Summary of Significant Accounting and Reporting Policies

9 Months Ended

Sep. 30, 2022

Summary of Significant Accounting and Reporting Policies

Rate Regulation – FPL's 2021 rate agreement provides that in the event the average 30-year U.S. Treasury rate is 2.49% or greater over a consecutive six-month period, FPL is authorized to increase the regulatory ROE to 10.80% with a range of 9.80% to 11.80%. During August 2022, this provision was triggered and effective September 1, 2022, FPL's authorized regulatory ROE and ROE range were increased. The increase in FPL's authorized regulatory ROE does not impact current base rates.

FPL’s 2021 rate agreement also provides that in the event federal or state permanent corporate income tax changes become effective during the term of the rate agreement, FPL will prospectively adjust base rates after a review by the FPSC. As a result of the enactment of the IRA (see Note 4), FPL is now eligible for PTCs related to solar projects that entered service beginning in 2022, which results in a greater tax benefit, and consequently, greater customer savings. Thus, FPL filed a petition with the FPSC in September 2022 requesting approval for a $25 million refund to customers through a one-time reduction in the capacity cost recovery clause in the month of January 2023 and a decrease in annualized retail base revenues of approximately $70 million beginning January 1, 2023.

Storm Reserve Deficit – In late September 2022, Hurricane Ian, which made landfall on the west coast of Florida near Fort Myers and exited on the east coast of Florida near Melbourne, caused extensive damage particularly in the southwest portion of FPL’s service territory and resulted in approximately 2.1 million customers experiencing electrical outages. As of October 7, 2022, essentially all customers that were able to accept electrical service had their service restored. Damage to FPL property was primarily to the transmission and distribution systems. Although FPL has not finalized its storm restoration costs associated with Hurricane Ian, FPL's preliminary estimate of recoverable storm restoration costs is approximately $1.1 billion. Prior to Hurricane Ian, FPL's storm reserve had a balance of approximately $220 million. At September 30, 2022, the estimated recoverable Hurricane Ian storm restoration costs exceeded the balance of the storm reserve by approximately $900 million. This deficit has been recorded by FPL as a noncurrent regulatory asset on NEE’s and FPL’s September 30, 2022 condensed consolidated balance sheet. Pursuant to FPL's 2021 rate agreement, storm restoration costs, plus an additional approximately $220 million to replenish the storm reserve, are recoverable from customers through a surcharge on an interim basis beginning 60 days from the filing of a cost recovery petition, but capped at an amount that produces a surcharge of no more than $4 for every 1,000 kWh of usage on residential bills during the first 12 months of cost recovery. Any additional costs would be eligible for recovery in subsequent years. If storm restoration costs exceed $800 million in any given calendar year, FPL may request an increase to the $4 surcharge. FPL is currently evaluating the timing and amount of the surcharge. The final storm restoration costs are subject to a prudence review by the FPSC. The unpaid portion of the storm restoration costs at September 30, 2022, of approximately $1.3 billion, including estimated capital costs, is included in other current liabilities on NEE’s and FPL’s condensed consolidated balance sheet.

Restricted Cash – At September 30, 2022 and December 31, 2021, NEE had approximately $1,459 million ($33 million for FPL) and $677 million ($53 million for FPL), respectively, of restricted cash, which is included in current other assets on NEE's and FPL's condensed consolidated balance sheets. Restricted cash is primarily related to debt service payments and margin cash collateral requirements at NEER and bond proceeds held for construction at FPL. In addition, where offsetting positions exist, restricted cash related to margin cash collateral of $261 million is netted against derivative assets and $1,258 million is netted against derivative liabilities at September 30, 2022 and $121 million is netted against derivative assets and $172 million is netted against derivative liabilities at December 31, 2021. See Note 2.

Disposal of Businesses/Assets and Sale of Noncontrolling Ownership Interests – In September 2022, subsidiaries of NextEra Energy Resources completed the sale to a NEP subsidiary of a 67% controlling ownership interest in a battery storage facility in California with storage capacity of 230 MW, for cash proceeds of approximately $191 million, plus working capital and other adjustments of $3 million (subject to post-closing adjustments). A NextEra Energy Resources affiliate will continue to operate the facility included in the sale. In connection with the sale, a gain of approximately $87 million ($66 million after tax) was recorded in NEE's condensed consolidated statements of income for the three and nine months ended September 30, 2022 and is included in gains on disposal of businesses/assets – net.

