Fair Value Measurements

The fair value of assets and liabilities are determined using either unadjusted quoted prices in active markets (Level 1) or pricing inputs that are observable (Level 2) whenever that information is available and using unobservable inputs (Level 3) to estimate fair value only when relevant observable inputs are not available. NEE and FPL use several different valuation techniques to measure the fair value of assets and liabilities, relying primarily on the market approach of using prices and other market information for identical and/or comparable assets and liabilities for those assets and liabilities that are measured at fair value on a recurring basis. NEE's and FPL's assessment of the significance of any particular input to the fair value measurement requires judgment and may affect placement within the fair value hierarchy levels. Non-performance risk, including the consideration of a credit valuation adjustment, is also considered in the determination of fair value for all assets and liabilities measured at fair value.

Cash Equivalents and Restricted Cash - NEE and FPL hold investments in money market funds. The fair value of these funds is estimated using a market approach based on current observable market prices.

Special Use Funds and Other Investments - NEE and FPL hold primarily debt and equity securities directly, as well as indirectly through commingled funds. Substantially all directly held equity securities are valued at their quoted market prices. For directly held debt securities, multiple prices and price types are obtained from pricing vendors whenever possible, which enables cross-provider validations. A primary price source is identified based on asset type, class or issue of each security. Commingled funds, which are similar to mutual funds, are maintained by banks or investment companies and hold certain investments in accordance with a stated set of objectives. The fair value of commingled funds is primarily derived from the quoted prices in active markets of the underlying securities. Because the fund shares are offered to a limited group of investors, they are not considered to be traded in an active market.

Derivative Instruments - NEE and FPL measure the fair value of commodity contracts using a combination of market and income approaches utilizing prices observed on commodities exchanges and in the OTC markets, or through the use of industry-standard valuation techniques, such as option modeling or discounted cash flows techniques, incorporating both observable and unobservable valuation inputs. The resulting measurements are the best estimate of fair value as represented by the transfer of the asset or liability through an orderly transaction in the marketplace at the measurement date.

Most exchange-traded derivative assets and liabilities are valued directly using unadjusted quoted prices. For exchange-traded derivative assets and liabilities where the principal market is deemed to be inactive based on average daily volumes and open interest, the measurement is established using settlement prices from the exchanges, and therefore considered to be valued using other observable inputs.

NEE, through its subsidiaries, including FPL, also enters into OTC commodity contract derivatives. The majority of these contracts are transacted at liquid trading points, and the prices for these contracts are verified using quoted prices in active markets from exchanges, brokers or pricing services for similar contracts.

NEE, through NEER, also enters into full requirements contracts, which, in most cases, meet the definition of derivatives and are measured at fair value. These contracts typically have one or more inputs that are not observable and are significant to the valuation of the contract. In addition, certain exchange and non-exchange traded derivative options at NEE have one or more significant inputs that are not observable, and are valued using industry-standard option models.

In all cases where NEE and FPL use significant unobservable inputs for the valuation of a commodity contract, consideration is given to the assumptions that market participants would use in valuing the asset or liability. The primary input to the valuation models for commodity contracts is the forward commodity curve for the respective instruments. Other inputs include, but are not limited to, assumptions about market liquidity, volatility, correlation and contract duration as more fully described below in Significant Unobservable Inputs Used in Recurring Fair Value Measurements. In instances where the reference markets are deemed to be inactive or do not have transactions for a similar contract, the derivative assets and liabilities may be valued using significant other observable inputs and potentially significant unobservable inputs. In such instances, the valuation for these contracts is established using techniques including extrapolation from or interpolation between actively traded contracts, or estimated basis adjustments from liquid trading points. NEE and FPL regularly evaluate and validate the inputs used to determine fair value by a number of methods, consisting of various market price verification procedures, including the use of pricing services and multiple broker quotes to support the market price of the various commodities. In all cases where there are assumptions and models used to generate inputs for valuing derivative assets and liabilities, the review and verification of the assumptions, models and changes to the models are undertaken by individuals that are independent of those responsible for estimating fair value.

