NEXTERA ENERGY OVERVIEW
NEE's operating performance is driven primarily by the operations of its two principal businesses, FPL, which serves more than 5.7 million customer accounts inFlorida and is one of the largest electric utilities in theU.S. , and NEER, which together with affiliated entities is the world's largest generator of renewable energy from the wind and sun based on 2021 MWh produced on a net generation basis. The table below presents net income (loss) attributable to NEE and earnings (loss) per share attributable to NEE, assuming dilution, by reportable segment, FPL and NEER. Corporate and Other is primarily comprised of the operating results of other business activities, as well as other income and expense items, including interest expense, and eliminating entries, and may include the net effect of rounding. See Note 13 for additional segment information, including a discussion of a change in segment reporting. The following discussions should be read in conjunction with the Notes contained herein and Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in the 2021 Form 10-K. The results of operations for an interim period generally will not give a true indication of results for the year. In the following discussions, all comparisons are with the corresponding items in the prior year period. Earnings (Loss) Per Share Attributable to NEE, Net Income (Loss) Attributable to NEE Assuming Dilution Three Months Ended March 31, Three Months Ended March 31, 2022 2021 2022 2021 (millions) FPL(a)$ 875 $ 777 $ 0.44 $ 0.39 NEER(b) (1,499) 491 (0.76) 0.25 Corporate and Other(a) 173 398 0.09 0.20 NEE$ (451) $ 1,666 $ (0.23) $ 0.84 --------------- (a) FPL's and Corporate and Other's results for 2021 were retrospectively adjusted to reflect a segment change. See Note 13. (b) NEER's results reflect an allocation of interest expense from NEECH toNextEra Energy Resources' subsidiaries based on a deemed capital structure of 70% debt and differential membership interests sold byNextEra Energy Resources' subsidiaries. Adjusted Earnings NEE prepares its financial statements under GAAP. However, management uses earnings adjusted for certain items (adjusted earnings), a non-GAAP financial measure, internally for financial planning, analysis of performance, reporting of results to the Board of Directors and as an input in determining performance-based compensation under NEE's employee incentive compensation plans. NEE also uses adjusted earnings when communicating its financial results and earnings outlook to analysts and investors. NEE's management believes that adjusted earnings provide a more meaningful representation of NEE's fundamental earnings power. Although these amounts are properly reflected in the determination of net income (loss) under GAAP, management believes that the amount and/or nature of such items make period to period comparisons of operations difficult and potentially confusing. Adjusted earnings do not represent a substitute for net income (loss), as prepared under GAAP. The following table provides details of the after-tax adjustments to net income (loss) considered in computing NEE's adjusted earnings (loss) discussed above. Three Months Ended March 31, 2022 2021 (millions)
Net gains (losses) associated with non-qualifying hedge activity(a)
$ (1,131) $ 367 Differential membership interests-related - NEER$ (21) $ (23) NEP investment gains, net - NEER$ (51) $ (51)
Change in unrealized gains (losses) on NEER's nuclear decommissioning funds and OTTI, net - NEER
$ (96) $ 43 Impairment charge related to investment in Mountain Valley Pipeline - NEER(b)$ (607) $ - --------------- (a) For the three months endedMarch 31, 2022 and 2021,$1,352 million and$76 million of losses, respectively, are included in NEER's net income (loss); the balance is included in Corporate and Other. The change in non-qualifying hedge activity is primarily attributable to changes in forward power and natural gas prices, interest rates and foreign currency exchange rates, as well as the reversal of previously recognized unrealized mark-to-market gains or losses as the underlying transactions were realized. (b) See Note 3 - Nonrecurring Fair Value Measurements for a discussion of the impairment charge related to the investment in Mountain Valley Pipeline. 36 -------------------------------------------------------------------------------- NEE segregates into two categories unrealized mark-to-market gains and losses and timing impacts related to derivative transactions. The first category, referred to as non-qualifying hedges, represents certain energy derivative, interest rate derivative and foreign currency transactions entered into as economic hedges, which do not meet the requirements for hedge accounting or for which hedge accounting treatment is not elected or has been discontinued. Changes in the fair value of those transactions are marked to market and reported in the condensed consolidated statements of income (loss), resulting in earnings volatility because the economic offset to certain of the positions are generally not marked to market. As a consequence, NEE's net income (loss) reflects only the movement in one part of economically-linked transactions. For example, a gain (loss) in the non-qualifying hedge category for certain energy derivatives is offset by decreases (increases) in the fair value of related physical asset positions in the portfolio or contracts, which are not marked to market under GAAP. For this reason, NEE's management views results expressed excluding the impact of the non-qualifying hedges as a meaningful measure of current period performance. The second category, referred to as trading activities, which is included in adjusted earnings, represents the net unrealized effect of actively traded positions entered into to take advantage of expected market price movements and all other commodity hedging activities. At FPL, substantially all changes in the fair value of energy derivative transactions are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel clause. See Note 2. RESULTS OF OPERATIONS Summary Net income (loss) attributable to NEE decreased by$2,117 million for the three months endedMarch 31, 2022 reflecting lower results at NEER and Corporate and Other, partly offset by higher results at FPL.
