adjusted Earnings for additional information.
New Investments
Results from new investments for the three and nine months ended September 30, 2024 increased primarily due to higher earnings related to new wind and solar generation and battery storage facilities that entered service during or after the three and nine months ended September 30, 2023.
Customer Supply
Results from customer supply decreased for the three and nine months ended September 30, 2024 primarily due to the normalization of origination activity and margins as compared to higher origination activity and margins in the prior year periods.
Other Factors
Supplemental to the primary drivers of the changes in NEER's results discussed above, the discussion below describes changes in certain line items set forth in NEE's condensed consolidated statements of income as they relate to NEER.
Operating Revenues
Operating revenues for the three months ended September 30, 2024 increased $916 million primarily due to:
-
the impact of non-qualifying commodity hedges due primarily to changes in energy prices (approximately $574 million of gains for the three months ended September 30, 2024 compared to $346 million of losses for the comparable period in 2023), and
-
revenues from new investments of $148 million,
partly offset by,
- net decreases in revenues of $194 million from the customer supply and gas infrastructure businesses.
Operating revenues for the nine months ended September 30, 2024 decreased $922 million primarily due to:
-
the impact of non-qualifying commodity hedges due primarily to changes in energy prices (approximately $341 million of gains for the nine months ended September 30, 2024 compared to $1,607 million of gains for the comparable period in 2023), and
-
net decreases in revenues of $105 million from the customer supply and gas infrastructure businesses,
partly offset by,
-
revenues from new investments of $338 million, and
-
higher revenues from existing clean energy assets of $185 million primarily due the absence of 2023 refueling outages at the Seabrook and Point Beach nuclear facilities.
Operating Expenses – net
Operating expenses – net for the three months ended September 30, 2024 increased $245 million primarily due to increases of $140 million in depreciation and amortization, $70 million in O&M expenses and $28 million in fuel, purchased power and interchange expenses. Operating expenses – net for the nine months ended September 30, 2024 increased $828 million primarily due to increases of $465 million in depreciation and amortization, $227 million in O&M expenses and $99 million in fuel, purchased power and interchange expenses. The increases for both periods were primarily associated with growth across the NEER businesses as well as higher depletion and higher O&M expenses at the gas infrastructure business.
Gains on Disposal of Businesses/Assets – net
For the three and nine months ended September 30, 2024, the changes in gains on disposal of businesses/assets – net primarily reflect the September 2024 sales of ownership interests in connection with the pipeline joint venture and the renewable assets joint venture. See Note 11 – Disposal of Businesses.
Interest Expense
NEER’s interest expense for the three months ended September 30, 2024 increased $507 million reflecting approximately $329 million of unfavorable impacts related to changes in the fair value of interest rate derivative instruments as well as higher average interest rates and higher average debt balances. NEER’s interest expense for the nine months ended September 30, 2024 increased $522 million reflecting approximately $294 million of unfavorable impacts related to changes in the fair value of interest rate derivative instruments as well as higher average interest rates and higher average debt balances.
Equity in Earnings (Losses) of Equity Method Investees
NEER recognized $237 million and $578 million of equity in earnings of equity method investees for the three and nine months ended September 30, 2024, respectively, compared to $954 million and $722 million of equity in losses of equity method investees for the three and nine months ended September 30, 2023, respectively. The change for the three and nine months ended September 30, 2024 primarily reflects the absence of an impairment charge in 2023 of approximately $1.2 billion ($0.9 billion after tax) related to the investment in NEP (see Note 3 – Nonrecurring Fair Value Measurements).
Change in Unrealized Gains (Losses) on Equity Securities Held in NEER's Nuclear Decommissioning Funds – net
For the three months ended September 30, 2024, changes in the fair value of equity securities in NEER's nuclear decommissioning funds related to favorable market conditions in 2024 compared to the prior year period.
Income Taxes
PTCs from wind and solar projects and ITCs from solar, battery storage and certain wind projects are included in NEER’s earnings. PTCs are recognized as wind and solar energy is generated and sold based on a per kWh rate prescribed in applicable federal and state statutes. NEER's effective income tax rate is primarily based on the composition of pretax income (loss) in the periods presented, as well as the amount of renewable energy tax credits in the periods presented. During the three and nine months ended September 30, 2024, renewable energy tax credits increased by approximately $172 million and $435 million, respectively. See Note 4.