In December 2021, subsidiaries of NextEra Energy Resources sold their 100% ownership interest, comprised of a 50% controlling ownership interest to a NEP subsidiary and a 50% noncontrolling ownership interest to a third party, in a portfolio of seven wind generation facilities and six solar generation facilities representing a total generating capacity of 2,520 MW and 115 MW of battery storage capacity, three of which facilities were under construction. In connection with the three facilities that were under construction, approximately $668 million of cash received, which was subject to post-closing adjustments, was recorded as contract liabilities, which was included in current other liabilities on NEE’s condensed consolidated balance sheet at December 31, 2021. The three facilities achieved commercial operations during the first quarter of 2022 and approximately $551 million of contract liabilities were reversed and the sale of those facilities was recognized for accounting purposes. During the three months ended September 30, 2022, the IRA was enacted establishing a solar PTC (see Note 4) which substantially resolved the outstanding contingencies. Approximately $88 million of contract liabilities were reversed and a gain was recorded in NEE's condensed consolidated statements of income for the three and nine months ended September 30, 2022 which is included in gains on disposal of businesses/assets – net. The remaining contingencies are expected to be resolved in the fourth quarter of 2022. In addition, NextEra Energy Resources is responsible to pay for all construction costs related to the portfolio. At September 30, 2022 and December 31, 2021, approximately $142 million and $970 million, respectively, is included in accounts payable on NEE's condensed consolidated balance sheets and represents amounts owed by NextEra Energy Resources to NEP to reimburse NEP for construction costs.

Credit Losses – NEE's credit department monitors current and forward credit exposure to counterparties and their affiliates. Prospective and existing customers are reviewed for creditworthiness based on established standards and credit quality indicators. Credit quality indicators and standards that are closely monitored include credit ratings, certain financial ratios and delinquency trends which are based off the latest available information. Customers not meeting minimum standards provide various credit enhancements or secured payment terms, such as letters of credit, the posting of margin cash collateral or use of master netting arrangements.

For the nine months ended September 30, 2022 and 2021, NEE recorded approximately $85 million and $143 million of bad debt expense, including credit losses, respectively, which are included in O&M expenses in NEE’s condensed consolidated statements of income. The amounts recorded in 2021 primarily relate to credit losses at NEER driven by the operational and energy market impacts of the February 2021 weather event. The estimate for credit losses related to the impacts of the February 2021 weather event was developed based on NEE’s assessment of the ultimate collectability of these receivables under

potential workout scenarios. At December 31, 2021, approximately $127 million of allowances were included in noncurrent other assets on NEE's condensed consolidated balance sheets related to the February 2021 weather event. During the three months ended June 30, 2022, the net receivable was settled.

Property Plant and Equipment – Property, plant and equipment consists of the following:


	NEE				FPL
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
	(millions)
Electric plant in service and other property	$	121,700	$	112,500	$	72,811	$	67,771
Nuclear fuel	1,569		1,606		1,118		1,170
Construction work in progress	15,961		14,141		6,055		6,326
Property, plant and equipment, gross	139,230		128,247		79,984		75,267
Accumulated depreciation and amortization	(30,783)		(28,899)		(17,772)		(17,040)
Property, plant and equipment – net	$	108,447	$	99,348	$	62,212	$	58,227

During the three months ended September 30, 2022 and 2021, FPL recorded AFUDC of approximately $25 million and $46 million, respectively, including AFUDC – equity of approximately $19 million and $35 million, respectively. During the nine months ended September 30, 2022 and 2021, FPL recorded AFUDC of approximately $106 million and $124 million, respectively, including AFUDC – equity of approximately $82 million and $93 million, respectively. During the three months ended September 30, 2022 and 2021, NEER capitalized interest on construction projects of approximately $46 million and $42 million, respectively. During the nine months ended September 30, 2022 and 2021, NEER capitalized interest on construction projects of approximately $119 million and $104 million, respectively.