FPL's increase in net income for the three months ended
NEER's results decreased for the three months endedMarch 31, 2022 primarily reflecting unfavorable non-qualifying hedge activity compared to 2021, an impairment charge on the Mountain Valley Pipeline investment and unfavorable changes in the fair value of equity securities in NEER's nuclear decommissioning funds.
Corporate and Other's results decreased for the three months ended
NEE's effective income tax rates for the three months endedMarch 31, 2022 and 2021 were approximately 34% and 14%, respectively. See Note 4 for a discussion of NEE's and FPL's effective income tax rates. NEE, including FPL, is monitoring theU.S. Department of Commerce's investigation into an antidumping and countervailing duties circumvention claim on solar cells and panels supplied fromMalaysia ,Vietnam ,Thailand andCambodia . While the investigation is expected to disrupt the solar panel supply chain in the near-term, NEE, including FPL, is taking steps intended to mitigate potential risks to their solar project development and construction activities, including working with their suppliers and/or customers to assess the potential impacts of the investigation. Additionally, certain suppliers could be blocked from importing solar panels to theU.S. under the Uyghur Forced Labor Prevention Act (UFLPA). UFLPA seeks to block the import of products made with forced labor in certain areas ofChina . An inter-agency task force was established to produce a report byJune 21, 2022 which, among other things, will include a list of entities that are believed to be using or benefiting from forced labor. NEE, including FPL, is monitoring whether UFLPA will affect any of its solar module suppliers. To date, there has been no material impact on NEE's or FPL's operations or financial performance as a result of these activities; however, the ultimate severity or duration of the expected solar panel supply chain disruption or its effects on NEE's and FPL's solar project development and construction activities is uncertain.
FPL: Results of Operations
Investments in plant in service and other property grew FPL's average retail rate base for the three months endedMarch 31, 2022 by approximately$4.1 billion , when compared to the same period in the prior year, reflecting, among other things, solar generation additions and ongoing transmission and distribution additions. 37 -------------------------------------------------------------------------------- The use of reserve amortization for the three months endedMarch 31, 2022 is permitted by aDecember 2021 FPSC final order approving a stipulation and settlement between FPL and several intervenors in FPL's base rate proceeding (2021 rate agreement) and, for the prior year period, aDecember 2016 FPSC final order approving a stipulation and settlement between FPL and several intervenors in a prior base rate proceeding (2016 rate agreement). In order to earn a targeted regulatory ROE, subject to limitations associated with the 2021 and 2016 rate agreements, reserve amortization is calculated using a trailing thirteen-month average of retail rate base and capital structure in conjunction with the trailing twelve months regulatory retail base net operating income, which primarily includes the retail base portion of base and other revenues, net of O&M, depreciation and amortization, interest and tax expenses. In general, the net impact of these income statement line items must be adjusted, in part, by reserve amortization to earn the targeted regulatory ROE. In certain periods, reserve amortization is reversed so as not to exceed the targeted regulatory ROE. The drivers of FPL's net income not reflected in the reserve amortization calculation typically include wholesale and transmission service revenues and expenses, cost recovery clause revenues and expenses, AFUDC - equity and revenue and costs not recoverable from retail customers. During the three months endedMarch 31, 2022 and 2021, FPL recorded total reserve amortization of approximately$238 million , including a one-time reserve amortization adjustment of$114 million discussed below, and reserve amortization of$316 million , respectively. During both 2022 and 2021, FPL earned an approximately 11.60% regulatory ROE on its retail rate base, based on a trailing thirteen-month average retail rate base as ofMarch 31, 2022 andMarch 31, 2021 . Operating Revenues During the three months endedMarch 31, 2022 , operating revenues increased$742 million . The increase for the three months endedMarch 31, 2022 primarily reflects higher fuel revenues of approximately$385 million , primarily related to higher fuel and energy prices. Retail base revenues increased$194 million during the three months endedMarch 31, 2022 as compared to the prior year period. The increase in retail base revenues reflects additional revenues of approximately$132 million related to new retail base rates under the 2021 rate agreement. Retail base revenues during the three months endedMarch 31, 2022 were also impacted by an increase of 1.0% in the average usage per retail customer, primarily related to favorable weather when compared to the prior year period, and an increase of 1.6% in the average number of customer accounts. The increase in operating revenues for the three months endedMarch 31, 2022 also reflects higher other revenues of approximately$163 million , primarily related to increases in storm protection plan and environmental cost recovery clause revenues. Fuel,Purchased