RNG Acquisition
On March 21, 2023, a wholly owned subsidiary of NextEra Energy Resources acquired a portfolio of renewable energy projects as well as the related service provider. See Note 5 – RNG Acquisition.
Corporate and Other: Results of Operations
Corporate and Other 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 $930 million during the three months ended September 30, 2024 primarily due to unfavorable after-tax impacts of approximately $930 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. Corporate and Other's results decreased $718 million during the nine months ended September 30, 2024 primarily due to unfavorable after-tax impacts of approximately $743 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 9 and 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 (see Note 9) and, from time to time, equity securities, proceeds from differential membership investors, the sale of renewable energy tax credits (see Note 11 – Income Taxes) and sales of ownership interests in assets/businesses to NEP or third parties (see Note 11 – Disposal of Businesses), 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.
Cash Flows
NEE's sources and uses of cash for the nine months ended September 30, 2024 and 2023 were as follows:
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (millions) | |||||||||||
| Sources of cash: | |||||||||||
| Cash flows from operating activities | $ | 11,279 | $ | 8,423 | |||||||
| Issuances of long-term debt, including premiums and discounts | 16,175 | 9,978 | |||||||||
| Sale of independent power and other investments of NEER | 2,208 | 1,353 | |||||||||
| Issuances of common stock/equity units – net | — | 4,505 | |||||||||
| Net increase in commercial paper and other short-term debt | 4,205 | 3,563 | |||||||||
| Total sources of cash | 33,867 | 27,822 | |||||||||
| Uses of cash: | |||||||||||
| Capital expenditures, independent power and other investments and nuclear fuel purchases | (20,108) | (18,910) | |||||||||
| Retirements of long-term debt | (8,941) | (5,084) | |||||||||
| Payments to related parties under the CSCS agreement – net | (1,460) | (206) | |||||||||
| Issuances of common stock/equity units – net | (7) | — | |||||||||
| Dividends on common stock | (3,176) | (2,823) | |||||||||
| Other uses – net | (1,021) | (1,450) | |||||||||
| Total uses of cash | (34,713) | (28,473) | |||||||||
| Effects of currency translation on cash, cash equivalents and restricted cash | — | (12) | |||||||||
| Net decrease in cash, cash equivalents and restricted cash | $ | (846) | $ | (663) |
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 2024 through 2028.
The following table provides a summary of capital investments for the nine months ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| (millions) | |||||||||||
| FPL: | |||||||||||
| Generation: | |||||||||||
| New | $ | 1,821 | $ | 2,302 | |||||||
| Existing | 703 | 1,042 | |||||||||
| Transmission and distribution | 3,296 | 3,405 | |||||||||
| Nuclear fuel | 188 | 79 | |||||||||
| General and other | 366 | 435 | |||||||||
| Other, primarily change in accrued property additions and the exclusion of AFUDC – equity | 35 | 95 | |||||||||
| Total | 6,409 | 7,358 | |||||||||
| NEER: | |||||||||||
| Wind | 3,851 | 3,363 | |||||||||
| Solar (includes solar plus battery storage projects) | 4,613 | 3,995 | |||||||||
| Other clean energy | 2,621 | 1,889 | |||||||||
| Nuclear (includes nuclear fuel) | 237 | 155 | |||||||||
| Natural gas pipelines | 484 | 250 | |||||||||
| Other gas infrastructure | 1,003 | 1,345 | |||||||||
| Rate-regulated transmission | 545 | 217 | |||||||||
| Other | 228 | 289 | |||||||||
| Total | 13,582 | 11,503 | |||||||||
| Corporate and Other | 117 | 49 | |||||||||
| Total capital expenditures, independent power and other investments and nuclear fuel purchases | $ | 20,108 | $ | 18,910 |
Liquidity
At September 30, 2024, NEE's total net available liquidity was approximately $12.0 billion. The table below provides the components of FPL's and NEECH's net available liquidity at September 30, 2024.