NEE uses interest rate contracts and foreign currency contracts to mitigate and adjust interest rate and foreign currency exchange exposure related primarily to certain outstanding and expected future debt issuances and borrowings when deemed appropriate based on market conditions or when required by financing agreements. NEE estimates the fair value of these derivatives using an income approach based on a discounted cash flows valuation technique utilizing the net amount of estimated future cash inflows and outflows related to the agreements.

Recurring Fair Value Measurements - NEE's and FPL's financial assets and liabilities and other fair value measurements made on a recurring basis by fair value hierarchy level are as follows:



	September 30, 2017
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash:^(b)
NEE - equity securities	$	999	$	—		$	—				$	999
FPL - equity securities	$	112	$	—		$	—				$	112
Special use funds:^(c)
NEE:
Equity securities	$	1,590	$	1,695	^(d)	$	—				$	3,285
U.S. Government and municipal bonds	$	404	$	138		$	—				$	542
Corporate debt securities	$	1	$	772		$	—				$	773
Mortgage-backed securities	$	—	$	452		$	—				$	452
Other debt securities	$	—	$	126		$	—				$	126
FPL:
Equity securities	$	442	$	1,545	^(d)	$	—				$	1,987
U.S. Government and municipal bonds	$	301	$	115		$	—				$	416
Corporate debt securities	$	—	$	542		$	—				$	542
Mortgage-backed securities	$	—	$	343		$	—				$	343
Other debt securities	$	—	$	114		$	—				$	114
Other investments:
NEE:
Equity securities	$	25	$	10		$	—				$	35
Debt securities	$	32	$	109		$	—				$	141
Derivatives:
NEE:
Commodity contracts	$	1,168	$	1,503		$	1,410	$	(2,196	)	$	1,885	^(e)
Interest rate contracts	$	—	$	76		$	—	$	16		$	92	^(e)
Foreign currency contracts	$	—	$	—		$	—	$	11		$	11	^(e)
FPL - commodity contracts	$	—	$	10		$	1	$	(4	)	$	7	^(e)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,144	$	900		$	502	$	(2,143	)	$	403	^(e)
Interest rate contracts	$	—	$	171		$	128	$	16		$	315	^(e)
Foreign currency contracts	$	—	$	42		$	—	$	11		$	53	^(e)
FPL - commodity contracts	$	—	$	5		$	2	$	(4	)	$	3	^(e)

———————————————

(a)

Includes the effect of the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral payments and receipts. NEE and FPL also have contract settlement receivable and payable balances that are subject to the master netting arrangements but are not offset within the condensed consolidated balance sheets and are recorded in customer receivables - net and accounts payable, respectively.


(b)	Includes restricted cash of approximately $137 million ($99 million for FPL) in other current assets on the condensed consolidated balance sheets.


(c)	Excludes investments accounted for under the equity method and loans not measured at fair value on a recurring basis. See Fair Value of Financial Instruments Recorded at Other than Fair Value below.


(d)	Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.


(e)	See Note 2 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's condensed consolidated balance sheets.