Power and Interchange Expense Fuel, purchased power and interchange expense increased$428 million for the three months endedMarch 31, 2022 , primarily reflecting higher fuel and energy prices. Depreciation and Amortization Expense Depreciation and amortization expense increased$124 million during the three months endedMarch 31, 2022 primarily reflecting higher plant in service balances, as well as the impact of reserve amortization. During the three months endedMarch 31, 2022 and 2021, FPL recorded reserve amortization of approximately$124 million and$316 million , respectively. Reserve amortization, or reversal of such amortization, reflects adjustments to accrued asset removal costs provided under the 2021 and 2016 rate agreements in order to achieve the targeted regulatory ROE. Reserve amortization is recorded as either an increase or decrease to accrued asset removal costs which is reflected in noncurrent regulatory assets on the condensed consolidated balance sheets. FPL is limited to the amortization of$200 million of depreciation reserve surplus during the first year of the 2021 rate agreement. AtMarch 31, 2022 , approximately$76 million of reserve amortization remains relative to the$200 million cap for 2022 and approximately$1,326 million overall for the term of the 2021 rate agreement. In addition, during the three months endedMarch 31, 2022 , FPL recorded a one-time reserve amortization adjustment of$114 million as required under the 2021 rate agreement, 50% of which was used to reduce the capital recovery regulatory asset balance and the other 50% to increase the storm reserve regulatory liability. 38 --------------------------------------------------------------------------------
NEER: Results of Operations
NEER's net income (loss) less net loss attributable to noncontrolling interests decreased$1,990 million for the three months endedMarch 31, 2022 . The primary drivers, on an after-tax basis, of the changes are in the following table. Increase (Decrease) From Prior Year Period Three Months Ended March 31, 2022 (millions) Existing generation and storage assets(a) $ 106 Gas infrastructure(a) (40) Customer supply and proprietary power and gas trading(b) (38) NEET(b) 25 Other (21) Change in non-qualifying hedge activity(c) (1,276)
Change in unrealized gains/losses on equity securities held in nuclear decommissioning funds and OTTI, net(c)
(139)
Impairment charge related to investment in Mountain Valley Pipeline(c)(d)
(607)
Change in net income (loss) less net loss attributable to noncontrolling
interests $ (1,990)
---------------
(a) Reflects after-tax project contributions, including the net effect of
deferred income taxes and other benefits associated with PTCs and ITCs for wind,
solar, and storage projects, as applicable, but excludes allocation of interest
expense or corporate general and administrative expenses. Results from projects
and pipelines are included in new investments during the first twelve months of
operation or ownership. Project results, including repowered wind projects, are
included in existing generation and storage assets and pipeline results are
included in gas infrastructure beginning with the thirteenth month of operation
or ownership.
(b) Excludes allocation of interest expense and corporate general and
administrative expenses.
(c) See Overview - Adjusted Earnings for additional information.
(d) See Note 3 - Nonrecurring Fair Value Measurements for a discussion of the
impairment charge in 2022 related to the investment in Mountain Valley Pipeline.
Existing Generation and Storage Assets
Results from existing generation and storage assets for the three months ended
March 31, 2022 increased primarily due to the absence of the unfavorable results
driven by the operational and energy market impacts of the February 2021 weather
event.
Other Factors
Supplemental to the primary drivers of the changes in NEER's net income (loss)
less net loss attributable to noncontrolling interests discussed above, the
discussion below describes changes in certain line items set forth in NEE's
condensed consolidated statements of income (loss) as they relate to NEER.
Operating Revenues
Operating revenues for the three months ended March 31, 2022 decreased $1,581
million primarily due to:
•the impact of non-qualifying commodity hedges due primarily to changes in
energy prices (approximately $2,150 million of losses for the three months ended
March 31, 2022 compared to $571 million of losses for the comparable period in
2021), and
•net decreases in revenues of $190 million from the customer supply, proprietary
power and gas trading, and gas infrastructure businesses primarily due to the
absence of revenues related to the February 2021 weather event,
partly offset by,
•higher revenues from existing generation and storage assets of $140 million
primarily due to higher wind revenues as compared to the prior year period which
was impacted by the February 2021 weather event, and
•other increases in revenues of approximately $48 million primarily related to
NEET's acquisition of GridLiance.
Operating Expenses - net
Operating expenses - net for the three months ended March 31, 2022 decreased $4
million primarily due to a decrease of $51 million in O&M expenses primarily
related to lower bad debt expense associated with the February 2021 weather
event (see Note 11 - Credit Losses), partly offset by higher corporate operating
expenses. Additionally, fuel expense increased approximately $35 million and
depreciation expense increased $9 million .