| Maturity Date | |||||||||||||||||||||||||||||||||||||||||
| FPL | NEECH | Total | FPL | NEECH | |||||||||||||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||||||||||||||
| Syndicated revolving credit facilities(a) | $ | 3,420 | $ | 10,667 | $ | 14,087 | 2025 – 2029 | 2025 – 2029 | |||||||||||||||||||||||||||||||||
| Issued letters of credit | (4) | (689) | (693) | ||||||||||||||||||||||||||||||||||||||
| 3,416 | 9,978 | 13,394 | |||||||||||||||||||||||||||||||||||||||
| Bilateral revolving credit facilities(b) | 2,580 | 3,400 | 5,980 | 2024 – 2027 | 2024 – 2027 | ||||||||||||||||||||||||||||||||||||
| Borrowings | — | (3,400) | (3,400) | ||||||||||||||||||||||||||||||||||||||
| 2,580 | — | 2,580 | |||||||||||||||||||||||||||||||||||||||
| Letter of credit facilities(c) | — | 3,905 | 3,905 | 2024 – 2027 | |||||||||||||||||||||||||||||||||||||
| Issued letters of credit | — | (2,895) | (2,895) | ||||||||||||||||||||||||||||||||||||||
| — | 1,010 | 1,010 | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 5,996 | 10,988 | 16,984 | ||||||||||||||||||||||||||||||||||||||
| Cash and cash equivalents | 138 | 2,090 | 2,228 | ||||||||||||||||||||||||||||||||||||||
| Commercial paper and other short-term borrowings outstanding(d) | (850) | (6,160) | (7,010) | ||||||||||||||||||||||||||||||||||||||
| Cash swept from unconsolidated entities | — | (161) | (161) | ||||||||||||||||||||||||||||||||||||||
| Net available liquidity | $ | 5,284 | $ | 6,757 | $ | 12,041 |
———————————————
(a) Provide for the funding of loans up to the amount of the credit facility and the issuance of letters of credit up to $3,200 million ($450 million for FPL and $2,750 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 $1,663 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 $1,979 million of floating rate notes in the event an individual noteholder requires repayment at specified dates prior to maturity. Approximately $575 million of FPL's and $3,422 million of NEECH's syndicated revolving credit facilities expire over the next 12 months.
(b) Only available for the funding of loans. Approximately $2,425 million of FPL's and $2,750 million of NEECH's bilateral revolving credit facilities expire over the next 12 months.
(c) Only available for the issuance of letters of credit. Approximately $1,680 million of the letter of credit facilities expire over the next 12 months.
(d) Excludes short-term borrowings under NEECH's bilateral revolving credit facilities of $2,100 million, which are included in borrowings above.
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 September 30, 2024, NEE believes that there is no material exposure related to these guarantee arrangements.
NEE subsidiaries issue guarantees related to equity contribution agreements and engineering, procurement and construction agreements, associated with the development, construction and financing of certain power generation facilities (see Note 11 – Structured Payables) and a natural gas pipeline project, as well as a related natural gas transportation agreement. Commitments associated with these activities are included in the contracts table in Note 12.
In addition, at September 30, 2024, NEE subsidiaries had approximately $6.0 billion in guarantees related to obligations under purchased power and acquisition agreements, nuclear-related activities, payment obligations related to PTCs, support for NEER's retail electricity provider activities, as well as other types of contractual obligations (see 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 September 30, 2024, these guarantees totaled approximately $1.1 billion 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 energy commodities. At September 30, 2024, 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 September 30, 2024) plus contract settlement net payables, net of collateral posted for obligations under these guarantees, totaled approximately $1.5 billion.