	December 31, 2016
	Level 1		Level 2			Level 3		Netting^(a)			Total
	(millions)
Assets:
Cash equivalents and restricted cash:^(b)
NEE - equity securities	$	982	$	—		$	—				$	982
FPL - equity securities	$	120	$	—		$	—				$	120
Special use funds:^(c)
NEE:
Equity securities	$	1,410	$	1,503	^(d)	$	—				$	2,913
U.S. Government and municipal bonds	$	296	$	170		$	—				$	466
Corporate debt securities	$	1	$	763		$	—				$	764
Mortgage-backed securities	$	—	$	498		$	—				$	498
Other debt securities	$	—	$	81		$	—				$	81
FPL:
Equity securities	$	373	$	1,372	^(d)	$	—				$	1,745
U.S. Government and municipal bonds	$	221	$	141		$	—				$	362
Corporate debt securities	$	—	$	547		$	—				$	547
Mortgage-backed securities	$	—	$	384		$	—				$	384
Other debt securities	$	—	$	70		$	—				$	70
Other investments:
NEE:
Equity securities	$	26	$	9		$	—				$	35
Debt securities	$	8	$	153		$	—				$	161
Derivatives:
NEE:
Commodity contracts	$	1,563	$	1,827		$	1,200	$	(2,652	)	$	1,938	^(e)
Interest rate contracts	$	—	$	285		$	3	$	8		$	296	^(e)
Foreign currency contracts	$	—	$	1		$	—	$	—		$	1	^(e)
FPL - commodity contracts	$	—	$	208		$	4	$	(3	)	$	209	^(e)
Liabilities:
Derivatives:
NEE:
Commodity contracts	$	1,476	$	980		$	512	$	(2,485	)	$	483	^(e)
Interest rate contracts	$	—	$	171		$	113	$	8		$	292	^(e)
Foreign currency contracts	$	—	$	106		$	—	$	—		$	106	^(e)
FPL - commodity contracts	$	—	$	1		$	3	$	(3	)	$	1	^(e)

———————————————

(a)


(b)	Includes restricted cash of approximately $164 million ($120 million for FPL) in other current assets on the condensed consolidated balance sheets.


(c)	Excludes investments accounted for under the equity method and loans not measured at fair value on a recurring basis. See Fair Value of Financial Instruments Recorded at Other than Fair Value below.


(d)	Primarily invested in commingled funds whose underlying securities would be Level 1 if those securities were held directly by NEE or FPL.


(e)	See Note 2 - Fair Value of Derivative Instruments for a reconciliation of net derivatives to NEE's and FPL's condensed consolidated balance sheets.

Significant Unobservable Inputs Used in Recurring Fair Value Measurements - The valuation of certain commodity contracts requires the use of significant unobservable inputs. All forward price, implied volatility, implied correlation and interest rate inputs used in the valuation of such contracts are directly based on third-party market data, such as broker quotes and exchange settlements, when that data is available. If third-party market data is not available, then industry standard methodologies are used to develop inputs that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Observable inputs, including some forward prices, implied volatilities and interest rates used for determining fair value are updated daily to reflect the best available market information. Unobservable inputs which are related to observable inputs, such as illiquid portions of forward price or volatility curves, are updated daily as well, using industry standard techniques such as interpolation and extrapolation, combining observable forward inputs supplemented by historical market and other relevant data. Other unobservable inputs, such as implied correlations, customer migration rates from full requirements contracts and some implied volatility curves, are modeled using proprietary models based on historical data and industry standard techniques.

All price, volatility, correlation and customer migration inputs used in valuation are subject to validation by the Trading Risk Management group. The Trading Risk Management group performs a risk management function responsible for assessing credit, market and operational risk impact, reviewing valuation methodology and modeling, confirming transactions, monitoring approval processes and developing and monitoring trading limits. The Trading Risk Management group is separate from the transacting group. For markets where independent third-party data is readily available, validation is conducted daily by directly reviewing this market data against inputs utilized by the transacting group, and indirectly by reviewing daily risk reports. For markets where independent third-party data is not readily available, additional analytical reviews are performed on at least a quarterly basis. These analytical reviews are designed to ensure that all price and volatility curves used for fair valuing transactions are adequately validated each quarter, and are reviewed and approved by the Trading Risk Management group. In addition, other valuation assumptions such as implied correlations and customer migration rates are reviewed and approved by the Trading Risk Management group on a periodic basis. Newly created models used in the valuation process are also subject to testing and approval by the Trading Risk Management group prior to use and established models are reviewed annually, or more often as needed, by the Trading Risk Management group.