Equity in Earnings (Losses) of Equity Method Investees
NEER recognized $453 million of equity in losses of equity method investees for
the three months ended March 31, 2022 compared to $440 million of equity in
earnings of equity method investees for the prior year period. The change for
the three months ended March 31, 2022 primarily reflects an impairment charge
related to the investment in Mountain Valley Pipeline of approximately $0.8
billion (see Note 3 - Nonrecurring Fair Value Measurements) and a decrease in
equity in earnings of NEP recorded in 2022 primarily due to less favorable
impacts related to changes in the fair value of interest rate derivative
instruments.
39
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Change in Unrealized Gains (Losses) on Equity Securities Held in NEER's Nuclear
Decommissioning Funds - net
For the three months ended March 31, 2022 , changes in the fair value of equity
securities in NEER's nuclear decommissioning funds related to unfavorable market
conditions in 2022 compared to favorable market conditions in 2021.
Tax Credits, Benefits and Expenses
PTCs from wind projects and ITCs from solar and certain wind projects are
included in NEER's earnings. PTCs are recognized as wind energy is generated and
sold based on a per kWh rate prescribed in applicable federal and state
statutes. A portion of the PTCs and ITCs have been allocated to investors in
connection with sales of differential membership interests. Also see Note 4 for
a discussion of other income tax impacts.
GridLiance Acquisition
On March 31, 2021 , a wholly owned subsidiary of NEET acquired GridLiance, which
owns and operates three FERC -regulated transmission utilities with high-voltage
transmission lines across six states, five in the Midwest and Nevada . See Note 5
- GridLiance.
Corporate and Other: Results of Operations
Corporate and Other at NEE is primarily comprised of the operating results of other business activities, as well as corporate interest income and expenses. Corporate and Other allocates a portion of NEECH's corporate interest expense toNextEra Energy Resources . Interest expense is allocated based on a deemed capital structure of 70% debt and differential membership interests sold byNextEra Energy Resources' subsidiaries. Corporate and Other's results decreased$225 million during the three months endedMarch 31, 2022 . The decrease for the three months endedMarch 31, 2022 primarily reflects less favorable after-tax impacts of approximately$222 million , as compared to the prior year period, related to non-qualifying hedge activity as a result of changes in the fair value of interest rate derivative instruments.
LIQUIDITY AND CAPITAL RESOURCES
NEE and its subsidiaries require funds to support and grow their businesses.
These funds are used for, among other things, working capital, capital
expenditures (see Note 12 - Commitments), investments in or acquisitions of
assets and businesses (see Note 5), payment of maturing debt and related
derivative obligations (see Note 2) and, from time to time, redemption or
repurchase of outstanding debt or equity securities. It is anticipated that
these requirements will be satisfied through a combination of cash flows from
operations, short- and long-term borrowings, the issuance of short- and
long-term debt and, from time to time, equity securities, proceeds from
differential membership investors and sales of assets to NEP or third parties,
consistent with NEE's and FPL's objective of maintaining, on a long-term basis,
a capital structure that will support a strong investment grade credit rating.
NEE, FPL and NEECH rely on access to credit and capital markets as significant
sources of liquidity for capital requirements and other operations that are not
satisfied by operating cash flows. The inability of NEE, FPL and NEECH to
maintain their current credit ratings could affect their ability to raise short-
and long-term capital, their cost of capital and the execution of their
respective financing strategies, and could require the posting of additional
collateral under certain agreements.
40
--------------------------------------------------------------------------------Cash Flows
NEE's sources and uses of cash for the three months endedMarch 31, 2022 and 2021 were as follows: Three Months Ended March 31, 2022 2021 (millions) Sources of cash: Cash flows from operating activities$ 1,962 $ 1,292 Issuances of long-term debt, including premiums and discounts 4,309 4,616 Payments from related parties under the CSCS agreement - net 78 74 Issuances of common stock - net 1 4 Net increase in commercial paper and other short-term debt 1,073 258 Other sources - net 349 238 Total sources of cash 7,772 6,482 Uses of cash: Capital expenditures, independent power and other investments and nuclear fuel purchases (4,893) (4,575) Retirements of long-term debt (493) (432) Dividends (836) (755) Other uses - net (128) (105) Total uses of cash
(6,350) (5,867) Effects of currency translation on cash, cash equivalents and restricted cash
- 4
Net increase in cash, cash equivalents and restricted cash $
1,422
NEE's primary capital requirements are for expanding and enhancing FPL's electric system and generation facilities to continue to provide reliable service to meet customer electricity demands and for funding NEER's investments in independent power and other projects. See Note 12 - Commitments for estimated capital expenditures for the remainder of 2022 through 2026.
