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, as well as interest rate and foreign currency exchange rate risk associated primarily with outstanding and expected future debt issuances and borrowings, and to optimize the value of NEER's power generation and gas infrastructure assets. NEE and FPL do not utilize hedge accounting for their cash flow and fair value hedges.

With respect to commodities related to NEE's competitive energy business, NEER employs risk management procedures to conduct its activities related to optimizing the value of its power generation and gas infrastructure assets, providing full energy and capacity requirements services primarily to distribution utilities, and engaging in power and fuel marketing and trading activities to take advantage of expected future favorable price movements and changes in the expected volatility of prices in the energy markets. These risk management activities involve the use of derivative instruments executed within prescribed limits to manage the risk associated with fluctuating commodity prices. Transactions in derivative instruments are executed on recognized exchanges or via the OTC markets, depending on the most favorable credit terms and market execution factors. For NEER's power generation and gas infrastructure assets, derivative instruments are used to hedge all or a portion of the expected output of these assets. These hedges are designed to reduce the effect of adverse changes in the wholesale forward commodity markets associated with NEER's power generation and gas infrastructure assets. With regard to full energy and capacity requirements services, NEER is required to vary the quantity of energy and related services based on the load demands of the customers served. For this type of transaction, derivative instruments are used to hedge the anticipated electricity quantities required to serve these customers and reduce the effect of unfavorable changes in the forward energy markets. Additionally, NEER takes positions in energy markets based on differences between actual forward market levels and management's view of fundamental market conditions, including supply/demand imbalances, changes in traditional flows of energy, changes in short- and long-term weather patterns and anticipated regulatory and legislative outcomes. NEER uses derivative instruments to realize value from these market dislocations, subject to strict risk management limits around market, operational and credit exposure.

Derivative instruments, when required to be marked to market, are recorded on NEE's and FPL's condensed consolidated balance sheets as either an asset or liability measured at fair value. At FPL, substantially all changes in the derivatives' fair value are deferred as a regulatory asset or liability until the contracts are settled, and, upon settlement, any gains or losses are passed through the fuel clause. For NEE's non-rate regulated operations, predominantly NEER, essentially all changes in the derivatives' fair value for power purchases and sales, fuel sales and trading activities are recognized on a net basis in operating revenues and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. Settlement gains and losses are included within the line items in the condensed consolidated statements of income to which they relate. Transactions for which physical delivery is deemed not to have occurred are presented on a net basis in the condensed consolidated statements of income. For commodity derivatives, NEE believes that, where offsetting positions exist at the same location for the same time, the transactions are considered to have been netted and therefore physical delivery has been deemed not to have occurred for financial reporting purposes. Settlements related to derivative instruments are recognized in net cash provided by operating activities in NEE's and FPL's condensed consolidated statements of cash flows.

For interest rate and foreign currency derivative instruments, all changes in the derivatives' fair value, as well as the transaction gain or loss on foreign denominated debt, are recognized in interest expense and the equity method investees' related activity is recognized in equity in earnings of equity method investees in NEE's condensed consolidated statements of income. At September 30, 2022, NEE's AOCI included amounts related to discontinued interest rate cash flow hedges with expiration dates through March 2035 and foreign currency cash flow hedges with expiration dates through September 2030. Approximately $3 million of net losses included in AOCI at September 30, 2022 are expected to be reclassified into earnings within the next 12 months as the principal and/or interest payments are made. Such amounts assume no change in scheduled principal payments.

Fair Value Measurements of Derivative Instruments – 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.

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.

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.

The tables below present NEE's and FPL's gross derivative positions at September 30, 2022 and December 31, 2021, as required by disclosure rules. However, the majority of the underlying contracts are subject to master netting agreements and generally would not be contractually settled on a gross basis. Therefore, the tables below also present the derivative positions on a net basis, which reflect the offsetting of positions of certain transactions within the portfolio, the contractual ability to settle contracts under master netting arrangements and the netting of margin cash collateral, as well as the location of the net derivative position on the condensed consolidated balance sheets.


	September 30, 2022
	Level 1		Level 2		Level 3		Netting(a)		Total
	(millions)
Assets:
NEE:
Commodity contracts	$	4,477	$	12,281	$	2,280	$	(15,990)	$	3,048
Interest rate contracts	$	—	$	533	$	—	$	(14)	519
Foreign currency contracts	$	—	$	—	$	—	$	(23)	(23)
Total derivative assets									$	3,544

FPL – commodity contracts	$	—	$	13	$	50	$	(9)	$	54

Liabilities:
NEE:
Commodity contracts	$	6,687	$	11,671	$	3,956	$	(16,463)	$	5,851
Interest rate contracts	$	—	$	33	$	—	$	(14)	19
Foreign currency contracts	$	—	$	189	$	—	$	(23)	166
Total derivative liabilities									$	6,036

FPL – commodity contracts	$	—	$	4	$	29	$	(9)	$	24

Net fair value by NEE balance sheet line item:
Current derivative assets(b)									$	1,431
Noncurrent derivative assets(c)									2,113
Total derivative assets									$	3,544
Current derivative liabilities(d)									$	2,969

Noncurrent derivative liabilities(e)									3,067
Total derivative liabilities									$	6,036

Net fair value by FPL balance sheet line item:
Current other assets									$	52
Noncurrent other assets									2
Total derivative assets									$	54
Current other liabilities									$	20
Noncurrent other liabilities									4
Total derivative liabilities									$	24

(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.