On a monthly basis, the Exposure Management Committee (EMC), which is comprised of certain members of senior management, meets with representatives from the Trading Risk Management group and the transacting group to discuss NEE's and FPL's energy risk profile and operations, to review risk reports and to discuss fair value issues as necessary. The EMC develops guidelines required for an appropriate risk management control infrastructure, which includes implementation and monitoring of compliance with Trading Risk Management policy. The EMC executes its risk management responsibilities through direct oversight and delegation of its responsibilities to the Trading Risk Management group, as well as to other corporate and business unit personnel.

The significant unobservable inputs used in the valuation of NEE's commodity contracts categorized as Level 3 of the fair value hierarchy at September 30, 2017 are as follows:



	Fair Value at				Valuation	Significant
Transaction Type	September 30, 2017				Technique(s)	Unobservable Inputs	Range
	Assets		Liabilities
	(millions)
Forward contracts - power	$	860	$	263	Discounted cash flow	Forward price (per MWh)	$—	—	$87
Forward contracts - gas	28		14		Discounted cash flow	Forward price (per MMBtu)	$1	—	$6
Options - power	48		19		Option models	Implied correlations	1%	—	100%
						Implied volatilities	8%	—	227%
Options - primarily gas	149		195		Option models	Implied correlations	1%	—	100%
						Implied volatilities	1%	—	104%
Full requirements and unit contingent contracts	325		11		Discounted cash flow	Forward price (per MWh)	$(19)	—	$206
						Customer migration rate^(a)	—%	—	20%
Total	$	1,410	$	502

———————————————


(a)	Applies only to full requirements contracts.

The sensitivity of NEE's fair value measurements to increases (decreases) in the significant unobservable inputs is as follows:



Significant Unobservable Input	Position	Impact on Fair Value Measurement
Forward price	Purchase power/gas	Increase (decrease)
	Sell power/gas	Decrease (increase)
Implied correlations	Purchase option	Decrease (increase)
	Sell option	Increase (decrease)
Implied volatilities	Purchase option	Increase (decrease)
	Sell option	Decrease (increase)
Customer migration rate	Sell power^(a)	Decrease (increase)

———————————————

(a) Assumes the contract is in a gain position.

In addition, the fair value measurement of interest rate contract net liabilities related to the solar projects in Spain of approximately $128 million at September 30, 2017 includes a significant credit valuation adjustment. The credit valuation adjustment, considered an unobservable input, reflects management's assessment of non-performance risk of the subsidiaries related to the solar projects in Spain that are party to the contracts.

The reconciliation of changes in the fair value of derivatives that are based on significant unobservable inputs is as follows:



	Three Months Ended September 30,
	2017						2016
	NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at June 30	$	724		$	(2	)	$	532		$	(1	)
Realized and unrealized gains (losses):
Included in earnings^(a)	158			—			153			—
Included in other comprehensive income (loss)^(b)	(5		)	—			—			—
Purchases	38			—			28			—
Settlements	(77		)	1			(72		)	1
Issuances	(59		)	—			(16		)	—
Transfers in^(c)	—			—			1			—
Transfers out^(c)	1			—			36			—
Fair value of net derivatives based on significant unobservable inputs at September 30	$	780		$	(1	)	$	662		$	—
The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to derivatives still held at the reporting date^(d)	$	213		$	—		$	150		$	—

———————————————


(a)	For the three months ended September 30, 2017 and 2016, realized and unrealized gains of approximately $164 million and $198 million, respectively, are reflected in the condensed consolidated statements of income in operating revenues and the balance is primarily reflected in interest expense.


(b)	Reflected in net unrealized gains on foreign currency translation on the condensed consolidated statements of comprehensive income.


(c)	Transfers into Level 3 were a result of decreased observability of market data and transfers from Level 3 to Level 2 were a result of increased observability of market data. NEE's and FPL's policy is to recognize all transfers at the beginning of the reporting period.


(d)	For the three months ended September 30, 2017 and 2016, unrealized gains of approximately $219 million and $194 million, respectively, are reflected in the condensed consolidated statements of income in operating revenues and the balance is reflected in interest expense.