The following table provides a summary of capital investments for the three
months ended
Three Months Ended March 31,
2022 2021
(millions)
FPL:
Generation:
New $ 290 $ 200
Existing 390 295
Transmission and distribution 1,095 1,065
Nuclear fuel 5 30
General and other 80 115
Other, primarily change in accrued property additions and the
exclusion of AFUDC - equity 312 (160)
Total 2,172 1,545
NEER:
Wind 1,046 1,572
Solar (includes solar plus battery storage projects) 642 659
Battery storage 204 64
Nuclear, including nuclear fuel 48 66
Natural gas pipelines 62 20
Other gas infrastructure 356 64Rate-regulated transmission (2021 includes the acquisition of GridLiance, see Note 5 - GridLiance)
108 560 Other 142 26 Total 2,608 3,031 Corporate and Other 113 (1) Total capital expenditures, independent power and other investments and nuclear fuel purchases$ 4,893 $ 4,575 41
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Liquidity
At
Maturity Date
FPL NEECH Total FPL NEECH
(millions)
Syndicated revolving credit facilities(a) $ 3,798 $ 5,257 $ 9,055 2022 - 2027 2022 - 2027
Issued letters of credit (3) (1,345) (1,348)
3,795 3,912 7,707
Bilateral revolving credit facilities(b) 780 3,125 3,905 2022 - 2024 2022 - 2023
Borrowings - - -
780 3,125 3,905
Letter of credit facilities(c) - 2,300 2,300 2022 - 2024
Issued letters of credit - (1,815) (1,815)
- 485 485
Subtotal 4,575 7,522 12,097
Cash and cash equivalents 52 1,423 1,475
Commercial paper and other short-term borrowings
outstanding (1,780) (1,375) (3,155)
Amounts due to related parties under the CSCS
agreement (see Note 6) - (135) (135)
Net available liquidity $ 2,847 $ 7,435 $ 10,282
---------------
(a) Provide for the funding of loans up to the amount of the credit facility
and the issuance of letters of credit up to $3,275 million ($650 million for FPL
and $2,625 million for NEECH). The entire amount of the credit facilities is
available for general corporate purposes and to provide additional liquidity in
the event of a loss to the companies' or their subsidiaries' operating
facilities (including, in the case of FPL, a transmission and distribution
property loss). FPL's syndicated revolving credit facilities are also available
to support the purchase of $1,375 million of pollution control, solid waste
disposal and industrial development revenue bonds in the event they are tendered
by individual bondholders and not remarketed prior to maturity, as well as the
repayment of approximately $882 million of floating rate notes in the event an
individual noteholder requires repayment at specified dates prior to maturity.
Approximately $3,130 million of FPL's and $3,844 million of NEECH's syndicated
revolving credit facilities expire in 2027.
(b) Approximately $150 million of NEECH's bilateral revolving credit facilities
is available for costs incurred in connection with the development, construction
and operations of wind and solar power generation facilities.
(c) Only available for the issuance of letters of credit.
Capital Support
Guarantees, Letters of Credit, Surety Bonds and Indemnifications (Guarantee Arrangements) Certain subsidiaries of NEE issue guarantees and obtain letters of credit and surety bonds, as well as provide indemnities, to facilitate commercial transactions with third parties and financings. Substantially all of the guarantee arrangements are on behalf of NEE's consolidated subsidiaries, as discussed in more detail below. See Note 6 regarding guarantees of obligations on behalf of NEP subsidiaries. NEE is not required to recognize liabilities associated with guarantee arrangements issued on behalf of its consolidated subsidiaries unless it becomes probable that they will be required to perform. AtMarch 31, 2022 , NEE believes that there is no material exposure related to these guarantee arrangements. NEE subsidiaries issue guarantees related to equity contribution agreements associated with the development, construction and financing of certain power generation facilities, engineering, procurement and construction agreements and equity contributions associated with a natural gas pipeline project under construction and a related natural gas transportation agreement. Commitments associated with these activities are included and/or disclosed in the contracts table in Note 12. In addition, atMarch 31, 2022 , NEE subsidiaries had approximately$5.2 billion in guarantees related to obligations under purchased power agreements, nuclear-related activities, payment obligations related to PTCs, as well as other types of contractual obligations (see Note 3 - Contingent Consideration and Note 12 - Commitments). In some instances, subsidiaries of NEE elect to issue guarantees instead of posting other forms of collateral required under certain financing arrangements, as well as for other project-level cash management activities. AtMarch 31, 2022 , these guarantees totaled approximately$561 million and support, among other things, cash management activities, including those related to debt service and operations and maintenance service agreements, as well as other specific project financing requirements. Subsidiaries of NEE also issue guarantees to support customer supply and proprietary power and gas trading activities, including the buying and selling of wholesale and retail energy commodities. AtMarch 31, 2022 , the estimated mark-to-market exposure (the total amount that these subsidiaries of NEE could be required to fund based on energy commodity market prices at 42 --------------------------------------------------------------------------------