	December 31, 2021
	Level 1		Level 2		Level 3		Netting(a)		Total
	(millions)
Assets:
NEE:
Commodity contracts	$	1,896	$	5,082	$	1,401	$	(6,622)	$	1,757
Interest rate contracts	$	—	$	106	$	—	$	(30)	76
Foreign currency contracts	$	—	$	8	$	—	$	(17)	(9)
Total derivative assets									$	1,824

FPL – commodity contracts	$	—	$	3	$	13	$	(3)	$	13

Liabilities:
NEE:
Commodity contracts	$	2,571	$	4,990	$	1,231	$	(6,594)	$	2,198
Interest rate contracts	$	—	$	739	$	—	$	(30)	709
Foreign currency contracts	$	—	$	86	$	—	$	(17)	69
Total derivative liabilities									$	2,976

FPL – commodity contracts	$	—	$	8	$	5	$	(3)	$	10

Net fair value by NEE balance sheet line item:
Current derivative assets(b)									$	689
Noncurrent derivative assets(c)									1,135
Total derivative assets									$	1,824
Current derivative liabilities(d)									$	1,263

Noncurrent derivative liabilities(e)									1,713
Total derivative liabilities									$	2,976

Net fair value by FPL balance sheet line item:
Current other assets									$	13


Current other liabilities									$	9
Noncurrent other liabilities									1
Total derivative liabilities									$	10

At September 30, 2022 and December 31, 2021, NEE had approximately $50 million (none at FPL) and $56 million (none at FPL), respectively, in margin cash collateral received from counterparties that was not offset against derivative assets in the above presentation. These amounts are included in current other liabilities on NEE's condensed consolidated balance sheets. Additionally, at September 30, 2022 and December 31, 2021, NEE had approximately $424 million (none at FPL) and $673 million (none at FPL), respectively, in margin cash collateral paid to counterparties that was not offset against derivative assets or liabilities in the above presentation. These amounts are included in current other assets on NEE'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, block-to-hourly price shaping, customer migration rates from full


	Fair Value at				Valuation	Significant				Weighted-
Transaction Type	September 30, 2022				Technique(s)	Unobservable Inputs	Range			average(a)
	Assets		Liabilities
	(millions)
Forward contracts – power	$	178	$	619	Discounted cash flow	Forward price (per MWh)	$(7)	—	$461	$51
Forward contracts – gas	330		323		Discounted cash flow	Forward price (per MMBtu)	$3	—	$35	$5
Forward contracts – congestion	50		12		Discounted cash flow	Forward price (per MWh)	$(24)	—	$25	$1
Options – power	79		1		Option models	Implied correlations	42%	—	89%	56%
						Implied volatilities	20%	—	225%	57%
Options – primarily gas	1,368		1,271		Option models	Implied correlations	42%	—	89%	56%
						Implied volatilities	24%	—	192%	63%
Full requirements and unit contingent contracts	129		1,583		Discounted cash flow	Forward price (per MWh)	$12	—	$512	$99
						Customer migration rate(b)	—%	—	122%	6%
Forward contracts – other	146		147
Total	$	2,280	$	3,956


	Three Months Ended September 30,
	2022				2021
	NEE		FPL		NEE		FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at June 30	$	(1,594)	$	83	$	584	$	—
Realized and unrealized gains (losses):
Included in operating revenues	(695)		—		(1,138)		—

Included in regulatory assets and liabilities	92		92		1		1
Purchases	90		—		62		—
Settlements	482		(154)		80		(2)
Issuances	(57)		—		(52)		—


Transfers out(a)	6		—		15		—
Fair value of net derivatives based on significant unobservable inputs at September 30	$	(1,676)	$	21	$	(448)	$	(1)
Gains (losses) included in operating revenues attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date	$	(446)	$	—	$	(1,107)	$	—


	Nine Months Ended September 30,
	2022				2021
	NEE		FPL		NEE		FPL
	(millions)
Fair value of net derivatives based on significant unobservable inputs at December 31 of prior period	$	170	$	8	$	1,374	$	(1)
Realized and unrealized gains (losses):
Included in operating revenues	(3,215)		—		(1,795)		—

Included in regulatory assets and liabilities	161		161		2		2
Purchases	469		—		153		—