	Nine Months Ended September 30,
	2017						2016
	NEE			FPL			NEE			FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior period	$	578		$	1		$	538		$	—
Realized and unrealized gains (losses):
Included in earnings^(a)	518			—			373			—
Included in other comprehensive income^(b)	(16		)	—			(3		)	—
Included in regulatory assets and liabilities	(2		)	(2		)	—			—
Purchases	83			—			203			—
Settlements	(234		)	—			(300		)	—
Issuances	(162		)	—			(159		)	—
Transfers in^(c)	14			—			4			—
Transfers out^(c)	1			—			6			—
Fair value of net derivatives based on significant unobservable inputs at September 30	$	780		$	(1	)	$	662		$	—
The amount of gains (losses) for the period included in earnings attributable to the change in unrealized gains (losses) relating to derivatives still held at the reporting date^(d)	$	461		$	—		$	231		$	—

———————————————


(a)	For the nine months ended September 30, 2017 and 2016, realized and unrealized gains of approximately $519 million and $443 million, respectively, are reflected in the condensed consolidated statements of income in operating revenues and the balance is primarily reflected in interest expense.


(b)	Reflected in net unrealized gains on foreign currency translation on the condensed consolidated statements of comprehensive income.


(c)	Transfers into Level 3 were a result of decreased observability of market data and transfers from Level 3 to Level 2 were a result of increased observability of market data. NEE's and FPL's policy is to recognize all transfers at the beginning of the reporting period.


(d)	For the nine months ended September 30, 2017 and 2016, unrealized gains of approximately $462 million and $302 million, respectively, are reflected in the condensed consolidated statements of income in operating revenues and the balance is reflected in interest expense.

Contingent Consideration - NEE recorded a liability related to a contingent holdback as part of the 2015 acquisition of a portfolio of seven long-term contracted natural gas pipeline assets located in Texas (Texas pipelines). The contingent holdback was payable if the Texas pipelines entered into one or more written contracts by December 31, 2016 related to certain financial performance and capital expenditure thresholds. The significant inputs and assumptions used in the fair value measurement included the estimated probability of executing contracts related to financial performance and capital expenditure thresholds as well as the appropriate discount rate. During the three and nine months ended September 30, 2016, NEE recorded approximately $101 million and $118 million, respectively, in fair value adjustments to decrease the contingent consideration based on updated estimates associated with management's probability assessment as of September 30, 2016. The fair value adjustments are included in revaluation of contingent consideration in NEE's condensed consolidated statements of income.

Fair Value of Financial Instruments Recorded at Other than Fair Value - The carrying amounts of commercial paper and other short-term debt approximate their fair values. The carrying amounts and estimated fair values of other financial instruments recorded at other than fair value are as follows:



	September 30, 2017					December 31, 2016
	Carrying Amount		Estimated Fair Value			Carrying Amount			Estimated Fair Value
	(millions)
NEE:
Special use funds^(a)	$	716	$	716		$	712		$	712
Other investments - primarily notes receivable^(b)	$	512	$	695		$	526		$	668
Long-term debt, including current maturities	$	32,625	$	34,846	^(c)	$	30,418	^(d)	$	31,623	^(c)(d)
FPL:
Special use funds^(a)	$	561	$	561		$	557		$	557
Long-term debt, including current maturities	$	10,518	$	11,941	^(c)	$	10,072		$	11,211	^(c)

———————————————


(a)	Primarily represents investments accounted for under the equity method and loans not measured at fair value on a recurring basis.

(b)

Primarily a note receivable which bears interest at a fixed rate and matures in 2029. At September 30, 2017, the note receivable is classified as held for sale and is under contract, along with debt secured by this note receivable (see Note 6 - NEER). Fair values are estimated using an income approach utilizing a discounted cash flow valuation technique based on certain observable yield curves and indices considering the credit profile of the borrower (Level 3).

(c)

As of September 30, 2017 and December 31, 2016, for NEE, approximately $33,106 million and $29,804 million, respectively, is estimated using a market approach based on quoted market prices for the same or similar issues (Level 2); the balance is estimated using an income approach utilizing a discounted cash flow valuation technique, considering the current credit profile of the debtor (Level 3). For FPL, primarily estimated using quoted market prices for the same or similar issues (Level 2).