AtMarch 31, 2022 , subsidiaries of NEE also had approximately$4.1 billion of standby letters of credit and approximately$918 million of surety bonds to support certain of the commercial activities discussed above. FPL's and NEECH's credit facilities are available to support the amount of the standby letters of credit. In addition, as part of contract negotiations in the normal course of business, certain subsidiaries of NEE have agreed and in the future may agree to make payments to compensate or indemnify other parties, including those associated with asset divestitures, for possible unfavorable financial consequences resulting from specified events. The specified events may include, but are not limited to, an adverse judgment in a lawsuit, or the imposition of additional taxes due to a change in tax law or interpretations of the tax law. NEE is unable to estimate the maximum potential amount of future payments by its subsidiaries under some of these contracts because events that would obligate them to make payments have not yet occurred or, if any such event has occurred, they have not been notified of its occurrence. NEECH, a 100% owned subsidiary of NEE, provides funding for, and holds ownership interests in, NEE's operating subsidiaries other than FPL. NEE has fully and unconditionally guaranteed certain payment obligations of NEECH, including most of its debt and all of its debentures registered pursuant to the Securities Act of 1933 and commercial paper issuances, as well as most of its payment guarantees and indemnifications, and NEECH has guaranteed certain debt and other obligations of subsidiaries within the NEER segment. Certain guarantee arrangements described above contain requirements for NEECH and FPL to maintain a specified credit rating. NEE fully and unconditionally guarantees NEECH debentures pursuant to a guarantee agreement, dated as ofJune 1, 1999 (1999 guarantee) and NEECH junior subordinated debentures pursuant to an indenture, dated as ofSeptember 1, 2006 (2006 guarantee). The 1999 guarantee is an unsecured obligation of NEE and ranks equally and ratably with all other unsecured and unsubordinated indebtedness of NEE. The 2006 guarantee is unsecured and subordinate and junior in right of payment to NEE senior indebtedness (as defined therein). No payment on those junior subordinated debentures may be made under the 2006 guarantee until all NEE senior indebtedness has been paid in full in certain circumstances. NEE's and NEECH's ability to meet their financial obligations are primarily dependent on their subsidiaries' net income, cash flows and their ability to pay upstream dividends or to repay funds to NEE and NEECH. The dividend-paying ability of some of the subsidiaries is limited by contractual restrictions which are contained in outstanding financing agreements.
Summarized financial information of NEE and NEECH is as follows:
Three Months Ended March 31, 2022 Year Ended
Issuer/Guarantor Issuer/Guarantor
Combined(a) NEECH Consolidated(b) NEE Consolidated(b) Combined(a) NEECH Consolidated(b) NEE Consolidated(b)
(millions)
Operating revenues $ (6) $ (778) $ 2,890 $ (1) $ 3,139 $ 17,069
Operating income (loss) $ (88) $ (1,942) $ (775) $ (352) $ (1,317) $ 2,913
Net income (loss) $ 166 $ (1,574) $ (693) $ (275) $ (395) $ 2,827
Net income (loss) attributable
to NEE/NEECH $ 166 $ (1,332) $ (451) $ (275) $ 351 $ 3,573
March 31, 2022 December 31, 2021
Issuer/Guarantor Issuer/Guarantor
Combined(a) NEECH Consolidated(b) NEE Consolidated(b) Combined(a) NEECH Consolidated(b) NEE Consolidated(b)
(millions)
Total current assets $ 850 $ 7,221 $ 10,988 $ 48 $ 5,662 $ 9,288
Total noncurrent assets $ 2,506 $ 58,828 $ 133,957 $ 2,308 $ 57,620 $ 131,624
Total current liabilities $ 6,550 $ 16,448 $ 22,423 $ 1,553 $ 11,560 $ 17,437
Total noncurrent liabilities $ 25,283 $ 38,750 $ 78,270 $ 27,956 $ 40,289 $ 77,806
Redeemable noncontrolling interests $ - $ 203 $ 203 $ - $ 245 $ 245
Noncontrolling interests $ - $ 8,162 $ 8,162 $ - $ 8,222 $ 8,222
------------(a) Excludes intercompany transactions, and investments in, and equity in earnings of,
subsidiaries.
(b) Information has been prepared on the same basis of accounting as NEE's condensed
consolidated financial statements.
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ENERGY MARKETING AND TRADING AND MARKET RISK SENSITIVITY
NEE and FPL are exposed to risks associated with adverse changes in commodity prices, interest rates and equity prices. Financial instruments and positions affecting the financial statements of NEE and FPL described below are held primarily for purposes other than trading. Market risk is measured as the potential loss in fair value resulting from hypothetical reasonably possible changes in commodity prices, interest rates or equity prices over the next year. Management has established risk management policies to monitor and manage such market risks, as well as credit risks.