Settlements	1,043		(148)		(54)		(2)
Issuances	(289)		—		(116)		—

Transfers in(a)	—		—		1		—
Transfers out(a)	(15)		—		(13)		—
Fair value of net derivatives based on significant unobservable inputs at September 30	$	(1,676)	$	21	$	(448)	$	(1)
Gains (losses) included in operating revenues attributable to the change in unrealized gains (losses) relating to derivatives held at the reporting date	$	(2,081)	$	—	$	(1,581)	$	—


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
	(millions)

Commodity contracts(a) – operating revenues (including $10 unrealized losses, $1,236 unrealized losses, $2,942 unrealized losses and $2,563 unrealized losses, respectively)	$	(122)	$	(1,291)	$	(3,488)	$	(2,708)

Foreign currency contracts – interest expense (including $32 unrealized losses, $15 unrealized losses, $113 unrealized losses and $69 unrealized losses, respectively)	(36)		(13)		(121)		(69)

Interest rate contracts – interest expense (including $16 unrealized gains, $23 unrealized gains, $1,131 unrealized gains and $382 unrealized gains, respectively)	236		7		1,321		340
Losses reclassified from AOCI to interest expense:
Interest rate contracts	—		(1)		(5)		(4)
Foreign currency contracts	(1)		(1)		(2)		(2)
Total	$	77	$	(1,299)	$	(2,295)	$	(2,443)

(a)For the three and nine months ended September 30, 2022, FPL recorded gains of approximately $131 million and $110 million, respectively, related to commodity contracts as regulatory liabilities on its condensed consolidated balance sheets. For the three and nine months ended September 30, 2021, FPL recorded gains of approximately $9 million and $13 million, respectively, related to commodity contracts as regulatory liabilities on its condensed consolidated balance sheets.

Notional Volumes of Derivative Instruments – The following table represents net notional volumes associated with derivative instruments that are required to be reported at fair value in NEE's and FPL's condensed consolidated financial statements. The table includes significant volumes of transactions that have minimal exposure to commodity price changes because they are variably priced agreements. These volumes are only an indication of the commodity exposure that is managed through the use of derivatives. They do not represent net physical asset positions or non-derivative positions and the related hedges, nor do they represent NEE’s and FPL’s net economic exposure, but only the net notional derivative positions that fully or partially hedge the related asset positions. NEE and FPL had derivative commodity contracts for the following net notional volumes:

At September 30, 2022 and December 31, 2021, NEE had interest rate contracts with a notional amount of approximately $8.8 billion and $11.2 billion, respectively, and foreign currency contracts with a notional amount of approximately $1.0 billion and $1.0 billion, respectively. In October 2022, NEECH entered into a forward starting interest rate swap agreement with a notional amount of $10 billion to manage interest rate risk associated with forecasted debt issuances.

Credit-Risk-Related Contingent Features – Certain derivative instruments contain credit-risk-related contingent features including, among other things, the requirement to maintain an investment grade credit rating from specified credit rating agencies and certain financial ratios, as well as credit-related cross-default and material adverse change triggers. At September 30, 2022 and December 31, 2021, the aggregate fair value of NEE's derivative instruments with credit-risk-related contingent features that were in a liability position was approximately $9.0 billion ($21 million for FPL) and $4.1 billion ($12 million for FPL), respectively.

If the credit-risk-related contingent features underlying these derivative agreements were triggered, certain subsidiaries of NEE, including FPL, could be required to post collateral or settle contracts according to contractual terms which generally allow netting of contracts in offsetting positions. Certain derivative contracts contain multiple types of credit-related triggers. To the extent these contracts contain a credit ratings downgrade trigger, the maximum exposure is included in the following credit ratings collateral posting requirements. If FPL's and NEECH's credit ratings were downgraded to BBB/Baa2 (a three level downgrade for FPL and a one level downgrade for NEECH from the current lowest applicable rating), applicable NEE subsidiaries would be required to post collateral such that the total posted collateral would be approximately $2,250 million (none at FPL) at September 30, 2022 and $645 million (none at FPL) at December 31, 2021. If FPL's and NEECH's credit ratings were downgraded to below investment grade, applicable NEE subsidiaries would be required to post additional collateral such that the total posted collateral would be approximately $5.8 billion ($35 million at FPL) at September 30, 2022 and $2.7 billion ($35 million at FPL) at December 31, 2021. Some derivative contracts do not contain credit ratings downgrade triggers, but do contain provisions that require certain financial measures be maintained and/or have credit-related cross-default triggers. In the event

Collateral related to derivatives may be posted in the form of cash or credit support in the normal course of business. At September 30, 2022 and December 31, 2021, applicable NEE subsidiaries have posted approximately $8 million (none at FPL) and $84 million (none at FPL), respectively, in cash, and $1.9 billion (none at FPL) and $1.1 billion (none at FPL), respectively, in the form of letters of credit, each of which could be applied toward the collateral requirements described above. FPL and NEECH have capacity under their credit facilities generally in excess of the collateral requirements described above that would be available to support, among other things, derivative activities. Under the terms of the credit facilities, maintenance of a specific credit rating is not a condition to drawing on these credit facilities, although there are other conditions to drawing on these credit facilities.