(d)	Excludes debt totaling $373 million reflected in liabilities associated with assets held for sale on NEE's condensed consolidated balance sheet for which the carrying amount approximates fair value. See Note 9 - Assets and Liabilities Associated with Assets Held for Sale.

Special Use Funds - The special use funds noted above and those carried at fair value (see Recurring Fair Value Measurements above) consist of NEE's nuclear decommissioning fund assets of $5,894 million and $5,434 million at September 30, 2017 and December 31, 2016, respectively ($3,963 million and $3,665 million, respectively, for FPL). The investments held in the special use funds consist of equity and debt securities which are primarily classified as available for sale and carried at estimated fair value. The amortized cost of debt and equity securities is approximately $1,863 million and $1,604 million, respectively, at September 30, 2017 and $1,820 million and $1,543 million, respectively, at December 31, 2016 ($1,392 million and $808 million, respectively, at September 30, 2017 and $1,373 million and $764 million, respectively, at December 31, 2016 for FPL). For FPL's special use funds, consistent with regulatory treatment, changes in fair value, including any other than temporary impairment losses, result in a corresponding adjustment to the related regulatory asset or liability accounts. For NEE's non-rate regulated operations, changes in fair value result in a corresponding adjustment to OCI, except for unrealized losses associated with marketable securities considered to be other than temporary, including any credit losses, which are recognized as other than temporary impairment losses on securities held in nuclear decommissioning funds and included in other - net in NEE's condensed consolidated statements of income. Debt securities included in the nuclear decommissioning funds have a weighted-average maturity at September 30, 2017 of approximately eight years at both NEE and FPL. The cost of securities sold is determined using the specific identification method.

Realized gains and losses and proceeds from the sale or maturity of available for sale securities are as follows:



	NEE				FPL				NEE				FPL
	Three Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016		2017		2016		2017		2016
	(millions)
Realized gains	$	29	$	28	$	9	$	15	$	106	$	83	$	35	$	42
Realized losses	$	15	$	15	$	8	$	8	$	58	$	53	$	34	$	30
Proceeds from sale or maturity of securities	$	518	$	902	$	329	$	661	$	1,772	$	2,330	$	1,166	$	1,741

The unrealized gains on available for sale securities are as follows:



	NEE				FPL
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
	(millions)
Equity securities	$	1,690	$	1,396	$	1,188	$	1,007
Debt securities	$	40	$	22	$	31	$	17

The unrealized losses on available for sale debt securities and the fair value of available for sale debt securities in an unrealized loss position are as follows:



	NEE				FPL
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016
	(millions)
Unrealized losses^(a)	$	11	$	34	$	9	$	28
Fair value	$	737	$	959	$	546	$	722

———————————————


(a)	Unrealized losses on available for sale debt securities in an unrealized loss position for greater than twelve months at September 30, 2017 and December 31, 2016 were not material to NEE or FPL.

Regulations issued by the FERC and the NRC provide general risk management guidelines to protect nuclear decommissioning funds and to allow such funds to earn a reasonable return. The FERC regulations prohibit, among other investments, investments in any securities of NEE or its subsidiaries, affiliates or associates, excluding investments tied to market indices or mutual funds. Similar restrictions applicable to the decommissioning funds for NEER's nuclear plants are included in the NRC operating licenses for those facilities or in NRC regulations applicable to NRC licensees not in cost-of-service environments. With respect to the decommissioning fund for Seabrook, decommissioning fund contributions and withdrawals are also regulated by the New Hampshire Nuclear Decommissioning Financing Committee pursuant to New Hampshire law.

The nuclear decommissioning reserve funds are managed by investment managers who must comply with the guidelines of NEE and FPL and the rules of the applicable regulatory authorities. The funds' assets are invested giving consideration to taxes, liquidity, risk, diversification and other prudent investment objectives.