Commodity Price Risk
NEE and FPL use derivative instruments (primarily swaps, options, futures and forwards) to manage the physical and financial risks inherent in the purchase and sale of fuel and electricity. In addition, NEE, through NEER, uses derivatives to optimize the value of its power generation and gas infrastructure assets and engages in power and fuel marketing and trading activities to take advantage of expected future favorable price movements. See Note 2.
The changes in the fair value of NEE's consolidated subsidiaries' energy
contract derivative instruments for the three months ended
Hedges on Owned Assets
FPL Cost
Non- Recovery
Trading Qualifying Clauses NEE Total
(millions)
Three months ended March 31, 2022
Fair value of contracts outstanding at December 31, 2021 $ 978 $ (1,392) $ 1 $ (413) Reclassification to realized at settlement of contracts (41)
224 2 185
Value of contracts acquired 1 2 - 3
Net option premium purchases (issuances) 75 8 - 83
Changes in fair value excluding reclassification to realized
(4) (2,386) (11) (2,401)
Fair value of contracts outstanding at
(3,544) (8) (2,543)
Net margin cash collateral paid (received) 425
Total mark-to-market energy contract net assets
(liabilities) at March 31, 2022 $ 1,009 $ (3,544) $ (8) $ (2,118)
NEE's total mark-to-market energy contract net assets (liabilities) at March 31,
2022 shown above are included on the condensed consolidated balance sheets as
follows:
March 31, 2022
(millions)
Current derivative assets $ 1,386
Noncurrent derivative assets 1,371
Current derivative liabilities
(2,824)
Noncurrent derivative liabilities
(2,051)
NEE's total mark-to-market energy contract net liabilities
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The sources of fair value estimates and maturity of energy contract derivative
instruments at
Maturity
2022 2023 2024 2025 2026 Thereafter Total
(millions)
Trading:
Quoted prices in active markets for
identical assets $ (155) $ (485)
875 1,039 497 402 288 254 3,355
Significant unobservable inputs (505) (380) (40) (5) 3 28 (899) Total 215 174 90 134 121 275 1,009 Owned Assets - Non-Qualifying: Quoted prices in active markets for identical assets (64) (62) (10) (6) (10) -
(152)
Significant other observable inputs (730) (842) (544) (377) (270) (466)
(3,229)
Significant unobservable inputs 16 1 4 11 11 (206) (163) Total (778) (903) (550) (372) (269) (672) (3,544) Owned Assets - FPL Cost Recovery Clauses: Quoted prices in active markets for identical assets - - - - - -
-
Significant other observable inputs 2 - - - - -
2
Significant unobservable inputs (7) (3) - - - - (10) Total (5) (3) - - - - (8) Total sources of fair value$ (568) $ (732) $ (460) $ (238) $ (148) $ (397) $ (2,543)
The changes in the fair value of NEE's consolidated subsidiaries' energy
contract derivative instruments for the three months ended
Hedges on Owned Assets
FPL Cost
Non- Recovery NEE
Trading Qualifying Clauses Total
(millions)
Three months ended March 31, 2021
Fair value of contracts outstanding at December 31, 2020 $ 706 $ 996 $ -
85 19 1 105
Value of contracts acquired 11 1 - 12
Net option premium purchases (issuances) 6 - - 6
Changes in fair value excluding reclassification to realized
(12) (478) (7) (497)
Fair value of contracts outstanding at March 31, 2021 796 538 (6) 1,328
Net margin cash collateral paid (received) (21)
Total mark-to-market energy contract net assets
(liabilities) at March 31, 2021 $ 796 $ 538
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. TheEMC 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: Non-Qualifying Hedges and Hedges in FPL Cost Trading(a) Recovery Clauses(b) Total FPL NEER NEE FPL NEER NEE FPL NEER NEE (millions)
December 31, 2021 $ -$ 17 $ 17 $ 1 $ 148 $ 148 $ 1 $ 149 $ 149 March 31, 2022 $ -$ 12 $ 12 $ 2 $ 267 $ 268 $ 2 $ 252 $ 256 Average for the three months ended March 31, 2022 $ -$ 11 $ 11 $ 1 $ 194 $ 195 $ 1 $ 187 $ 189 --------------- (a) The VaR figures for the trading portfolio include positions that are marked to market. Taking into consideration offsetting unmarked non-derivative positions, such as physical inventory, the trading VaR figures were approximately$5 million and$9 million atMarch 31, 2022 andDecember 31, 2021 , respectively. (b) Non-qualifying hedges are employed to reduce the market risk exposure to physical assets or contracts which are not marked to market. The VaR figures for the non-qualifying hedges and hedges in FPL cost recovery clauses category do not represent the economic exposure to commodity price movements. 45 --------------------------------------------------------------------------------
Interest Rate Risk
NEE's and FPL's financial results are exposed to risk resulting from changes in interest rates as a result of their respective outstanding and expected future issuances of debt, investments in special use funds and other investments. NEE and FPL manage their respective interest rate exposure by monitoring current interest rates, entering into interest rate contracts and using a combination of fixed rate and variable rate debt. Interest rate contracts are used to mitigate and adjust interest rate exposure when deemed appropriate based upon market conditions or when required by financing agreements.