At September 30, 2024, subsidiaries of NEE also had approximately $5.6 billion of standby letters of credit and approximately $1.7 billion of surety bonds to support certain of the commercial activities discussed above. FPL's and NEECH's credit facilities are available to support substantially all 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 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:
| Nine Months Ended September 30, 2024 | Year Ended December 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Issuer/Guarantor Combined**(a)** | NEECH Consolidated**(b)** | NEE Consolidated**(b)** | Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
| Operating revenues | $ | (2) | $ | 6,306 | $ | 19,368 | $ | (20) | $ | 9,878 | $ | 28,114 | ||||||||||||||||||||||||||
| Operating income (loss) | $ | (226) | $ | 1,487 | $ | 6,538 | $ | (359) | $ | 3,918 | $ | 10,237 | ||||||||||||||||||||||||||
| Net income (loss) | $ | (787) | $ | 1,124 | $ | 4,825 | $ | (867) | $ | 1,736 | $ | 6,282 | ||||||||||||||||||||||||||
| Net income (loss) attributable to NEE/NEECH | $ | (787) | $ | 2,042 | $ | 5,743 | $ | (867) | $ | 2,764 | $ | 7,310 |
| September 30, 2024 | December 31, 2023 | |||||||||||||||||||||||||||||||||||||
| Issuer/Guarantor Combined**(a)** | NEECH Consolidated**(b)** | NEE Consolidated**(b)** | Issuer/Guarantor Combined(a) | NEECH Consolidated(b) | NEE Consolidated(b) | |||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||
| Total current assets | $ | 1,321 | $ | 7,892 | $ | 12,180 | $ | 1,860 | $ | 10,559 | $ | 15,361 | ||||||||||||||||||||||||||
| Total noncurrent assets | $ | 2,617 | $ | 82,931 | $ | 173,833 | $ | 2,491 | $ | 76,550 | $ | 162,128 | ||||||||||||||||||||||||||
| Total current liabilities | $ | 14,973 | $ | 23,638 | $ | 29,647 | $ | 6,709 | $ | 20,192 | $ | 27,963 | ||||||||||||||||||||||||||
| Total noncurrent liabilities | $ | 33,610 | $ | 51,047 | $ | 96,828 | $ | 28,874 | $ | 47,940 | $ | 90,502 | ||||||||||||||||||||||||||
| Redeemable noncontrolling interests | $ | — | $ | — | $ | — | $ | — | $ | 1,256 | $ | 1,256 | ||||||||||||||||||||||||||
| Noncontrolling interests | $ | — | $ | 9,487 | $ | 9,487 | $ | — | $ | 10,300 | $ | 10,300 |
| ———————————— | |||||
| (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. |
Shelf Registration
In March 2024, NEE, NEECH and FPL filed a shelf registration statement with the SEC for an unspecified amount of securities, which became effective upon filing. The amount of securities issuable by the companies is established from time to time by their respective boards of directors. Securities that may be issued under the registration statement include, depending on the registrant, senior debt securities, subordinated debt securities, junior subordinated debentures, first mortgage bonds, common stock, preferred stock, depositary shares, stock purchase contracts, stock purchase units, warrants and guarantees related to certain of those securities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those that NEE believes are both most important to the portrayal of its financial condition and results of operations, and require complex, subjective judgments, often as a result of the need to make estimates and assumptions about the effect of matters that are inherently uncertain. Judgments and uncertainties affecting the application of those policies and estimates may result in materially different amounts being reported under different conditions or using different assumptions. NEE’s critical accounting policies and estimates were reported in NEE’s 2023 Form 10-K. There have been no material changes regarding these critical accounting policies and estimates.
See Note 3 – Nonrecurring Fair Value Measurements for a discussion of an impairment analysis related to NextEra Energy Resources’ equity method investment in NEP.
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 and nine months ended September 30, 2024 were as follows:
| Hedges on Owned Assets | |||||||||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | ||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
| Three Months Ended September 30, 2024 | |||||||||||||||||||||||||||||
| Fair value of contracts outstanding at June 30, 2024 | $ | 1,309 | $ | (1,733) | $ | 39 | $ | (385) | |||||||||||||||||||||
| Reclassification to realized at settlement of contracts | (123) | 30 | (4) | (97) | |||||||||||||||||||||||||
| Value of contracts acquired | — | 20 | — | 20 | |||||||||||||||||||||||||
| Net option premium purchases (issuances) | (8) | 9 | — | 1 | |||||||||||||||||||||||||