The following are estimates of the fair value of NEE's and FPL's financial instruments that are exposed to interest rate risk:
March 31, 2022 December 31, 2021
Carrying Estimated Carrying Estimated
Amount Fair Value(a) Amount Fair Value(a)
(millions)
NEE:
Fixed income securities:
Special use funds $ 2,314 $ 2,314 $ 2,505 $ 2,505 Other investments, primarily debt securities
508 $ 311 $ 311
Long-term debt, including current portion $ 56,538 $ 57,304 $ 52,745 $ 57,290 Interest rate contracts - net unrealized losses
(144)
1,785 $ 1,934 $ 1,934
Long-term debt, including current portion $ 20,993 $ 22,061 $ 18,510 $ 21,379
---------------
(a)See Notes 2 and 3.
The special use funds of NEE and FPL consist of restricted funds set aside to
cover the cost of storm damage for FPL and for the decommissioning of NEE's and
FPL's nuclear power plants. A portion of these funds is invested in fixed income
debt securities primarily carried at estimated fair value. At FPL, changes in
fair value, including any credit losses, result in a corresponding adjustment to
the related regulatory asset or liability accounts based on current regulatory
treatment. The changes in fair value for NEE's non-rate regulated operations
result in a corresponding adjustment to OCI, except for credit losses and
unrealized losses on available for sale securities intended or required to be
sold prior to recovery of the amortized cost basis, which are reported in
current period earnings. Because the funds set aside by FPL for storm damage
could be needed at any time, the related investments are generally more liquid
and, therefore, are less sensitive to changes in interest rates. The nuclear
decommissioning funds, in contrast, are generally invested in longer-term
securities.
At March 31, 2022 , NEE had interest rate contracts with a notional amount of
approximately $11.2 billion to manage exposure to the variability of cash flows
associated with expected future and outstanding debt issuances at NEECH and
NEER. See Note 2.
Based upon a hypothetical 10% decrease in interest rates, the fair value of
NEE's net liabilities would increase by approximately
Equity Price Risk
NEE and FPL are exposed to risk resulting from changes in prices for equity securities. For example, NEE's nuclear decommissioning reserve funds include marketable equity securities carried at their market value of approximately$5,284 million and$5,511 million ($3,435 million and$3,552 million for FPL) atMarch 31, 2022 andDecember 31, 2021 , respectively. NEE's and FPL's investment strategy for equity securities in their nuclear decommissioning reserve funds emphasizes marketable securities which are broadly diversified. AtMarch 31, 2022 , a hypothetical 10% decrease in the prices quoted on stock exchanges would result in an approximately$488 million ($317 million for FPL) reduction in fair value. For FPL, a corresponding adjustment would be made to the related regulatory asset or liability accounts based on current regulatory treatment, and for NEE's non-rate regulated operations, a corresponding amount would be recorded in change in unrealized gains (losses) on equity securities held in NEER's nuclear decommissioning funds - net in NEE's condensed consolidated statements of income (loss).
Credit Risk
NEE and its subsidiaries, including FPL, are also exposed to credit risk through
their energy marketing and trading operations. Credit risk is the risk that a
financial loss will be incurred if a counterparty to a transaction does not
fulfill its financial obligation. NEE manages counterparty credit risk for its
subsidiaries with energy marketing and trading operations through established
policies, including counterparty credit limits, and in some cases credit
enhancements, such as cash prepayments, letters of credit, cash and other
collateral and guarantees.
46--------------------------------------------------------------------------------
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 theU.S. •Overall credit risk is managed through established credit policies and is overseen by theEMC . •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. AtMarch 31, 2022 , NEE's credit risk exposure associated with its energy marketing and trading counterparties, taking into account collateral and contractual netting rights, totaled$2.8 billion ($60 million for FPL), of which approximately 62% (100% for FPL) was with companies that have investment grade credit ratings. With regard to credit risk exposure to counterparties with below investment grade credit ratings, NEE has first lien security positions with respect to approximately 70% of such exposure. For the remaining unsecured positions with counterparties that have below investment grade credit ratings, no one counterparty makes up more than 4% of NEE's total exposure to below investment grade counterparties. See Notes 1, 2 and 11 - Credit Losses.
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