| Changes in fair value excluding reclassification to realized | 98 | 537 | (6) | 629 | |||||||||||||||||||||||||
| Fair value of contracts outstanding at September 30, 2024 | 1,276 | (1,137) | 29 | 168 | |||||||||||||||||||||||||
| Net margin cash collateral paid (received) | (90) | ||||||||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at September 30, 2024 | $ | 1,276 | $ | (1,137) | $ | 29 | $ | 78 |
| Hedges on Owned Assets | |||||||||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | ||||||||||||||||||||||||||
| (millions) | |||||||||||||||||||||||||||||
| Nine Months Ended September 30, 2024 | |||||||||||||||||||||||||||||
| Fair value of contracts outstanding at December 31, 2023 | $ | 1,337 | $ | (1,477) | $ | 12 | $ | (128) | |||||||||||||||||||||
| Reclassification to realized at settlement of contracts | (279) | 98 | (29) | (210) | |||||||||||||||||||||||||
| Value of contracts acquired | 1 | 20 | — | 21 | |||||||||||||||||||||||||
| Net option premium purchases (issuances) | (10) | 17 | — | 7 | |||||||||||||||||||||||||
| Changes in fair value excluding reclassification to realized | 227 | 205 | 46 | 478 | |||||||||||||||||||||||||
| Fair value of contracts outstanding at September 30, 2024 | 1,276 | (1,137) | 29 | 168 | |||||||||||||||||||||||||
| Net margin cash collateral paid (received) | (90) | ||||||||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at September 30, 2024 | $ | 1,276 | $ | (1,137) | $ | 29 | $ | 78 |
NEE's total mark-to-market energy contract net assets (liabilities) at September 30, 2024 shown above are included on the condensed consolidated balance sheets as follows:
| September 30, 2024 | |||||
| (millions) | |||||
| Current derivative assets | $ | 835 | |||
| Noncurrent derivative assets | 1,496 | ||||
| Current derivative liabilities | (742) | ||||
| Noncurrent derivative liabilities | (1,511) | ||||
| NEE's total mark-to-market energy contract net assets | $ | 78 |
The sources of fair value estimates and maturity of energy contract derivative instruments at September 30, 2024 were as follows:
| Maturity | ||||||||||||||||||||||||||||||||||||||||||||
| 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | ||||||||||||||||||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Trading: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | $ | (224) | $ | (289) | $ | (11) | $ | — | $ | 54 | $ | 82 | $ | (388) | ||||||||||||||||||||||||||||||
| Significant other observable inputs | 158 | 438 | 212 | 140 | 32 | 7 | 987 | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | 156 | 156 | 54 | 32 | 21 | 258 | 677 | |||||||||||||||||||||||||||||||||||||
| Total | 90 | 305 | 255 | 172 | 107 | 347 | 1,276 | |||||||||||||||||||||||||||||||||||||
| Owned Assets – Non-Qualifying: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | (20) | (63) | (36) | (8) | 4 | 3 | (120) | |||||||||||||||||||||||||||||||||||||
| Significant other observable inputs | (94) | (308) | (250) | (196) | (97) | (175) | (1,120) | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | 11 | (3) | (26) | (41) | (3) | 165 | 103 | |||||||||||||||||||||||||||||||||||||
| Total | (103) | (374) | (312) | (245) | (96) | (7) | (1,137) | |||||||||||||||||||||||||||||||||||||
| Owned Assets – FPL Cost Recovery Clauses: | ||||||||||||||||||||||||||||||||||||||||||||
| Quoted prices in active markets for identical assets | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Significant other observable inputs | (1) | (1) | (1) | (1) | — | — | (4) | |||||||||||||||||||||||||||||||||||||
| Significant unobservable inputs | (4) | 23 | 13 | 1 | — | — | 33 | |||||||||||||||||||||||||||||||||||||
| Total | (5) | 22 | 12 | — | — | — | 29 | |||||||||||||||||||||||||||||||||||||
| Total sources of fair value | $ | (18) | $ | (47) | $ | (45) | $ | (73) | $ | 11 | $ | 340 | $ | 168 |
The changes in the fair value of NEE's consolidated subsidiaries' energy contract derivative instruments for the three and nine months ended September 30, 2023 were as follows:
| Hedges on Owned Assets | ||||||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | |||||||||||||||||||||||
| (millions) | ||||||||||||||||||||||||||
| Three Months Ended September 30, 2023 | ||||||||||||||||||||||||||
| Fair value of contracts outstanding at June 30, 2023 | $ | 1,265 | $ | (1,755) | $ | 5 | $ | (485) | ||||||||||||||||||
| Reclassification to realized at settlement of contracts | (73) | (47) | (8) | (128) | ||||||||||||||||||||||
| Value of contracts acquired | 11 | 5 | — | 16 | ||||||||||||||||||||||
| Net option premium purchases (issuances) | 19 | 3 | — | 22 | ||||||||||||||||||||||
| Changes in fair value excluding reclassification to realized | 109 | (390) | 2 | (279) | ||||||||||||||||||||||
| Fair value of contracts outstanding at September 30, 2023 | 1,331 | (2,184) | (1) | (854) | ||||||||||||||||||||||
| Net margin cash collateral paid (received) | 973 | |||||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at September 30, 2023 | $ | 1,331 | $ | (2,184) | $ | (1) | $ | 119 |
| Hedges on Owned Assets | |||||||||||||||||||||||
| Trading | Non- Qualifying | FPL Cost Recovery Clauses | NEE Total | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| Nine Months Ended September 30, 2023 | |||||||||||||||||||||||
| Fair value of contracts outstanding at December 31, 2022 | $ | 1,177 | $ | (3,921) | $ | 16 | $ | (2,728) | |||||||||||||||
| Reclassification to realized at settlement of contracts | (224) | 213 | (10) | (21) | |||||||||||||||||||
| Value of contracts acquired | 11 | 95 | — | 106 | |||||||||||||||||||
| Net option premium purchases (issuances) | 149 | 9 | — | 158 | |||||||||||||||||||
| Changes in fair value excluding reclassification to realized | 218 | 1,420 | (7) | 1,631 | |||||||||||||||||||
| Fair value of contracts outstanding at September 30, 2023 | 1,331 | (2,184) | (1) | (854) | |||||||||||||||||||
| Net margin cash collateral paid (received) | 973 | ||||||||||||||||||||||
| Total mark-to-market energy contract net assets (liabilities) at September 30, 2023 | $ | 1,331 | $ | (2,184) | $ | (1) | $ | 119 |
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, 2023 | $ | — | $ | 4 | $ | 4 | $ | 2 | $ | 114 | $ | 116 | $ | 2 | $ | 113 | $ | 111 | |||||||||||||||||||||||||||||||||||
| September 30, 2024 | $ | — | $ | 4 | $ | 4 | $ | 1 | $ | 47 | $ | 47 | $ | 1 | $ | 49 | $ | 49 | |||||||||||||||||||||||||||||||||||
| Average for the nine months ended September 30, 2024 | $ | — | $ | 5 | $ | 5 | $ | 5 | $ | 107 | $ | 106 | $ | 5 | $ | 106 | $ | 105 |
———————————————
(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 $2 million and $1 million at September 30, 2024 and December 31, 2023, 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.
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:
| September 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| Carrying Amount | Estimated Fair Value**(a)** | Carrying Amount | Estimated Fair Value(a) | ||||||||||||||||||||
| (millions) | |||||||||||||||||||||||
| NEE: | |||||||||||||||||||||||
| Special use funds | $ | 2,341 | $ | 2,341 | $ | 2,222 | $ | 2,222 | |||||||||||||||
| Other investments, primarily debt securities | $ | 2,055 | $ | 2,055 | $ | 1,802 | $ | 1,802 | |||||||||||||||
| Long-term debt, including current portion | $ | 73,657 | $ | 72,495 | $ | 68,306 | $ | 64,103 | |||||||||||||||
| Interest rate contracts – net unrealized losses | $ | (1,107) | $ | (1,107) | $ | (249) | $ | (249) | |||||||||||||||
| FPL: | |||||||||||||||||||||||
| Special use funds | $ | 1,774 | $ | 1,774 | $ | 1,658 | $ | 1,658 | |||||||||||||||
| Long-term debt, including current portion | $ | 26,741 | $ | 25,906 | $ | 25,274 | $ | 23,430 |
———————————————
(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 September 30, 2024, NEE had interest rate contracts with a net notional amount of approximately $30.5 billion to manage exposure to the variability of cash flows primarily 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 $3,107 million ($1,144 million for FPL) at September 30, 2024.
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 $6,077 million and $5,290 million ($4,133 million and $3,536 million for FPL) at September 30, 2024 and December 31, 2023, 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 September 30, 2024, a hypothetical 10% decrease in the prices quoted on stock exchanges would result in an approximately $572 million ($381 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. See Note 3.
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.
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 September 30, 2024, NEE's credit risk exposure associated with its energy marketing and trading operations, taking into account collateral and contractual netting rights, totaled approximately $2.9 billion ($74 million for FPL), of which approximately 90% (99% for FPL) was with companies that have investment grade credit ratings. See Note 2.
Previous: Item 1. Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosures About Market Risk